Startups are America’s job engine, so give workers tax credits
qz.com
qz.com
Especially for parents (and wannabe parents).
http://www.nationmaster.com/country-info/stats/Economy/New-b...
The US is below the average for wealthy countries, and ranked 32.
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.
For example, measures of economic mobility (ability for persons to traverse up the economic class system) are dismal for the U.S. as a whole. But for California specifically we're more-or-less on-par with the best nations. At least, that's what I remember from the RadioLab podcast on the subject. I've always been more skeptical of U.S. wide statistics since then.
For example, Cyprus is rocking that chart, but isn't a country with a particularly strong welfare system -- the reason it's on top is because it's a popular destination jurisdiction, not because it's a cradle of entrepreneurial spirit. Malta's in a similar boat.
Also, strength of social welfare system is not predictive; for example, Sweden is below the average of EU, OECD and NATO countries.
Finally, Singapore scores quite well, and while it probably has somewhat of a destination jurisdiction effect, it is hardly a welfare state.
However, the US is relatively far down on this list relative the way we talk about it as a bastion of innovation. I mean we are just above France which does not fit the narrative about strong worker protections preventing new businesses.
If you look at how the data has changed over time as a proxy (in some cases) for uncertainty on the data, you can see that Sweden's current rates are new. In the 2000s, the US was well ahead of it. However, in the 2000s, the US had a Bush administration; Sweden's social welfare net hasn't significantly changed in relative scope during the last decades. If it is true that social welfare nets promote innovation and companies per capita are a good proxy for innovation, why has that changed?
Number of entities for innovation is a questionable proxy for reasons already mentioned in my grandparent comment. As another example, taking your example of France: regulation changes pretty drastically as company size increases, which promotes creating new companies instead of growing existing ones, artificially driving up the number of entities while not really having a meaningful effect on innovation and only having a small effect on de-facto corporate structure.
If there was a predictive effect, shouldn't we be seeing other evidence of entrepreneurship where at least some of these countries also do well?
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-...
You could, if you wanted. The problem is that you can easily end up six or seven figures in debt if you fail. Having some sort of protection in the form of an LLC or GmbH is generally preferrable.
New business (and therefor new job) creation in the USA has tanked. Especially in rural areas.
However we got here, what is the fix?
The unemployment rate is at a 9 year low and falling. What data do you base this assertion on?
Ironically the same people who feel this way seem to dislike immigrants, who are motivated to take risks and move for a shot at a better life.
"Let’s look at just one indicator — new business formation. From 2010 to 2014, 60 percent of counties nationwide saw more businesses close than open, compared with just 17 percent during the four years following the 1990s slowdown. During the 1990s recovery, smaller communities — counties with less than half a million people — generated 71 percent of all net new businesses, with counties under 100,000 people accounting for a full third. During the 2010 to 2014 recovery, however, the figure for counties with fewer than half a million people was 19 percent. For counties with less than 100,000 people, it was zero."
https://www.washingtonpost.com/posteverything/wp/2017/04/20/...
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.
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.
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.
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.
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.
No, it's invested, probably in one or more businesses, and therefore is helping to grow the economy.
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.
But somehow the success of it is never built on. It baffles me.
So hand wavy concerns about undermining the virtue of work end up blocking spending with clear long term net benefits.
It straight supports the philosophy the more you work the more you should get paid.
I think the problem might be that it is too well liked by both sides and neither side is willing to give the other a win, even if it a win for themselves too. I hate politics.
My expectation would be that employers would offer lower wages so that employees will have roughly the same take-home pay.
You are absolutely right, in the absence of a reasonable minimum wage, this is exactly what happens.
Pure craziness. A minimum wage contradicts the policy objective of the EITC to work and to to earn more money, get raises, etc.
You're going to need a citation for... employers seeking lower wages? And that these lower wages are subsidized by government benefits?
The citation would be nearly every company, ever. So start with Walmart and work your way down, I guess.
https://americansfortaxfairness.org/files/Taxpayers-and-Walm...
tl;dr: Taxpayers pay $5/hr in benefits to allow the employees of Walmart to be paid a wage under the poverty line.
== EDIT ==
You would agree that rent subsidies flow to landlords, and mortgage tax deductions flow to sellers, right? Why would you not understand that wage subsidies flow to employers?
Or are you just saying all welfare programs are bad? That's not a discussion I'm willing to engage in.
On the edit - yes I agree that part of the subsidy is split, as with all subsidies, but I think the EITC uniquely incentivizes those in the program to work themselves out of it, unlike other programs. That's why I like it so much, because I think other programs do fall under your critique.
This experiment has never been done, but I think we could probably agree on the outcome of this thought experiment: In the absence of any other social programs, the net effect of EITC would be higher employment and lower (employer paid) wages as the demand for labor is (somewhat) elastic, and employers and labor will settle on a lower clearing price for hourly labor at a higher employment level.
I also agree that many welfare programs have a negative impact on work and personal income, as many social services have cliffs that reduce a recipient's net income if their wage income goes over a certain amount. That's not necessarily bad; some people do not have the option of meaningful work, a problem that many think will be exacerbated by automation. If we start actually seeing the 42% unemployment rates that were recently promoted by Trump, then tying social services to income would be devastating.
No, it doesn't, it incentives them to work their way into the middle of it. Once you're there, like other means-tested programs, it mitigates market incentives to further progress by reducing benefits with increasing outside income, reducing the marginal utility of each additional dollar of income.
Now, it may be that it empowers people enough that the increase in the ability to move up outweighs the incentive mitigation at the top end of the range, and that it is in that way more effective than some other programs. But, it's incenitved have the same failings criticized by UBI advocates as other means-tested benefit programs.
With other programs the worker would be discouraged from looking for a higher paying job or pushing for a raise. He's disincentivized, along with his employer, from being paid more.
With the EITC he directly incentivized to look for a better paying job, work more hours, or get a raise.
While not perfect, it is far better than other forms of public assistance. It about as good as you get with a welfare program in terms of aligning motivations and interests.
The max credits, from https://www.irs.gov/credits-deductions/individuals/earned-in...
$6,318 with three or more qualifying children
$5,616 with two qualifying children
$3,400 with one qualifying child
$510 with no qualifying children
:)
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.
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.
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.
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.
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????
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.
That said I pretty much agree with the others: ping pong tables and negative unit economics make a start up.
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?
Objecting to the redistribution of wealth isn't the same as trying to do away with the rule of law.
The rule of law depends on the redistribution of wealth. Courts, public defenders, police, regulators, juries don't magically appear out of nowhere.
Therefore, it seems obvious that if you are absolutely opposed to the redistribution of wealth, you are therefore absolutely opposed to what most people would consider civilization: rule of law, education, public services, etc.
Do you agree that being part of a functional modern western civilization is impossible without the redistribution of wealth (paying taxes, serving on juries)?
The redistribution of wealth refers specifically to taking from those that have more and giving it those who have less. In particular, having everyone pay to maintain the rule of law is most certainly not what most people mean by redistribution of wealth.
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?
Right, which is a flat, or proportional, tax.
> There has never really been a compelling scheme for a flat tax that solves the problem inherent to it
It's not a flat tax on income, since marginal spending declines with income.
Every tax can be construed as flat relative to some measure.