The Great Recession ended almost four years ago, in June 2009, and growth in the US economy has been an anemic 2% annually since then. The unemployment rate, now 7.8% is dropping only very slowly and millions of workers are still unemployed or underemployed. If this isn’t bad enough already, knowledgeable experts are now predicting (see the Friday January 25 Omaha World Herald) that many mid-skill, mid-pay jobs will never return largely because of the rapidly accelerating use of technology in all aspects of our lives.
Faster economic growth would not only provide more jobs but would also increase tax revenue and therefore shrink the deficit. If such traditional measures as lower tax rates, deregulation and aggressively promoting foreign trade won’t fly politically which, of course, is very disappointing, then we need to consider other measures which could gain political support. A good place to start is to enact The Startup Act of 2011 proposed by the Kauffman Foundation.
The Startup Act proposes: 1) more visas for entrepreneurs and Green cards given out with STEM degrees, 2) tax incentives for startup investments, 3) speeding up the patent process for entrepreneurs and 4) relaxing the regulatory burden on startup businesses. Such measures as these need not be expensive to undertake and could give our economy a big boost.
Our leadership role in world affairs depends on our economic, military and cultural dominance. First and foremost is our economic strength. It is vital to speed up the growth of our economy. Any and all means to accomplish this should be considered. The status quo is not acceptable!
Several of the suggestions from the Kauffman Foundations are good ideas, but how do you square giving tax incentives for startup investments with your call to close loopholes?
You are quite right that I support closing tax deductions and loopholes as a trade off for lowering tax rates in order to boost the economy. The Kauffman Foundation suggests giving special tax breaks to startup businesses for a relatively short time period of five years or so. We’ll never be able to eliminate all deductions and loopholes through the political process so if we can simply move things in the direction of fewer and more sharply targeted deductions, then we will have made progress. The important thing is to get the economy growing at a faster rate as quickly as possible and to make whatever compromises are necessary to get this done.
In principle you’re right, but the way these things usually go in reality is that you set up a tax expenditure for entrepreneurial small business, then suddenly half the country claims they’ve started a small business in order to avoid taxes.
Then the government tries to create all kinds of rules in order for the expenditure to only go to legitimate entrepreneurs. All the tax scammers find their way around those rules, so more rules are created. It turns into a bureaucratic nightmare that ends up far too complicated for any small business person to deal with, so it helps no one.
Eventually, Republicans running for office will hold it up for ridicule as a typical government boondoggle that helps no small business but allow thousands to avoid taxes. Those politicians then call for lowering rates, closing loopholes, and getting rid of onerous regulation, even though they were the ones that created the problem in the first place.
Bottom line– I think you’re on dangerous ground supporting this when it goes against one of your core principles. Probably best to maintain consistency on this one.
It is so critical to increase economic growth above the current 2% rate that we really need to take some chances to try to achieve this. I don’t know how to design tax exemptions for startup companies which could not be abused and maybe this isn’t even possible. But we should try it anyway.
One thing we can do to limit abuses is to sunset all new tax exemption rules after say, either five or seven years. Then such rules would have to have a positive vote for continuation and would die if they had built up a bad reputaion in the meantime.
Over time all tax loopholes and exemptions would become subject to the sunset provision which would make government more efficient as well a s raising more tax revenue.