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July 19, 2012

Who Built That?: The Government or the Entrepreneur

We have recently heard from President Obama and others regarding the role government has in creating businesses. “If you’ve got a business, you didn’t build that. Somebody else made that happen.” The idea is that entrepreneurs cannot claim credit for their role because they did not do it alone. Let’s think about this a bit.

It is true that the environment in which entrepreneurs operate is partly associated with government actions. These actions include the work of the patent and trademark office as well as the protections of property rights in the judicial system. Let’s not forget that the Defense Department and police departments provide an umbrella of protection under which entrepreneurs obtain some level of confidence. Also included are the many features of our infrastructure such as roads, bridges, water and sewer systems, and communication systems, some of which are produced by the government. But taxes and regulations are also part of the business environment in which entrepreneurs operate.

Entrepreneurs, before they become entrepreneurs, support all these government functions through their taxes. You could think of their taxes as being user fees in some sense although there is not a one to one correspondence between taxes and the specific features of the business environment utilized by entrepreneurs. Nevertheless, it is likely that entrepreneurs paid their fair share for the aspects of the business environment that government produces. Do they need to pay again?

Entrepreneurs can choose to exercise their ideas and effort as well as put their personal wealth at risk. In so doing, they should not be taxed at rates higher than they would have if they had chosen to not be entrepreneurs.

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