Startups are America’s job engine, so give workers tax credits

https://qz.com/964050/startups-are-americas-job-engine-so-give-workers-tax-credits-not-tax-cuts-for-big-corporations/

by prostoalex • 9 years ago

61 86 9 years ago

tmaly2• 9 years ago

I still think $6000 is a large amount in some sense for someone just getting started.

I would much rather see this along with a flat tax. The recent discussion on here about USFacts.org highlighted that revenue was growing in proportion to population. What someone had said is that it makes the case for a much simpler tax system. We spend 6 billion man hours a year on taxes in the US. Is that really the best use of our time?

stiva2• 9 years ago

There has never really been a compelling scheme for a flat tax that solves the problem inherent to it -- that a flat tax hurts those with a lower ability-to-pay.

lend0003• 9 years ago

Not a negative income tax with a flat rate above/below a threshold. The tax that hurts the poor the most is obviously the sales tax.

kratak4• 9 years ago

Flat tax is a horrible libertarian idea that simply hurts lower-income people, because to get the same revenue you end up having to massively raise the taxes on the lower classes, which they can't afford since they're already struggling to make ends meet. We've had progressive taxation in this country since the invention of income tax, for good reason. If you want simpler taxes, you don't need a flat tax, you just need to eliminate all the deductions and credits. Calculating a progressive tax is not hard: you just see which bracket your income falls into, and then do the simple calculation. Or, you just look it up in a table which most people do.

tmaly2• 9 years ago

Flat tax was just something that came to mind. I am not stuck on the idea, I just think we could have something much simpler than what we have that requires less of peoples time each year. I heard in Canada, the system does it all for you and its much less of a time suck than what we have here.

narrowrail• 9 years ago

I consider myself a true fan of liberty and a flat tax is so regressive it seems an obvious attempt to stew hate for all taxes. It's so rare I meet such unreasonable people in my day-to-day (though I did yesterday).

muninn_• 9 years ago

Makes more sense to cut corporate taxes.

mmgutz• 9 years ago

What differentiates a startup from a normal business? A standup desk?

wtvanhest• 9 years ago

Ping pong tables. You just need one ping pong table and a billion dollar market and you are good to go!

sandworm101• 9 years ago

Part of my job is telling clients to abandon the startup mentality. When you have 100 employees, two buildings and a defense contract, you can no longer play fast with regulations. That rep from the japanese air force (hypo) wont forgive a lack of compliance paperwork because you needed room for an arcade.

nostrademons• 9 years ago

"The ability to grow really fast." -- Paul Graham

More specifically, we normally think of startups as businesses where you can do the work once and then sell it multiple times, while in a normal small business or consulting shop, you have to do the work for each customer. There's a pretty big grey area - enterprise software companies often need a significant amount of customization for each customer, while with the sharing/gig economy, whether you can "do the work once and sell it multiple times" depends on whether you consider "the work" to be the service the customer is paying for or the service of connecting an independent contractor to potential customers. But it seems to work pretty well as a functional definition.

CM30• 9 years ago

I think it's just as simple as a company that can grow really fast, usually backed by some form of venture capital. Otherwise you'd be saying a simple product/service bysiness is a startup, since someone selling a forum script or web hosting is also 'doing the work once and selling it multiple times'.

Avshalom• 9 years ago

"temporary organization designed to search for a repeatable and scalable business model" -- Steve Blank.

That said I pretty much agree with the others: ping pong tables and negative unit economics make a start up.

jnordwick8• 9 years ago

And losing a lot of money with a plan to monetize.

idlewords• 9 years ago

Running at a loss with other people's money.

cbhl2• 9 years ago

Canada has a refundable tax credit that many startups take advantage of, known as SR&ED.

https://en.wikipedia.org/wiki/Scientific_Research_and_Experi...

The one caveat is that you have to spend money (and keep good books) in order to be eligible for the tax credit.

snarf212• 9 years ago

This is interesting but I've always thought we should do it in such a way where someone could take say $100K out of their 401K to start up a business. This money is sitting right now and doesn't help grow the economy.

The company would be eligible for tax credits if the company fails at a lower rate and spread across five years. So say you and a partner start a company and document the percentage of this money that is spent on taxable wages. The company fails and you apply for the "startup tax credit" for future earnings. You would be able to get a $10K deduction per year for five years on your federal taxes if you put this back into your 401K. This means that you get half your money back. Your deduction can't be higher than the federal tax you owe in any of these years.

You get to try starting a company with less risk. The government will likely get lots of taxes that may actually be in excess of the up to $50K they gave you in credits since this $100K is being spent and taxed and reallocated many times over. I don't have this idea fully fleshed out but that is the gist anyway.

cbhl2• 9 years ago

In my mind, the simplest way to lower the risk is to just hand people the money they need to meet their needs (rent, electricity, food, internet). So maybe SR&ED could go away altogether if the UBI experiments are successful.

