Small Businesses And Big Cuts: Why The Small Business Tax Should Be Abolished
By Roderyk Boykin
As Canada and the rest of the world economy sludge through a global pandemic, it’s time to take a look at a policy that should’ve been implemented a long time ago: the abolition of the small business tax at the federal level. This move would present the entire country with an increase in jobs and working conditions. We can see this through the fact that small business owners’ incomes are low enough to where they’ll reinvest the cuts back into the economy, a majority of the country’s people are employed by small businesses and those small business owners are already overtaxed.
Why It’ll Be Effective
One positive economic effect that we would see right off the bat is that because small business owners bring in a lot less money than you may believe, it means they’ll be more likely to reinvest it into the economy. The median small business owner makes $48k annually, which according to the MPC (marginal propensity to consume) means they’ll be more likely to use the additional income they receive from the cut. The MPC, shown generally as a graph, illustrates that with every additional dollar earned, consumers spend a lower and lower percentage of it. Due to small business owners being on the average to the lower end of the income scale, it means the money would likely go towards expanding their business and hiring more workers. This would be huge considering the number of small businesses in the country.
When factoring in the role of small businesses in Canada's economy, we can see the profound economic impact that the cuts would have. The number of people employed by small businesses in the country is huge: 69.7% of the total private workforce in 2017. By eliminating the tax you’ll allow these firms to reinvest in themselves and provide better jobs as well as working conditions for the millions of Canadians who are currently employed by them.
Another factor that’s often overlooked in this debate is that destroying the small business tax on the federal level does not mean they’d pay no taxes whatsoever. The situation is still quite the opposite of that. On top of the normal municipal taxes, federal, and provincial income taxes that small business owners pay, they also pay separate small business taxes. From that layer alone, these firms can end up paying an additional 14% of their income in taxes (depending on the province). Removing just one part of that federal layer would create tons of opportunities as well as reducing excessive taxation.
With our politicians looking for a way to reinvigorate job growth and the economy, the elimination of the small business tax at the federal level is the solution. Canadians should push for these policies to reduce excessive taxation and ensure that the recipients of these tax breaks are at optimal income levels. This will benefit Canada's economy since many Canadians are employed by small businesses. With many of these contexts holding across the globe, any country looking for a boost should explore this policy.
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