October 26, 2005

IS SMALL THE NEW BIG? That's a theme I've written about before (and it's even a chapter in the book), but here's more evidence for the proposition that small businesses are of growing importance in generating wealth:

When we look carefully at the distribution of these tax returns a clear picture emerges: an extraordinarily high proportion of high-income taxpayers have some form of business income (schedule C, E, or F) and that as their incomes rise, so too does the likelihood that they have business activity. As shown in Figure 2, overall 43% of taxpayers in the top 20% have business income, twice the percentage of those in the middle income group. Of those taxpayers in the top 1%—those earning more than $300,000 and subject to the highest marginal tax rates—nearly three quarters have business income. And for taxpayers with incomes above $1 million per year, nearly 83% have business income.

People often argue that self-employment or small business formation is up because people can't get other jobs -- it's just a step above welfare, in other words. This would seem to suggest otherwise.