If you consider those who drop out of college to do a startup, those people wouldn't even have $100k in a 401k to take out to start the business.

prostoalex• 9 years ago

someone could take say $100K out of their 401K to start up a business. This money is sitting right now and doesn't help grow the economy.

Apart from being loaned to companies in exchange for bonds, loaned to various levels of government to support infrastructure projects, or capitalizing companies and decreasing corporate borrowing costs in exchange for equity.

dragonwriter3• 9 years ago

This is interesting but I've always thought we should do it in such a way where someone could take say $100K out of their 401K to start up a business. This money is sitting right now and doesn't help grow the economy.

No, it's invested, probably in one or more businesses, and therefore is helping to grow the economy.

specialist3• 9 years ago

Whereas $6000 is a nice (modest) incentive, the lack of universal health care is the greatest barrier to entrepreneurship.

Especially for parents (and wannabe parents).

mancerayder• 9 years ago

This is an excellent point and a powerful pro-market, entrepreneurial argument that's pro-small business. When you're a business of one, or even a small handful of people, private insurance is painful and costly. And wouldn't that essential operating expense be better spent expanding the business?

twoodfin• 9 years ago

If that were the greatest barrier, wouldn't nations with universal health care see higher rates of entrepreneurship? I don't have numbers, but at least anecdotally it doesn't seem to be the case. Is the U.K. startup culture particularly impressive?

ThrustVectoring• 9 years ago

There's a third factor - collectivist vs individualist culture.

Retric2• 9 years ago

#4 UK(7.4/1000) does have over 3x the rate of new bussness per person than the US (2.28 /1000) which ranks #32 and is mostly behind countries with a stronger social safety net.

http://www.nationmaster.com/country-info/stats/Economy/New-b...

Now, if you mean startups as a specific type of new and arguably lower risk business backed by VC money. That has more to do with VC funding than people willing to take risks.

pembrook• 9 years ago

Yes they do. However, the cultural and business environments in European nations are often different so it's not a perfect comparison. For example, in most countries you can't just start taking payments and call yourself a "sole proprietor." Creating a business involves money and time which can also be a deterrent.

A better study that could represent the effects it would have in the US looked at rates of entrepreneurship before and after people become eligible for Medicaid (age 65). After controlling for all other factors they still saw a sizable increase, and the 65+ age group is certainly far less likely to be first time entrepreneurs than younger age groups:

https://thinkprogress.org/universal-health-insurance-boosts-...

specialist3• 9 years ago

I will concede there are multiple factors. Lack of access to capital, winner takes all (pro-corporate) Freedom Markets[tm] decimating competition, etc.

New business (and therefor new job) creation in the USA has tanked. Especially in rural areas.

However we got here, what is the fix?

jnordwick8• 9 years ago

Not necessarily. The US has a of other benefits over those countries often. You can't treat the decision as mostly all or nothing based on access to universal health Care.

Also, you had to look at the benefit of universal HC over the current system. Some people will still find a way to get insurance.

You can still argue without employer assisted heath insurance and more govt or private options we'd have more entrepreneurship, and many would probably agree.

lr4444lr• 9 years ago

No, there could be other barriers in those other countries. The article is clearly US-centric.

ryandrake• 9 years ago

I wouldn't call it the greatest barrier, but it's probably at least top-three. Lack of access to capital and lack of societal safety net to mitigate failure risk would be my personal #1 and #2.

shimon_e• 9 years ago

I know a lot of entrepreneurs who travel to a cheaper country to work on their startup. They still pay their taxes to uncle sam.

basseq• 9 years ago

This is just EITC expansion / very low "basic income". There's nothing about "for startups" here, except that "poor founders on ramen noodles would benefit". Note also that "start-up" in the original study means "firms [less than a year old]".

BatFastard2• 9 years ago

A year is not long enough. It is for trivial projects, but not for things which require more under the hood.

bdcravens• 9 years ago

I see a cottage industry forming: launch "startup", get credits to attract talent etc, on day n+1 (n is business age limit) acquired by large company. (The entire time they are working on project for one customer of course)

Shivetya• 9 years ago

Instead of calling it a corporate tax cut I would prefer to state it as equalization among competing jurisdictions. Meaning, even Canada runs a 15% tax rate and brings in more by percentage of GDP than the US does with a 35% rate.

Its pretty dishonest in linking new jobs as the metric to make startups look better than corporations when its always been small business which employs the most and works through more people than start ups.

Plus the idea of lowering the tax rate is to give the big players a reason to bring the money back here instead of sitting overseas.

We did it before and the treasury benefited, other countries have done it as well; see Canada which went to 15%. So please tell me how we justify more than twice that rate????

BatFastard2• 9 years ago

For me the question is who CREATES jobs. Startups create jobs, big corporations acquire then shed jobs.

As a multi-startup founder, I think the earned income tax credit is brilliant. That along with a universal healthcare system would allow millions of people to take a greater risk in creating new companies.

jnordwick8• 9 years ago

The EITC is awesome. It is well established from many policy organizations as the most effective anti poverty (for current AND future generations) program we have today. It was wildly popular in conservative circles even.

