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Expensive, distortionary and inequitable: time to sort out the way we tax business owners

Few elements of the tax system are so desperately in need of reform as this

By Kate Smith  

Photo: Kirsty O'Connor/PA Wire/PA Images

Small businesses are widely perceived to be the engines of growth and employment. That’s one reason why most self-employment income, dividends and capital gains are taxed at lower rates than wage income. The trouble is that most such businesses are no more and no less than the way in which people decide to earn their living and have little to do with entrepreneurship. Meanwhile, as new IFS research shows, the associated tax breaks can be expensive, distortionary and inequitable.

Among all the tax…

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