Unequal Tax Burden: Impacts on Entrepreneurship, Jobs, and Mobility

A Skewed Playing Field-

Tax policy is more than a revenue tool—it is one of the most powerful mechanisms shaping incentives, competition, and opportunity. In the U.S., decades of lobbying by large corporations and wealthy interests have produced a tax system where the richest households and multinational firms often pay lower effective rates than small businesses and middle-class workers.

This imbalance not only fuels wealth inequality but also has ripple effects on entrepreneurship, job creation, and economic mobility, tilting the economy toward entrenched players and away from new, dynamic businesses.

1. Entrepreneurship: The Weight of Unequal Burdens

Higher Effective Rates for Small Businesses

Unlike large multinationals, small and medium-sized businesses (SMBs) cannot shift profits overseas, exploit complex tax shelters, or lobby for industry-specific carveouts. As a result, many pay higher effective rates. For example, the Government Accountability Office has found that many large corporations pay effective federal tax rates in the single digits, while SMBs often pay 20–30%.

This gap reduces the cash flow available for entrepreneurs to reinvest in growth, hire new staff, or withstand downturns. In practice, it creates a barrier to entry for startups, making it harder to scale innovative businesses.

Risk and Reward Imbalance

Entrepreneurship inherently involves risk—most small businesses operate on thin margins in their early years. When the tax code favors passive investment income (through lower capital gains rates) over active business income, it incentivizes wealthy individuals to invest in financial assets rather than building new enterprises. This starves entrepreneurship of both capital and talent.

2. Job Creation: Who Really Drives It?

SMBs as Engines of Employment

According to the U.S. Small Business Administration, small businesses create about two-thirds of net new jobs. However, unequal tax treatment puts them at a disadvantage compared to large corporations that can secure subsidies, credits, and loopholes.

The Corporate Buyback Problem

Large corporations that benefit from tax cuts often funnel savings into stock buybacks and dividends rather than job creation. After the 2017 Tax Cuts and Jobs Act, for instance, S&P 500 companies spent over $800 billion on buybacks in 2018, while average wage growth remained stagnant. Meanwhile, SMBs—without the luxury of Wall Street shareholder pressures—typically reinvest earnings directly into operations and employees.

If smaller firms had comparable tax relief, the resulting reinvestment could generate more sustainable employment than corporate financial engineering.

3. Economic Mobility: The Ladder Pulled Up

Wealth Concentration and Intergenerational Barriers

Preferential tax treatment for capital gains, estate transfers, and corporate loopholes allows the wealthy to preserve and grow their fortunes across generations. At the same time, higher relative burdens on wages and small businesses limit upward mobility for ordinary Americans.

This creates a two-tier economy:

• Entrenched wealth that compounds over time.

• Limited mobility for workers and entrepreneurs without access to capital or tax-advantaged wealth strategies.

Reduced Public Investment

When corporations and billionaires avoid taxes, the government loses revenue for infrastructure, education, and healthcare—services that disproportionately benefit lower- and middle-income families. Underfunded public systems make it harder for aspiring entrepreneurs to access affordable education, skilled labor, or reliable infrastructure, thereby entrenching inequality.

4. The Competitive Landscape: Unequal Incentives

Market Consolidation

Tax advantages for large corporations amplify market concentration. With extra resources saved from tax breaks, giants can acquire competitors, lobby for regulations that favor scale, and undercut smaller rivals on pricing.

This reduces opportunities for entrepreneurship by creating markets dominated by a few entrenched players. For example:

• Amazon’s tax strategies and scale allow it to price aggressively, often squeezing small retailers.

• Pharmaceutical giants use tax advantages to fund lobbying that extends patent protections, limiting entry for smaller biotech firms.

Stifled Innovation

Startups are traditionally drivers of innovation, but when unequal tax burdens raise their costs while shielding incumbents, the ecosystem skews toward incremental improvements by large firms instead of disruptive innovation from newcomers.

5. Regional and Community Impacts

Local Economies Bear the Weight

Small businesses are embedded in local communities—they hire locally, spend locally, and keep profits in the region. When they face disproportionate tax burdens, local economies lose vitality. By contrast, multinational corporations often extract profits from local markets while minimizing tax contributions, leading to wealth outflow from communities.

Entrepreneurship Gaps

Research shows that wealth inequality exacerbates disparities in who becomes an entrepreneur. When tax policy amplifies inequality, access to startup capital becomes limited to those already wealthy, reducing diversity in business ownership and further entrenching privilege.

6. Long-Term Implications for Mobility and Growth

Entrepreneurship as a Mobility Engine

Historically, entrepreneurship has been a pathway for immigrants, minorities, and working-class individuals to achieve upward mobility. But unequal tax burdens make it harder for these groups to start and sustain businesses.

Innovation and Global Competitiveness

Countries with fairer tax regimes for small businesses—such as Canada or parts of the EU—foster more balanced ecosystems where entrepreneurship thrives. If the U.S. continues to tilt its tax code toward large corporations and wealthy individuals, it risks undermining its traditional strength as a hub of innovation and opportunity.

7. What Would a Fairer Tax System Look Like?

To reduce distortions and foster entrepreneurship and mobility, reforms could include:

• Closing loopholes that allow corporations to shift profits offshore.

• Equalizing tax treatment of labor and capital income.

• Making corporate tax cuts contingent on demonstrated job creation and wage growth.

• Enhancing small business credits to ensure equitable access to tax relief.

• Investing tax revenues into education, infrastructure, and entrepreneurship programs that directly support mobility.

Conclusion: The Hidden Cost of Unequal Burdens

The unequal tax burden in America does not just tilt spreadsheets—it tilts the entire economy. By forcing small businesses and workers to shoulder higher effective rates, while allowing corporations and wealthy individuals to minimize theirs, the U.S. weakens entrepreneurship, suppresses job creation, and narrows pathways to upward mobility.

Entrepreneurship thrives when risk is rewarded fairly, when communities have access to resources, and when the playing field is level. Today’s tax code, shaped by lobbying and inequality, undermines those conditions. Reforming it is not only a matter of fairness but also of unlocking America’s entrepreneurial spirit and restoring the promise of economic mobility for future generations.