Capital Gains Tax Breaks and The Coming Small Business Investment Boom
Written by Jay Turo on Monday, December 14, 2009
Showing once again where our modern media priorities are, shoved off the front page last week by more lurid Tiger Woods talk, was the very under-reported but potentially game-changing proposal that President Obama made last week regarding eliminating all capital gains taxes on startup and small business investments.
There are so my ways that this is good for small business, for America, and for private company investing. Let me note three:
1. Simple Fairness. It has been a very tough couple of years for startups and small businesses. Unlike automakers and big banks, the nation's entrepreneurs were left to completely fend for themselves through the recent economic tsunami.
And, as befits a class of people that can only be described as modern-day action heroes, given their massive and unsung contributions to the American way of life, the entrepreneurs among us have handled their adversities as they always do - with stoicism, with grace, and with the simple coda that nothing is immutable to hard work.
But it is beyond time that someone lend them a hand. If, miracle of miracle, Congress follows the President's lead and makes this proposal law (and given how lower capital gains has been a Republican mantra since I was in high school, the probability is high that it will), it will unleash a huge investment bull market across the entrepreneurial landscape.
And let's not forget how overdue this is - for the 1st time in history this last decade will go down as the only one where more money was invested INTO venture capital than was earned out. While early-stage private equity investing did much better in the decade than VC's, it has still been a very rough go of it.
The hope here is that this tax break will be a catalyst for capital move from do-nothing and know-nothing investments like gold and into productive ones like technology startups and small businesses.
2. Startup and Small Business Tax Breaks Spur Innovation. The proposed capital gains tax break, when coupled with the proposed tax credits for small business hiring and investment, will provide a much-needed boost to entrepreneurial risk-taking and innovation.
Remember, this information age of ours is a story of "guys in garages." Gates and Allen, Jobs and Wozniak, Page and Brin.
Similarly, the big ideas of the coming "Energy Age" - in battery technology, in cold fusion, in greenhouse gas reversal, will NOT come from the federal government or big business.
Why? Because very simply the most creative people do NOT want to work within any kind of bureaucracy. Rather, they will come from the yet to-be-founded startup, that fluid and flexible small business about to break-out.
Anything that makes it easier for these innovators to have cheaper access to capital - which a waiver of the tax on capital gains effects - is a HUGE positive.
3. Let's Get the Best and Brightest to be More Entrepreneurial. Finally and tied to this point, the central economic and investment issue of our age is not inflation, it is not big bank bailouts, it is not health care reform, it is not Democrat versus Republican and it is not liberal versus conservative.
No, it is what can and needs to be done to spur the "best and brightest" among us to be more entrepreneurial and more successful when they are.
Why? Because entrepreneurs create the innovations that create the jobs that create the wealth that create our whole, cherished American way of life.
So we need everyone in positions of influence in our society - government, media, education, entertainment - to stand-up for the entrepreneurs.
The proposed capital gains tax break in this context is as important in what it signals as its direct stimulus effect.
And for you investors out there, the best thing is that if YOU do the best thing for the economy and the country and invest in entrepreneurs, well guess what?
If you do it right, you will make far more on your money that you could ever imagine.
This is called doing well while doing good. And it is highly recommended.
I look forward to your attendance and feedback.
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