Some time ago I published a page on what I called sustainable taxation. I want to draw attention to a key idea in this post.

TL;DR: don’t tax businesses that are barely bringing in any money.

The Problems with Taxing Very Low-Revenue Businesses:

If the government taxes in such a way that hinders the early stages of business (for example, putting heavy taxes that affect start-up businesses or struggling businesses) it can be the final straw that makes a lot of businesses go under, or it can create a barrier to people starting successful businesses.

An example of taxes that have this effect would be the payroll tax, which impacts ALL employees and contractors, harming both business and employees, and has no deductions or exemptions. This means, if you’re making no income and you start a business on the side and it nets $2000 revenue in the first year, you’re paying that 12-15% payroll tax (counting employer’s + employee’s share) in full…no matter how low-income you are.

Another example of taxes like this would be flat-rate licenses and fees. Most states have flat-rate LLC filing fees. A fee of $200 is a drop in the bucket if you’re making a million in revenue, but if you’re that startup netting $2000, it’s enough to put you out of business or make it not worthwhile to incorporate. Many cities and states also have various licensing fees slapped on various types of businesses.

My Model

I believe in not taxing businesses at all until they have enough revenue for the tax to only be a small portion of their total expenditures. This will help more businesses get off the ground and get financially stable…and then when they’re thriving they can give back lots to society by paying a slightly higher tax rate, but one that would be a much smaller total portion of expenditures. Would it matter if that LLC fee were doubled for the high-income businesses, if it helped all those other startups get off the ground? This might create an environment where more businesses broke into the high-earning zone, and the total tax revenue increased!

This is what I call sustainable taxation. Don’t tax businesses and individuals who are barely making any money–and don’t tax anyone enough to put them out of business. Tax moderately and tax only the businesses that can afford to pay.