There are many, many factors that drive new company formation, and the expected future tax bite is only one them. This is why argument that “Hey, we had higher tax rates and lots of new companies under Clinton, so therefore tax rates don’t affect new company formation” is so empty.
Consider an analogous case where Andrew and I disagree about taxes.
Andrew has frequently argued that we should increase gas taxes in order to reduce climate change, dependence on unstable oil suppliers, and so on. He believes that higher gas taxes will, all else equal, discourage use. But the federal tax on a gallon of gas was stable at about 9 cents per gallon from 1983 to 1990. It was roughly doubled in steps from 1990 to 1997 to 18.4 cents per gallon. But, look, gasoline consumption in the U.S. kept rising steadily over this period. So can we conclude that proposed future increases in taxes on gas won’t lead to a reduction in use? Andrew doesn’t think so, and neither do I. The price of gasoline and its relative economic benefits are impacted by many other factors. The same is true for entrepreneurship.
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