5 ms·

That's a shame, because defining a "startup" is the most crucial part of the proposal, and I'm not convinced it can be done sensibly. I'm not sure I approve of

by hugh 18y ago

That's a shame, because defining a "startup" is the most crucial part of the proposal, and I'm not convinced it can be done sensibly. I'm not sure I approve of the whole idea, but I have to admit it would have good consequences if it were implemented correctly. However, if I could be so bold as to propose Hugh's First Law of Politics, it would be this: The unintended consequences of any policy change are almost always more significant than the intended consequences. And this is almost always doubly so if you're either (a) deploying the military or (b) creating a huge new tax loophole. I foresee two problems. The first is under-defining startups. As others have pointed out by now, it's not that difficult for some rich guy to start a "startup company" in order to handle all his capital-gains producing affairs. Wanna buy an investment property? Better start a company to hold it, so that you can sell it without capital gains tax. Pretty soon you'd have a huge collection of "fake" startups which would probably swamp the real ones. The second possibility is over-defining startups. In order to overcome the problem of fake startups, you define that a "real" startup must have properties X, Y and Z. But some day somebody might start a real startup that's so innovative in its business model that it has X and Z but not Y. Pretty soon you're actually holding back the startup scene by restricting the kinds of startups which people can produce. And at the very least, it's going to create a new administrative burden for startups, who are going to have to spend some time proving to the government that they're real startups and aren't engaging in any unstartuplike activities. Those are the two problems I can think of, off the top of my head. There might be others which I can't think of (but which no doubt will seem obvious in hindsight).

euccastro 18y ago
Re: over-defining startups, For both problems you cite, the worst case scenario comes down to the situation without that law, right? A startup that has X and Z but not Y, will be no worse with the new law than without it. And if the "new administrative burden" wasn't worth it, startups could ignore it and pay their taxes. You may argue that startups that fail to get the tax discount would incur a competitive penalty. I don't think this handicap would be really insurmountable for enough startups that the loss from their failure would outweight the overall gains elsewhere.
- SwellJoe 18y ago
  For both problems you cite, the worst case scenario comes down to the situation without that law, right? A startup that has X and Z but not Y, will be no worse with the new law than without it. And if the "new administrative burden" wasn't worth it, startups could ignore it and pay their taxes. Actually, the worst case might be that the law favors some "startup" companies over others. Already, my three person startup has higher regulatory burden, relatively speaking, when it comes to taxes and payroll processing and such, than a much larger company (who can amortize their team of accountants across tens of thousands of employees). Of course, I'm not saying that it's a showstopper, or that dealing with taxes and payroll is going to kill us or keep us from competing. But, if there were a law that defined my biggest competitor as a "startup" and my company as a non-"startup", and as a result they got free money that I don't have...it warps the competitive landscape. How big of a difference can this make? I dunno. We don't know the definition or the specifics of what the plan entails. But, for an example of what seemingly subtle favoritism can do, you need look no further than the US broadband market. I'm intimately familiar with this, as my first startup was entirely a business built on selling to independent ISPs (though it had to evolve for reasons that'll be obvious). There were thousands of them in the US ten years ago. Broadband came along, and while everyone agreed that there needed to be some way for competition to happen in the broadband space, it took a long time to come to an agreement on how the line access would be sold (because good ol' AT&T owns pretty much every phone line in the country, and local cable companies own the other option, and those folks, particularly AT&T, know how to buy a congressman). In the end the terms that were reached guaranteed that AT&T and the cable companies could offer broadband cheaper than their competitors that had to rent the lines (while, of course, making it clear to their regulatory overseers that the cost efficiencies that allowed them to sell broadband cheaper than all of their competitors were to be found in places other than the lines). The laws that were intended to allow competition to flourish was merely a subtle death warrant for every independent ISP in the country. There are now a tiny handful of alternative DSL providers that squeak by providing business class services and other premiums. Killed by small differences in the competitive landscape. Would it be so dramatic? No, probably not. But it can make a difference, and it has made a difference many times in history. There's a reason why the biggest companies in the US have teams of lobbyists working constantly for little favors. Laws that give established players just one more tiny leg up over their competitors. I don't think that Obama's "startup" tax incentives would be any different. He is, after all, a big supporter of corn...aint nothing but lobbyist money driving that machine forward. That's not to say I don't wish that small startups could avoid some of the regulatory and tax burden that is somewhat heavier on smaller companies. My first startup was definitely slowed down a few times when I got to the end of a quarter and realized I owed Uncle Sam twenty grand (the previous business wasn't very steady...some months were fantastic, some were awful, and taxes would sneak up at the exact wrong time: when things were going well and I needed the cash on hand to keep the good times rolling).
Prrometheus 18y ago
We used to raise funds for startup companies in the several hundred million dollar range. Raising several hundred million dollars to buy financial assets (like, say, distressed debt) with an experienced millionaire management team is a very different kind of startup from the kind Mr. Graham and company fund. Anyways, I think its clumsy and stupid when Congress tries to engineer society through the tax code.

