It has become nothing short of a maxim that when given a choice between higher and lower taxes, people will undoubtedly choose lower taxes, and that lower taxes foster greater investment. After all, most of us purport to be rational thinkers who seek to maximize our own personal wealth! Yet I\u2019m quite sure that virtually anyone who has paid taxes can resonate with the notion that there are many follies within the current tax code, even if they are not formally trained a tax accountant. \u201cWhat were they thinking?” . . . many of us ask as we seek to finish up those forms at an otherwise beautiful time of year!<\/p>\n
It has become nothing short of a maxim that when given a choice between higher and lower taxes, people will undoubtedly choose lower taxes, and that lower taxes foster greater investment. After all, most of us purport to be rational … Continue reading
\nDr. Cornwall notes in his recent post entitled \u201cBad Policy for an Entrepreneurial Economy,\u201d there is increasing empirical evidence that low taxes, simply administered, and clear property rights are a \u201cgood\u201d thing where stimulating entrepreneurial activity is concerned. So what are the best and brightest politicians to do with such information? Here\u2019s an idea . . . rather than try to foster entrepreneurism broadly across the country and economy, let\u2019s try to leverage the effects of \u201ctax incentives\u201d in a way that only applies to select groups, overcomplicates an otherwise simple and clearly useful mechanism (i.e., general tax cuts), and even better, roll it into an already overcomplicated tax code. Sounds good, right?
\nIf you haven\u2019t already heard of the \u201cFat Cat Tax Break\u201d loophole, I\u2019d encourage you to visit the following Library of Congress url: http:\/\/thomas.loc.gov\/cgi-bin\/query\/z?c110:H.R.2834:<\/a> where a new bill was recently introduced and is generating some interesting debate. In short, the debate revolves around a loophole in the current tax code whereby some individuals (e.g., private fund managers) receive compensation for their services, yet under the existing tax code this income is labeled carried interest, as opposed to compensation, and only taxed at a capital gain rate (i.e., 15%) as a result. While I\u2019m sure many fund managers create value in their portfolios, I\u2019m also sure that many entrepreneurs do so as well in their new venture creation efforts.
\nLet me be clear, I am not advocating that politicians seek ways to increase taxes, whether through the creation of new tax code or the revision of old code. I\u2019m just suggesting that the use of a simple tax that encourages all those who are inclined to pursue the creation economic value equally<\/em> is likely to generate more overall value at the end of the day. Here\u2019s a thought following this logic for all those politicians who are afraid of upsetting today\u2019s beneficiaries under the current loophole . . . rather than relabeling such compensation as income and increasing the tax rate to the customary 35%, we could \u2018level the playing field\u2019 by allowing entrepreneurs to label their compensation from new venture creation activity as capital gains too! Under the standard logic that lower taxes encourages economic development, shouldn\u2019t this lead to the generation of more economic value? What do you think?<\/p>\n","protected":false},"excerpt":{"rendered":"