But somehow the success of it is never built on. It baffles me.

maxerickson3• 9 years ago

A considerable portion of the US sees government spending primarily through the lens of direct morality.

So hand wavy concerns about undermining the virtue of work end up blocking spending with clear long term net benefits.

peterwwillis2• 9 years ago

Instead of this tax credit for the already-middle-class, why not raise the standard of living in poor areas by investing in education, food security, health care and jobs in those areas? If it works, you raise the poor up to the middle class, reduce dependence on government subsidies, and grow the economy.

Let's say you start a business in a poor neighborhood. If you hire locals you're by default investing in the local community and the local economy can grow. If you hire outsiders, they can come into the city and help new services start that will serve the needs of the workers, which will provide a limited impact on the local economy.

If you provide assistance for education/job training, food assistance, daycare and healthcare, the local community can gain the advantages they need to get jobs. But if the jobs aren't local, they usually need major investments in public transit, so IMHO it's better to invest in local small businesses in these areas.

So perhaps this $6,000 credit isn't a bad idea, but spend it where it really counts: poor cities and neighborhoods whose local economy could use it the most.

kratak4• 9 years ago

How do you decide which neighborhoods qualify, and which don't? Just offering a tax credit isn't going to convince many people to start a business in a poor neighborhood anyway; usually, people avoid them because they don't want to work in a poor neighborhood every day, and because they worry about their safety. So are you going to have the government create businesses there?

Also, what about poor rural people? It doesn't make any sense to start businesses there, because the population density is too low (and again, how do you convince people to start businesses in economically unviable areas?). The ruralites need to move to where the jobs are, but they don't want to do that.

peterwwillis2• 9 years ago

Finding the disadvantaged areas is the comparatively easy part. Many municipalities have maps of neighborhoods that have food insecurity, housing insecurity, an obvious lack of transportation, terrible graduation rates and test scores, high crime rates, and a lack of registered businesses that aren't primarily liquor stores or fast food.

Yes, it is hard to get businesses past the stigma of these neighborhoods. But what's the worst thing that happens? You offer the tax credit and nobody takes it? I think the bigger risk is if they take it, but the government doesn't step up to provide other services that are needed for these businesses to thrive.

No, I would not say having the government open offices is going to do anyone any good. But it could be beneficial to start a program in addition to this credit where the government can go into these neighborhoods and have classes where they teach people how to become local entrepreneurs (I think they do this already in a limited fashion in "nicer" areas)

Mainly my proposal applies to the urban poor, but rural areas still have some untapped opportunity. Take the rest of the world's rural poor as an example: small farmers organize into co-ops whose products are then sold on one or more markets (which depending on the market will be either horrible or great for them). I think in 20+ years when automated transportation starts to become a real thing, we'll be able to more cheaply scale out small manufacturing jobs to rural people. Ideally this could again use a co-op model, but I haven't seen many tech companies with that in mind.

Everything I have mentioned, btw, you could start with a private organization and then get government funding to cover a portion of your expenses. For example, most food banks and school lunch programs get most of their funding privately. They could also re-route some of the ridiculous defense spending back into food assistance programs, which we know is a benefit to local economies.

bnolsen• 9 years ago

Lower the taxes and don't let government get their hands on it at any stage of the process. This smacks again of redistribution of wealth and I'm totally against this.

random283455• 9 years ago

Lower the taxes and don't let government get their hands on it at any stage of the process. This smacks again of redistribution of wealth and I'm totally against this.

Brilliant! I'm sure that startups will flourish in an environment where there is no functioning government. What I don't understand is why the movie Mad Max didn't show a vibrant startup community with flowing rivers of lattes and soylent, rather than the human misery that comes from the absence of rule of law, retirement, and health care.

Serious question, do you really want to live in a world devoid of "redistribution of wealth", where life is cheap, the working class is treated like disposable trash, and treatable illnesses are a death sentence?

What would it take to convince you that the wealthy contributing some of their riches back to society is the foundation for a functioning civilization?

winstonewert3• 9 years ago

How about we start by not attacking straw men?

Objecting to the redistribution of wealth isn't the same as trying to do away with the rule of law.

s73ver3• 9 years ago

Isn't this similar to Walmart not paying their workers enough, and encouraging them to go on welfare and food stamps?

Danihan• 9 years ago

No, they aren't. Massive corporations are America's job engine.

dev1n• 9 years ago

exactly.. The point of a startup is to utilize technologies so that they can run more efficiently than big corporations, thus giving them a competitive advantage and an economical one as well.

kratak4• 9 years ago

This is a bad title.

This article is not proposing a tax credit for startup workers at all. It's proposing a tax credit for everyone. It tries to make the case that this would be good for startup companies. But the proposed tax credit is NOT confined to workers at startups, at least that's the way the article reads. It says so right in the first paragraph: "a giant negative income tax for the average American." Average Americans do not work at startups.

Startups are America’s job engine, so give workers tax credits

Related Stories