TAXING INCOME OF ENTREPRENEURS January 13, 2017 Eric Toder, Urban - PowerPoint PPT Presentation

TAXING INCOME OF ENTREPRENEURS January 13, 2017 Eric Toder, Urban Institute and Tax Policy Center Conference: Are Entrepreneurs Over-taxed?

Taxation of Wealth Accrual of New Firms Development Comprehensive Cash Flow Current Law Stage Income Tax Tax Entrepreneur Taxable at Tax deferred Tax deferred labor ordinary income contribution rates Build-up of Taxable annually Tax deferred Tax deferred Wealth at ordinary income rates Sale of Not taxable Taxable at Taxable at Company ordinary capital gains income rates rates www.taxpolicycenter.org 1

Determinants of Total Tax Burden Taxation of Wealth Taxation of Value of Build-up Ongoing Firm Tax rate rises • Capital gains rate • Effective tax rate on with: of owner corporate income • Share of equity held by taxable investors • Tax rate on gains and dividends Equity premium • Tax rate falls • Years to maturity • Marginal tax rate on with: • Discount rate interest income Corporate bond rate • www.taxpolicycenter.org 2

THANK YOU For more information please contact: Eric Toder etoder@urban.org View many studies on tax policy issues at www.taxpolicycenter.org

Are Entrepreneurs Thinking about Tax? Susan C. Morse Professor of Law, University of Texas School of Law Prepared for Tax Policy Center Panel “Are Entrepreneurs Overtaxed?” January 13, 2017

Startups are thinking about survival. (Not about tax.) 20.0% Startups that do not. 18.0% (And note ver`cal scale only goes up to 20%. ) 16.0% 14.0% 12.0% Tax planning doesn’t help startups survive. Chance of Receiving 10.0% So startups don’t spend much on tax planning. Outside Financing 8.0% 6.0% 4.0% Startups that receive 2.0% outside funding. 0.0% 1 7 13 19 25 31 37 43 49 55 61 67 73 79 85 91 97 103 109 115 121 127 133 139 145 151 157 163 169 175 181 187 193 199 205 211 217 223 229 235 Startup Life in Months Sources: Time trend: SDC VentureXpert data on 21,843 firms that received venture financing 1990-2015. Overall chance of funding: Kauffman Founda`on Survey (May 2010) (certain high-technology SIC codes). See Susan C. Morse & Eric J. Allen, Innova`on and Taxa`on at Start-up Firms, 69 Tax L. Rev. 357 (2016).