Small businesses are widely perceived to be the engines of growth and employment. That’s one reason why most self-employment income, dividends and capital gains are taxed at lower rates than wage income.
Our new research shows that company owner-managers respond to changes in income taxes by adjusting how and when they take money out of their company and not by changing the amount of income they create or how much investment they do.
Owner-managed businesses are a fast growing group; how they respond to tax is central to the challenge of how to tax labour relative to capital incomes.
