Can we please stop calling small business a good way to create jobs?

bakery.jpgNo offense, but it's really not. Nor is there any basis for the argument that raising taxes on upper-income individuals would somehow damage small business owners. These notions have been bandied about a lot during the campaign (the tax-raising part being a particular favorite of Mitt Romney). And rooting for the little guy is totally understandable. But as Romney mentioned in last week's debate, saying it again and again doesn't make it so. From a Bloomberg editorial:

First, small businesses destroy almost as many jobs as they create. Second, only about 3 percent of small-business owners fall into the upper-income tax brackets that would increase if, as Obama has proposed, the Bush tax cuts are allowed to expire. And third, many businesses counted as small aren't engaged in traditional small-business activity. Instead, they are partners in hedge funds, law firms and private-equity shops, or they are highly paid actors, athletes, speakers and authors.


It isn't at all clear that raising taxes on the high- income group would depress hiring and investment. For one thing, small businesses enjoy a host of tax breaks, including the ability to immediately deduct many costs as a business expense. More important, recent economic research shows that small companies play no greater role in job creation than large ones do. What matters more is age: New businesses account for the biggest share of job gains. Those companies tend to be small yet unprofitable. They would be largely unaffected by an upper- income tax increase. And once most startups pass the five-year mark, they destroy more jobs than they create.

Looking at the issue somewhat differently, New Yorker writer James Surowiecki came to the same conclusion about a year ago:

The developed countries with the highest percentage of workers employed by small businesses include Greece, Portugal, Spain, and Italy--that is, the four countries whose economic woes are wreaking such havoc on financial markets. Meanwhile, the countries with the lowest percentage of workers employed by small businesses are Germany, Sweden, Denmark, and the U.S.--some of the strongest economies in the world. This correlation is not a coincidence. It reflects a simple reality: small businesses are, on the whole, less productive than big businesses, and though they do create most jobs, they also destroy most jobs, since, while starting a business is easy, keeping it going is hard.

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
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