Headlines 2014

Taxes stop many from becoming entrepreneurs

2014-05-26


"Tax cuts affecting entrepreneurs have partially been aimed in the wrong direction," said Tino Sanandaji , IFN , when he and Magnus Henrekson, IFN, unveiled an ESO study – Entrepreneurship conditions - a new report on the Swedish equity taxation (ESO, the Expert Group for Public Economics). "With high taxes and a heavy regulatory burden more livelihood enterprises have been created [but less entrepreneurial firms with growth potential]" explained Magnus Henrekson during the debate that followed the presentation. In the report, the authors suggest, among other things, that stock option programs should be introduced allowing entrepreneurs and key employees to be rewarded for their risk taking.

In the picture from left : Douglas Roos, entrepreneur, Henrik von Sydow, chairman of the Parliamentary Committee on Taxation (M), Gustav Martinsson, SIFR and SHoF, Hakan Ekengren, State Secretary, Tino Sanandaji, IFN, and Magnus Henrekson, IFN .

 

Further proposals presented in the ESO study are:

  • Compemsate for differences in taxes-on-investment for active and passive owners. Today, the tax on passive owners is lower, making the money stay in capital funds and mature listed firms instead of being put to work in new and growing businesses.
  • Closing the gap in financing between equity and borrowed capital, to avoid putting equity financing at a disadvantage.

 

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Magnus Henrekson (right) and Tino Sanandaji when their new study was presented at a seminar in Rosenbad.

 

In the ESO study Magnus Henrekson and Tino Sanandaji beat the drum for that the research theory underlying the Swedish taxation needs to change. "According to the theories that justify the current Swedish tax system entrepreneurship and active ownership is not affected of ownership taxes" they explained in an article in the Swedish newspaper Svenska Dagbladet. In the report it is stated that previous economic models only counted labor and capital as factors of production. But recent research shows that entrepreneurship should be included as a separate, third factor of production.

Ownership taxes affect the business and investment climate more negatively than was previously assumed, said Henrekson and Sanandaji . Higher capital gains taxes reduce entrepreneurship and investment. High dividend taxes locks up capital in older firms rather than being seized in new and growing businesses with higher expected returns.

Read the report

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