A Tax Proposal to Smooth Business Cycles, Encourage Investment and Remove Biases Against Small Firms

Proposal: Treat profits and losses symmetrically so that the taxing authority shares in losses in the same proportion as it shares in profits. Just as companies making profits pay a share of those profits in taxes, companies make losses would receive a subsidy or negative tax from the government that would be a similar share of the losses. This proposal will reduce the volatility of the business cycle, eliminate the tax biases against small firms and new ventures, reduce distortions caused by capital market imperfections, and encourage risk taking.