It's the Economy, people, and Barack Obama's Capital Gains approach is among the most innovative and business-friendly strategies America has ever seen.
The American Promise in Concrete ...
I am an entrepreneur. I am a son of an entrepreneur. I'm an immigrant who, like his mother and father, was displaced by revolution and war, and by the grace of God, landed in these great United States of America. Collectively, generations in our nuclear family have found themselves: cramped in bloody rail cars as India and Pakistan were hewn by the British cleaver, frozen on the hot end of a Liberian soldier's rifle, and transplanted into the soil of the greatest country in the history of humankind with only the possessions we could cram into our suitcases.
We arrived in America in 1980. The early 80's were difficult for many families; we were no exception, particularly as my father started and tried to grow his business. In the early 90's things began to change, and by 1998 my father was able to sell his business and retire -18 short years after we were luckily rooted in America. These three words are not enough, but, humbly, "thank you, America." Thank you, Bill Clinton.
Based on my life experience, I view the candidates for president largely from two basic lenses: the economy and national security. To me, both issues are inextricably linked: a strong economy and national debt picture equals a strong national defense. It means we have the flexibility to be muscular in times of crisis, and the credibility to lead on issues of global importance such as climate change and terrorism. Imagine going into your lender's office and asking him to treat his janitors and clerks with more respect when you owe him $50,000.00. Do you think you'll get results? When we're asking our Chinese and Russian bankers for compliance and solidarity on the issues we care about, one must imagine that many points must fall on deaf ears. Further, my view on the economy is not the traditional "has the stock market done well under this president." Fundamental strength requires broad-based prosperity from my real-world perspective so that a "rising tide lifts all boats." In other words, to quote Senator Obama, "prosperity: from the bottom up."
Recession Made Real
For seven years, my business partner and I have made payroll in our "knowledge-based" business, we've discussed the prospects for our business based on whether our client's customers (ordinary Americans) can purchase their goods and services. Here is our bottom line, for forty years, American incomes have remained stagnant and now that the credit markets are about to become more rational, America faces a serious problem. This is because, as people are able no longer to obtain "disposable income" from home equity loans, and with credit card and home lending standards becoming more stringent, we find it difficult to envision how our client's customers will be able to afford their goods and services, consistently. This is further complicated by the fact that the prices of food, gas, and other essentials are rising. So, in many ways, we can simply dispose of the concept of "disposable income."
Invariably, this means that the demand for our services will be affected. Multiply these reductions by the numbers of other small and entrepreneurial businesses across the United State that are in similar situations and you have a recipe for a painful recession.
The Capital Gains Choice ...
So, here is our choice as voters. To paraphrase from the mouths of the respective voters:
John McCain:
1. I will keep the current rates on dividends and capital gains
Barack Obama:
1. I will eliminate capital gains taxes for the small businesses that create the high-wage, high-tech jobs of tomorrow.
2. I will return normal capital gains to the levels they were under Bill Clinton (between 20-28%).
Barack's Plan is better ...
Now the Republicans rightfully spin Barack's second point on Capital Gains as a "raise" in taxes. It is from the current level. However, the positive impact of this is not appreciable unless you consider the first point. Both policies work in tandem and mean terrific things for the national economy.
Here is why. For the last eight years, George Bush's 15% capital gains rate has influence capital to flood the stock market (at the expense of the backbone of the American economy, small businesses). It is irrefutable, that incomes across the board have decreased under Bush, The Younger. Irrefutable.
So, what exactly has the 15% capital gains rate that McCain aims to keep bought us? It has encouraged money flowing into stock markets looking for paper profits, seeking increases in net worth statements, anemic economic growth, and stagnant incomes (at best), and not into the creation and sustenance of new and small businesses.
So we can continue to choose a weakened backbone that favors capital invested in stocks or we can choose Barack Obama and tax cuts which favor the engine of the American economy and encourages the flow of capital into the creation and development of new small businesses.
