Todays topic in profit-accretive studies concerns the regulatory relationship that nations often establish which set the terms badly for the promotion of new businesses. In many ways, new business is the lifeblood of future economic development. This means that nations should make sure to incentivize the rise and thriving of new business as much as is possible. Consider the older statistical point that most new businesses that do fail do so within the “3 to 5” year death zone. Forbes now has it that “According to Bloomberg, 8 out of 10 entrepreneurs who start businesses fail within the first 18 months.” http://www.forbes.com/sites/ericwagner/2013/09/12/five-reasons-8-out-of-10-businesses-fail/
And this accounts for very many new businesses, which I wish here to argue are unnecessarily thrown upon the trash heap, when, with a little altering of the way we manage them, they could thrive to become powerhouse economic engines in the national and international economy.
First, I shall propose a straightforward statement of the problem: government tax-greed, or inappropriate taxation that is deadly to new arrivals. What I mean to suggest is this: by taxing a small business from its first year — governments should instead defer their desire to collect tax from new businesses 10 to 20 years — the powers that be do the following:
1. Impose a huge burden on a business when it can least afford it. It can least afford early taxation because it is still learning everything about its business environment and how things actually operate and interact in the real world (the learning curve factor), and because it needs the money taken away from it as tax, which would otherwise be used for re-investment — a very important element of success in business — when the business MOST needs this money.
2. the combined effect of these two handicaps added to toddler businesses causes the risk factor for opening a new business to soar, resulting in far fewer start-ups, since without this capital early on, businesses are far more likely to fail.
3. What is the potential cost of tax-deferment to hungry governments? The surprising answer is “zero.” In fact, it actually pays huge (later) dividends to the governments wise enough to realize that without tax deferment, there is not going to be much new business to tax at all. This has a long-term deleterious effect on taxable income revenues for the government, just the opposite of what it wants.
The solution? Wait 20 years before imposing any tax whatever on a new business, while denying the ability of any other business to “grandfather in.” This is precisely the way we treat our children. We do not demand at age 10 that they “get out there in the marketplace and make it happen, sink or swim.” We protect them and grow their understanding (learning curve) and pay for their expenses (no taxation without preparation) until we feel they are fully capable to enter the market and succeed. We should do precisely the same for nascent and adolescent businesses.
This would cause the following:
A sharp upsurge in new businesses, and a much longer learning curve allowed (reducing the stress load on new managers and owners). It would weigh in heavily against the 3-5 year death zone stats, causing far more businesses to succeed and then grow sizable. This means that when they do in fact begin paying taxes, they power up and increase significantly the tax pool, reducing the burdens of the middle class and other businesses (Potentially lowering taxes for all, but again, only if we do it right). The bottom line IS the bottom line, and nothing succeeds like success. Re-investment is a highly successful business strategy, and this means that this approach causes much more success all around — from business startup and survival rates, to the total tax collected by Uncle Sam, and a lower tax rate (potentially) in the long of it, while easing the general tax burden. I always loved the Spring motto: “Power Up.”
Here this meaneth brethren: Tax less. Earn more.
What can corporations and larger businesses do to help?
They could create a general fund (invested in the markets to produce award money for small business that could and should be saved from the failure heap. These business are chosen by the fund managers’ best assessment, according to an Alan Greenspan-like objective criteriometry, one designed to eliminate irrational exuberance in an age of turbulence), and appoint a committee to manage its disbursement. Small businesses that struggle with great potential could apply for these funds. Then, the SBA should give the money back to the taxpayers. We do not need people in the government trying to do FREE market capitalism with compulsory, socialist money. We need voluntary support from corporate world. What’s in it for them? Think M and A brethren. To prevent conflicts of interest, they could simply pass a rule that says once a decision is made to support some company A by the general fund, no investment by any body contributing to the fund can be made for, say, six months or so thereafter. This would also prevent start-up flipping, which causes volatility rather than the more desirable predictability and stability in the economic environment upon which business thrives.
“I have found no greater satisfaction than achieving success though honest dealing, and strict adherence to the view that, for you to gain, those who deal with you should gain as well” — Alan Greenspan