Growthink Blog

Capital Gains Tax Breaks and The Coming Small Business Investment Boom


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.

Jay Turo
Growthink, Inc.

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Saini Arawyia says

This is a moronic article. First, Obama is doing far more harm than good with his deficit spending and his favored industries. Second, "FAIRNESS" is a word used by looters and thieves. The only fair thing the government can do is remove themselves from the economy and let the best companies survive, whether they are start ups or corporations. Third, tax breaks do not spur innovation, taxes destroy innovation. What the government should do is slash taxes across the board, no favoritism for any person or company or industry. Finally, entrepreneurs should be entrepreneurs. The best and brightest don't need government policy.
Posted at 9:44 am
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Posted at 9:06 am
rick says

i'm not sure i agree with either of the 2 folks above. eliminating the cqpital gains taxes helps businesses across the board, not just certain industries. also giving sba loans to just start up businesses does nothing for those businesses that are already started and unable to expand because of lack of capital. make it easier for investors to invest in business period.
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Are capital gains the only policy issue impacting investment, entrepreneurship, and the economy? No, but they do matter a great deal. When the Tax Reform Act of 1986 increased capital gains taxes from 20 percent to 28 percent, venture capital investment stagnated until the taxes were reduced in 1997. Over the years, capital gains realizations and the taxes paid on those gains have tended to increase following a cut in the capital gains tax rate. how to make a tutu
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I work full time, but I am thinking about beginning to sell some items on the side (mainly through ebay or a small website) as a hobby along with some additional income. My total income from my full time job is around ?40k, so I presume that any additional income would be taxed at 40% now I have breached the top end threshold. Would it therefore be better to start a small business, or just detail my earnings in a standard personal tax return? What are the benifits or registering as small business as opposed to any other options? Thanks P.s Income and expenditure is most likely to be around ?5k for each. Its unlikley I'll make a profit but I know there will be tax liabilities as most of my expenditure will be tied up in unsold stock at the end of the year. apparel exporters --
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