When I decided to begin writing this blog, I promised that I would stick to issues of entrepreneurship and avoid politics.  However, when politics and politicians are adversely affecting the role of entrepreneurship it’s difficult to avoid the topic.

The failure rate of start-ups has historically been high.  In recent years compliance to the rules set forth in Sarbanes/Oxley has made it prohibitively expensive for most start-ups to even consider going public.  Currently the thought of going public is the furthest thing from most business owner’s minds.  They are more consumed with just figuring out how to stay afloat in an environment where revenue is decreasing, credit is non-existent and private equity has shut its doors. 

On Tuesday the President talked about how innovation would lead us out of this financial mess.  On Wednesday he proposed removing the incentive for those who would lead innovation.  I must admit that I fully expected, perhaps foolishly so, that the Stimulus Package would have something in it to help struggling small businesses in the U.S. as well as promote new business creation – the same businesses that make up the majority of the workforce and historically create most of the new jobs.  What I didn’t expect in this economic environment was a tax increase on business owners and creators, which is what has been proposed by the new administration.  The increase will affect people making $208,850 per year and above.  Additionally, the elimination on mortgage interest and a cut in the charity deduction are being proposed for this same group.  Currently, the top 20% of wage earners covers 85% of the tax burden.  That’s even higher than it was during the Clinton Administration. 

So who are these upper-income Americans who will shoulder the burden of building the world’s largest government replete with entitlement programs?  It’s the restaurant owner, the car dealer, and the machine shop owner.  It’s the sole-proprietor, the small business owner, the people who take the risk to create a business and create jobs for Americans.

Given that 70% of the jobs in America today are created by small-business owners this proposed tax would make it even more difficult for entrepreneurs in America to be successful.   What’s next a cap on what you can earn as a small business owner?  A cap on how much you can make when you sell or take your company public?  Where is the incentive to take the financial and career risk involved in starting a new business, when the government is removing the financial incentive and continues to place greater obstacles in the way of your success?

If you want to create jobs and spur innovation, why not create financial and tax incentives to do so?  For instance, the government could propose a tax credit for dollars spent on U.S. based research and development performed by start-ups. This would reduce the expense of developing new and innovative technology and keep technical jobs from going off shore.  My colleague, Mike Feinstein, suggests that we keep capital gains treatment as it is to encourage entrepreneurship and even take it one step further by creating a different tax rate on ordinary income generated by small business owners versus the rate paid by those making large salaries at large companies.  Lastly, why not sunset all laws so that they can be revisited on a regular basis to see if they are still necessary as opposed to simply becoming permanent mandates in an ever increasingly ballooning government budget?

I have an extremely difficult time understanding how the recent tax proposals will spur innovation and entrepreneurial job creation.  Or perhaps an environment where both economic and population growth are slow, the largest employer is the government, financial incentives are muted, government sponsored social programs replace private charities and universities produce politicians is the objective.  It’s not the America of Horatio Alger.  It’s not the country my family immigrated to in the 1950’s.  It’s beginning to look more like the country they left.