by hugh 18y ago

euccastro 18y ago

Re: over-defining startups, For both problems you cite, the worst case scenario comes down to the situation without that law, right? A startup that has X and Z but not Y, will be no worse with the new law than without it. And if the "new administrative burden" wasn't worth it, startups could ignore it and pay their taxes. You may argue that startups that fail to get the tax discount would incur a competitive penalty. I don't think this handicap would be really insurmountable for enough startups that the loss from their failure would outweight the overall gains elsewhere.

SwellJoe 18y ago
For both problems you cite, the worst case scenario comes down to the situation without that law, right? A startup that has X and Z but not Y, will be no worse with the new law than without it. And if the "new administrative burden" wasn't worth it, startups could ignore it and pay their taxes. Actually, the worst case might be that the law favors some "startup" companies over others. Already, my three person startup has higher regulatory burden, relatively speaking, when it comes to taxes and payroll processing and such, than a much larger company (who can amortize their team of accountants across tens of thousands of employees). Of course, I'm not saying that it's a showstopper, or that dealing with taxes and payroll is going to kill us or keep us from competing. But, if there were a law that defined my biggest competitor as a "startup" and my company as a non-"startup", and as a result they got free money that I don't have...it warps the competitive landscape. How big of a difference can this make? I dunno. We don't know the definition or the specifics of what the plan entails. But, for an example of what seemingly subtle favoritism can do, you need look no further than the US broadband market. I'm intimately familiar with this, as my first startup was entirely a business built on selling to independent ISPs (though it had to evolve for reasons that'll be obvious). There were thousands of them in the US ten years ago. Broadband came along, and while everyone agreed that there needed to be some way for competition to happen in the broadband space, it took a long time to come to an agreement on how the line access would be sold (because good ol' AT&T owns pretty much every phone line in the country, and local cable companies own the other option, and those folks, particularly AT&T, know how to buy a congressman). In the end the terms that were reached guaranteed that AT&T and the cable companies could offer broadband cheaper than their competitors that had to rent the lines (while, of course, making it clear to their regulatory overseers that the cost efficiencies that allowed them to sell broadband cheaper than all of their competitors were to be found in places other than the lines). The laws that were intended to allow competition to flourish was merely a subtle death warrant for every independent ISP in the country. There are now a tiny handful of alternative DSL providers that squeak by providing business class services and other premiums. Killed by small differences in the competitive landscape. Would it be so dramatic? No, probably not. But it can make a difference, and it has made a difference many times in history. There's a reason why the biggest companies in the US have teams of lobbyists working constantly for little favors. Laws that give established players just one more tiny leg up over their competitors. I don't think that Obama's "startup" tax incentives would be any different. He is, after all, a big supporter of corn...aint nothing but lobbyist money driving that machine forward. That's not to say I don't wish that small startups could avoid some of the regulatory and tax burden that is somewhat heavier on smaller companies. My first startup was definitely slowed down a few times when I got to the end of a quarter and realized I owed Uncle Sam twenty grand (the previous business wasn't very steady...some months were fantastic, some were awful, and taxes would sneak up at the exact wrong time: when things were going well and I needed the cash on hand to keep the good times rolling).

Prrometheus 18y ago

We used to raise funds for startup companies in the several hundred million dollar range. Raising several hundred million dollars to buy financial assets (like, say, distressed debt) with an experienced millionaire management team is a very different kind of startup from the kind Mr. Graham and company fund. Anyways, I think its clumsy and stupid when Congress tries to engineer society through the tax code.