Business formation remains at a standstill

Nation's Business, Nov, 1991 by Mary McElveen, Albert G. Holzinger

Despite some encouraging signs in the economy, business formations remain at a standstill, according to Lawrence Kudlow, chief economist for Bear, Stearns & Co., in New York.

In remarks to trade and professional association executives at the U.S. Chamber of Commerce, in Washington, Kudlow said: "We are seeing no recovery in the self-employed, nonfarm economy. Business formation is still dead in the water."

Kudlow's economic assessment is bad news for the unemployed because small businesses have made up the greatest source of job growth in recent years.

"In the last two to three years," he said, "public policy has taken a nasty turn against the entrepreneur and the self-employed." Kudlow noted the trend toward the re-regulation of business and tax increases as the principal culprits.

Kudlow said Congress could encourage business formation by approving measures to reduce taxes, such as the "Economic Growth and Jobs Creation Act of 1991," introduced by Sen. Malcolm Wallop, R-Wyo., and Rep. Tom DeLay, R-Texas.

The DeLay-Wallop measure would reduce the combined employer/employee Social Security tax rate from 12.4 percent to 10.6 percent; establish a new type of savings account called the IRA Plus, which would allow individuals to make deposits with after-tax funds and make withdrawals after age 59 1/2 without paying taxes on the interest earned; cut corporate and individual capital-gains tax rates to 15 percent; and establish a tax-code provision to protect depreciation write-offs against inflation.

Without strong pressure for such legislation, Kudlow said, "tax policy will continue to move in the wrong direction." Suggesting that a "local tax revolt is brewing," Kudlow said he thinks tax concerns at the grass roots will affect the 1992 elections and the makeup of Congress.