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WASHINGTON – Reducing marginal income tax rates on entrepreneurs increases entrepreneurial entry, decreases exit from entrepreneurship, and lengthens the duration of entrepreneurial ventures, according to a recent study released from the SBA’s Office of Advocacy . The study, Taxes and Entrepreneurial Activity: An Empirical Investigation Using Longitudinal Tax Return Data written by Donald Bruce and Tami Gurley with funding from the Office of Advocacy, offers several specific findings including a “marginal” tax rate reduction of 1% on entrepreneurial income increases the probability of entrepreneurial entry by 1.42% for single filers and 2.0% for married filers. Likewise, a marginal tax rate reduction of 1% on entrepreneurial income decreased the probability of exiting entrepreneurial activity by 17.32% for single filers and by 7.81% for married filers. The study also showed higher marginal tax rates on wage-and-salary income also increases entrepreneurial activity as they provide incentives for workers to start their own businesses. The study was released at a panel discussion entitled “Tax Policy and the Entrepreneurial Sector,” sponsored by the Small Business & Entrepreneurship Council. It analyzes tax return data from 1979-1990. This period encompasses the tax policy changes of the 1980s, which allowed the authors to closely examine the effects of tax rate changes on entrepreneurship.

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