Boston Globe columnist Derrick Jackson writes,
[T]here is little conclusive data on the direct relationship between taxation and entrepreneurship, and plenty of examples where nations with high taxes have robust small businesses. Last month, Inc. magazine detailed how Norwegians pay nearly half their income to the government, yet measures of entrepreneurial activity are about the same or even a bit better than the United States.
Jackson motivates his discussion by talking about increasing rhetoric from Republicans on how the health care bill is supposedly crushing innovation by levying new taxes on small businesses.
So there are two causal claims here. First is the relationship between taxes and entrepreneurship in general. The second, which Jackson doesn’t seem to dispute, is that the new health care law is raising taxes on small businesses.
I can’t really comment on the second claim, but it seems simple to verify whether it is true or not. As for the first, one thing we have to worry about is trying to say something general by comparing the United States to a group of Scandinavian countries. We want to know the effect of taxation on entrepreneurship, but any relationship we see could just be due to some other difference, of which there are many, between the US and this group of countries.
The one that jumps out right away is the ethnic homogeneity in Scandinavia. I actually heard an interview with the author of the magazine article where Jackson is getting most of his data, and the interviewer raised this point. The author replied by throwing out the example of Israel, an ethnically diverse country with lots of innovation. I think there are problems with using Israel as a counter-example, but the bigger problem is that the writer seems to think that finding a single counter-example is sufficient to counter the ethnicity story. It isn’t. The way to test for the relationship of interest here involves gathering more data.