
Zero Capital Gains on Start-ups - A Not So Good Idea - davidw
http://www.smallbiztrends.com/2008/06/zero-capital-gains-on-start-ups-%e2%80%93-a-not-so-good-idea-2.html/
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pg
"firm productivity increases with firm age"

Oddly enough, this statement, which is the basis of his argument, is also why
his conclusion is wrong.

If by productivity he means revenue per employee, then he may be correct even
of technology startups. Any successful startup's revenue per employee is
likely to be higher in year 5 than in year 1, when they probably had no
revenue. But what matters more is the _derivative:_ successful startups have
the fastest increase in revenue per employee. In other words, the reason
startups are good is they're the companies in which "firm productivity
increases with firm age" the most.

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ojbyrne
Except that he's talking about "startups" not "successful startups." As you
said, productivity is essentially revenue per employee, and there's lots of
startups out there where that is a small number (and not growing fast).

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steveplace
But he doesn't define what a startup is, and his data is for all new
businesses, not just tech startups, which have a completely different set of
data than local barber shops.

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ojbyrne
The WSJ says that Obama hasn't defined it either. It also isn't clear what the
cited study in the blog post says, though the title ("Productivity Differences
across Employers: The Roles of Employer Size, Age, and Human Capital") of the
paper does suggest it is for all startups.

Link in case someone is an AEA member (to get through the paywall):

[http://econpapers.repec.org/article/aeaaecrev/v_3A89_3Ay_3A1...](http://econpapers.repec.org/article/aeaaecrev/v_3A89_3Ay_3A1999_3Ai_3A2_3Ap_3A94-98.htm)

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ericb
Encouraging startups is a good direction to look for improving society; it
plays to our strengths and encourages value creation. Unlike the current
administration, I think Obama's administration would take an open mind about
how best to aid startups.

I'd be most interested in a low-doc corporation. For example, don't make me
pay estimated taxes, payroll, etc, except once a year. Give me a simplified
tax setup that's brainless. Don't make me file a pointless annual report to
please the gov't.

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drewcrawford
I'd be interested in a complete overhaul of the tax system. Unfortunately,
_real_ tax reform would require

A) all of the lawyers and accountants to learn a new system B) If the system
is simpler, lawyers and accountants will become less valuable, because people
can figure out tax law themselves

I don't think we're very likely to see real tax reform in the US unless
something truly and obviously catastrophic happens, because there will be a
significant and powerful group of people opposing it.

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steveplace
A few comments (if you RTA, you'll know to what I refer):

1) WTF? His underlying presumption seems off base. He defines cutting taxes as
"government intervention" and keeping taxes as "letting the market work."
That's news to me.

2) He assumes that the average new business owner will create a "startup."
First, the policy mentioned in the WSJ doesn't give a definition of startup,
and neither does he (although he mentions the problem). And second, if a small
business isn't a "startup," what is it?

3) Of course economic growth is inversly correlated with self-employment. It's
because most people suck at owning a business. But to leave in economic
barriers to reduce failure is a dumb idea.

4) He claims that "government intervention" by lowering cap gains taxes would
encourage competition in areas that have low barriers to entry. I thought that
was the point.

5) The first article he cites showing the negative correlation between firm
age and productivity comes from a paper in
_1999_.(<http://www.jstor.org/pss/117087>). Bad data.

6) The second piece of evidence he cites pulls data from 1975 - 1996. Once
again, bad data. And if he's talking about tech startups, then he should
isolate that data to draw the proper correlation

This isn't about bias or politics. This is about an article full of bullshit.
Either it was poorly written or he tried to take a conclusion and started
selectively looking for evidence to support it.

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LogicHoleFlaw
My first thought upon reading about a correlation between declining GDP and
increasing entrepreneurial activity was exactly the opposite of what this
article states. If the GDP is dropping, my current employer is displaying
inefficiencies and lack of product. I'll just start my own company and
overcome all of that!

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gruseom
What's interesting about the article is not the article but the quote in its
first sentence: Barack Obama "proposes eliminating capital gains taxes on
start-up companies". Is that not astonishing? I hadn't heard it before. It's
indicative of how deep Obama's connections are in the Valley.

As for what the article calls the "obvious problem" with the idea ("the tax
lawyers will have every company in America defined as a start-up"), what a
lame point. The same objection could be made to any policy or any legislation.
I think Obama's dismissive answer to this is right (he basically said, duh,
we'll write the definitions competently).

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ra
Hmm... this contradicts the wisdom that start-ups are more productive than
established businesses.

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swombat
Having worked in both, I can't possibly agree that large companies are more
productive than startups - at least not in IT. That might be true in other
industries though.

