Getting Economic Growth Back on Track
By John Backus
I cast my ballot early because I had to be in Hong Kong and Singapore when Americans voted for president of the United States on Nov. 6. I’ve been following the election closely, but I was struck by how closely everyone in Asia paid attention, also.
It seems to those in Asia that we have lost our way. Economic growth continues in Asia while it stagnates in America. Even though Singapore and Hong Kong have the heavy hand of government involved in infrastructure planning, their private sector continues to boom. I didn’t have to look far beyond my hotel window to see the expanse of cranes erecting new buildings, too many to count, across each country.
So how do we get back on track?
As a venture capitalist, I see our biggest issue as the pace of economic growth. Economic growth is largely driven by businesses in the private sector, which is why investing attention there is the first step to get back on track.
Different businesses care about different things:
1. Public companies today are crying out for predictability. They compete on a global stage and their regulatory and tax burden needs to allow them to compete effectively. This is problem No. 1 for “big business.” Problem No. 2, especially for big companies in the D.C. region, is sequestration.
2. Private companies today, mostly owned by individuals, face very different problems. Their No. 1 concern is about their tax rates — on income, capital gains and the estate tax.
3. Start-up businesses mostly want to be left alone. But they have issues they worry about as well. No. 1 is a healthy angel and venture capital ecosystem where they can raise the risk capital they need to start and to grow their companies. No. 2 is an ability to find, attract and retain top technical talent. It is estimated that in the United States, only 6 percent graduate college with a degree in science, technology, engineering or math, so start-ups often look overseas for additional technical talent.
So what to do? Here are a few places to start, Mr. President:
Address budget sequestration. This is an artificial problem that dates back 18 months when an agreement couldn’t be reached on cuts.
Tell the Securities and Exchange Commission to implement the Jumpstart Our Business Startups Act. Deadlines for crowdfunding have been missed.
Pass the Startup Visa Act already in Congress to keep more foreign entrepreneurs creating businesses and jobs on American soil.
Put in place a 24-month freeze on new regulations. Give business breathing room so that they can begin to grow again.
Last, but certainly not least, make tax reform a priority.
Here are my ideas:
For corporations, drop tax rates to 25 percent but eliminate most deductions. Bring money back to America by fixing double taxation that forces corporations to keep trillions of dollars overseas.
For capital gains, lets introduce a new tax schedule. For any investments held less than two years, apply ordinary income rates. Medium-term capital gains on investments held two to five years could be taxed at the current 15 percent rate. Long-term gains on investments held over five years could be taxed at a 10 percent rate. And legacy capital gains (replaces estate tax) for assets held more than 10 years could be 5 percent.
Drop ordinary income tax rates across the board, but limit all deductions for all wage earners, to a basket of $35,000, with no exceptions. Under this model, the “rich” will pay their “fair share,” while the middle class may see a tax rate decrease.
John Backus is a founder and managing partner at New Atlantic Ventures, an early-stage venture capital with offices in Reston and Cambridge, Mass. He blogs at navfund.com/blog and is @jcbackus on Twitter.
This article was first published in The Washington Post on November 26, 2012.