Small Business Preferences as a Barrier to Growth: Not So Tall after All

Abstract

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Modernizing Business Taxation

“…By limiting SBD eligibility (and access to SRED tax credits) on the basis of taxable income and asset size, small firms could be discouraged from growing (Chen and Mintz 2011). However, using micro tax data, Dachis and Lester (2015) argue that this is not quantitatively important. The SBD rate might also encourage high-income professionals to incorporate so that their business income is not taxed at personal rates until it is withdrawn from the corporation (Wolfson, Veall and Brooks 2016).…”

“…A high tax rate would discriminate against small businesses and discourage the entry of new firms. Meanwhile, Chen and Mintz (2011) argue that the SBD discourages growth of small firms since it disappears once firm profits or assets reach a threshold amount, although Dachis and Lester (2015) maintain this disincentive effect is not quantitatively large. However, this threshold effect could be mitigated and the SBD restricted to new firms if the threshold were defined by cumulative, rather than annual, income.…”

R&D Tax Incentives: Evidence on design, incidence and impacts

“…Regarding the potential concern about targeting measuring encouraging firms to stay or appear to be small, the limited evidence available suggests that such effects can be present but small compared to other fiscal thresholds. Dachis and Lester (2015) explore the impact of the federal R&D tax credit regime in Canada, where small businesses (Canadian Controlled Private Companies -CCPCs) are entitled to an enhanced and fully refundable SR&ED tax credit up to an expenditure limit of CAD 3 million. This OECD SCIENCE, TECHNOLOGY AND INDUSTRY POLICY PAPERS expenditure limit is gradually reduced to zero as prior-year taxable income rises from CAD 500 000 to CAD 800 000 or as business assets rise from CAD 10 to CAD 50 million.…”

Where the Bucks Stop: A Shadow Federal Budget for 2016

“…It may also encourage self-employed individuals to incorporate to gain access to the lower tax rate. Dachis and Lester (2015) point out that a lower tax rate for small businesses has a social cost since the government must compensate with lower spending or higher taxes elsewhere. If the tax burden on large firms is higher as a result, the Small Business Deduction expands the small-business sector at the expense of large businesses.…”