So, I'll say it again: Barack Obama's Capital Gains approach is among the most innovative and business-friendly strategies America has ever seen.
Why this is a Big Deal ...
Now, Barack's commitment to eliminate capital gains for small businesses does not get the coverage it deserves. I'll tell you, as someone who has had to raise capital, invest in growth, cut expenses to survive, hire people, lay them off, and navigate the ups and downs of the economy, this is the defining policy position we all should consider. Here's what logically flows from Obama's Plan:
1. Entrepreneurs will be more encouraged to create businesses because they will face no (zero, zilch, nada, noneski) taxes on any increase in value of those businesses. None.
2. Venture Capitalists and Private Equity firms will be more encouraged to provide capital to entrepreneurs trying to grow their businesses;
3. A _zero percent_ capital gains rate will make the tradeoffs on giving equity to financiers versus obtaining the capital required to grow businesses much more palatable for entrepreneurs
4. The creation of these businesses will mean new jobs, new cash flows, and new growth in the American economy
All of this builds a healthy give-and-take in which entrepreneurs, financiers, and employees partner to take risks and benefit (greatly) from the rewards.
A Tangible Example ...
Let's say that you are an entrepreneur, Joe Smith, with expertise in construction and construction management. Perhaps you would like to get a piece of the action in wind turbine and wind farm development being pushed by Mr. T. Boone Pickens. So, you start a company called Turbine Technicians which specializes in managing the construction and maintenance of wind farms.
To start your firm, you basically need three things:
1. Construction/ Construction Management Experience: check
2. The desire and will to make a company work: check
3. Start-up capital of $30,000 to cover your start-up salary and minimal office expenses for 6 months while you build your contacts and obtain capital: check
Now, let's suppose that after much toil and tribulation, in month 6 you obtain a capital investment from an angel investor, Donny Warbucks, of $500,000 to build Turbine Technicians. Let's say this dilutes your interest to 70% of the company. So, after month 6, Turbine Technicians is now owned:
o 70%, Joe Smith
o 30%, Daddy Warbucks
Let's say you build a relatively successful business and in year 4 (near the end of Barack's first term), you are making $3 Million per year in profit on $12 Million in revenue for developing Wind farms (this is about 6 wind turbines a year, they cost, on average $2 Million to build).
In 2012, Bechtel, a large construction conglomerate comes knocking; they value your $3 Million per year business conservatively at $10 Million dollars and make you an offer.
Joe Smith's Benefits Under McCain ...
Under Mr. McCain's plan, Joe Smith's $10 Million automatically becomes $8.5 Million on a 15% capital gains rate. The benefits flow as follow:
o Joe Smith: $5.95 Million
o Mommy Warbucks: $2.55 Million
Joe Smith's Benefits Under Obama ...
Under Mr. Obama's plan, Joe Smith's $10 Million automatically becomes - well - $10 Million on a 0% capital gains rate. The benefits flow as follow:
o Joe Smith: $7 Million
o Mommy Warbucks: $3 Million
Now what would Joe Smith do with the extra $1.05 million dollars under an Obama administration? What would Mommy Warbucks do with the extra $450,000?
All Boats Will Float ...
So, if I'm Joe Smith or Mommy Warbucks, I'm doing everything I can to get Barack Obama elected because it benefits me. More importantly, my pursuit of new business means that I'm going to uplift many more than myself. I will have to hire truck drivers, construction personnel, construction managers, programmers, site surveyors, electricians, and the list goes one. I'll also have to buy materials including: American steel, wires, tools, and the like. Disposable income increases, spending increases, the economy recovers and thrives.
In the end, everyone benefits. The American promise gives life again and we restore our economic and, yes, national security.
So, for small business owners, entrepreneurs, and employees Barack's capital gains position is the defining policy position we all should consider.
I'll say it one more time: Barack Obama's Capital Gains approach is among the most innovative and business-friendly strategies America has ever seen.