
Startups are America’s job engine, so give workers tax credits - prostoalex
https://qz.com/964050/startups-are-americas-job-engine-so-give-workers-tax-credits-not-tax-cuts-for-big-corporations/
======
specialist
Whereas $6000 is a nice (modest) incentive, the lack of universal health care
is the greatest barrier to entrepreneurship.

Especially for parents (and wannabe parents).

~~~
twoodfin
If that were the greatest barrier, wouldn't nations with universal health care
see higher rates of entrepreneurship? I don't have numbers, but at least
anecdotally it doesn't seem to be the case. Is the U.K. startup culture
particularly impressive?

~~~
Retric
#4 UK(7.4/1000) does have over 3x the rate of new bussness per person than the
US (2.28 /1000) which ranks #32 and is mostly behind countries with a stronger
social safety net.

[http://www.nationmaster.com/country-
info/stats/Economy/New-b...](http://www.nationmaster.com/country-
info/stats/Economy/New-businesses-registered/Number/Per-capita)

Now, if you mean startups as a specific type of new and arguably lower risk
business backed by VC money. That has more to do with VC funding than people
willing to take risks.

~~~
lvh
There seem to be some clear flaws with the causal reasoning there.

For example, Cyprus is rocking that chart, but isn't a country with a
particularly strong welfare system -- the reason it's on top is because it's a
popular destination jurisdiction, not because it's a cradle of entrepreneurial
spirit. Malta's in a similar boat.

Also, strength of social welfare system is not predictive; for example, Sweden
is below the average of EU, OECD and NATO countries.

Finally, Singapore scores quite well, and while it probably has somewhat of a
destination jurisdiction effect, it is hardly a welfare state.

~~~
Retric
Sweden is still well above the US and if many countries all have strong safety
nets one of them has to be on the bottom of that list. But sure, if you remove
countries with less than 10 million you are going to end up with fewer
outsiders on lists like this.

However, the US is relatively far down on this list relative the way we talk
about it as a bastion of innovation. I mean we are just above France which
does not fit the narrative about strong worker protections preventing new
businesses.

~~~
lvh
That demonstrates that strong worker protections doesn't necessarily decrease
the number of businesses created. It does not demonstrate the original claim
that they promote innovation.

If you look at how the data has changed over time as a proxy (in some cases)
for uncertainty on the data, you can see that Sweden's current rates are new.
In the 2000s, the US was well ahead of it. However, in the 2000s, the US had a
Bush administration; Sweden's social welfare net hasn't significantly changed
in relative scope during the last decades. If it is true that social welfare
nets promote innovation and companies per capita are a good proxy for
innovation, why has that changed?

Number of entities for innovation is a questionable proxy for reasons already
mentioned in my grandparent comment. As another example, taking your example
of France: regulation changes pretty drastically as company size increases,
which promotes creating new companies instead of growing existing ones,
artificially driving up the number of entities while not really having a
meaningful effect on innovation and only having a small effect on de-facto
corporate structure.

If there was a predictive effect, shouldn't we be seeing other evidence of
entrepreneurship where at least some of these countries also do well?

------
cbhl
Canada has a refundable tax credit that many startups take advantage of, known
as SR&ED.

[https://en.wikipedia.org/wiki/Scientific_Research_and_Experi...](https://en.wikipedia.org/wiki/Scientific_Research_and_Experimental_Development_Tax_Credit_Program)

The one caveat is that you have to spend money (and keep good books) in order
to be eligible for the tax credit.

~~~
snarf21
This is interesting but I've always thought we should do it in such a way
where someone could take say $100K out of their 401K to start up a business.
This money is sitting right now and doesn't help grow the economy.

The company would be eligible for tax credits if the company fails at a lower
rate and spread across five years. So say you and a partner start a company
and document the percentage of this money that is spent on taxable wages. The
company fails and you apply for the "startup tax credit" for future earnings.
You would be able to get a $10K deduction per year for five years on your
federal taxes if you put this back into your 401K. This means that you get
half your money back. Your deduction can't be higher than the federal tax you
owe in any of these years.

You get to try starting a company with less risk. The government will likely
get lots of taxes that may actually be in excess of the up to $50K they gave
you in credits since this $100K is being spent and taxed and reallocated many
times over. I don't have this idea fully fleshed out but that is the gist
anyway.

~~~
cbhl
In my mind, the simplest way to lower the risk is to just hand people the
money they need to meet their needs (rent, electricity, food, internet). So
maybe SR&ED could go away altogether if the UBI experiments are successful.

If you consider those who drop out of college to do a startup, those people
wouldn't even have $100k in a 401k to take out to start the business.

~~~
snarf21
I agree that UBI could play a similar role if we can figure it out which still
seems really hard at scale. I think for the dropouts they usually have a
different path of living at home with all their needs met. Definitely an
interesting topic to thing about. :)

------
basseq
This is just EITC expansion / very low "basic income". There's nothing about
"for startups" here, except that "poor founders on ramen noodles would
benefit". Note also that "start-up" in the original study means "firms [less
than a year old]".

~~~
BatFastard
A year is not long enough. It is for trivial projects, but not for things
which require more under the hood.

~~~
bdcravens
I see a cottage industry forming: launch "startup", get credits to attract
talent etc, on day n+1 (n is business age limit) acquired by large company.
(The entire time they are working on project for one customer of course)

~~~
s73ver
Complete with "startup" wages.

------
BatFastard
For me the question is who CREATES jobs. Startups create jobs, big
corporations acquire then shed jobs.

As a multi-startup founder, I think the earned income tax credit is brilliant.
That along with a universal healthcare system would allow millions of people
to take a greater risk in creating new companies.

~~~
jnordwick
The EITC is awesome. It is well established from many policy organizations as
the most effective anti poverty (for current AND future generations) program
we have today. It was wildly popular in conservative circles even.

But somehow the success of it is never built on. It baffles me.

~~~
maxerickson
A considerable portion of the US sees government spending primarily through
the lens of direct morality.

So hand wavy concerns about undermining the virtue of work end up blocking
spending with clear long term net benefits.

~~~
jnordwick
But the EITC adds to the virtue of work. It actually increases they payment
for your salary increasing (to a point obviously).

It straight supports the philosophy the more you work the more you should get
paid.

I think the problem might be that it is too well liked by both sides and
neither side is willing to give the other a win, even if it a win for
themselves too. I hate politics.

~~~
winstonewert
Wouldn't it work out to subsidizing the employers?

My expectation would be that employers would offer lower wages so that
employees will have roughly the same take-home pay.

~~~
random28345
> My expectation would be that employers would offer lower wages so that
> employees will have roughly the same take-home pay.

You are absolutely right, in the absence of a reasonable minimum wage, this is
exactly what happens.

~~~
jnordwick
I'm going to need a cite for that.

Pure craziness. A minimum wage contradicts the policy objective of the EITC to
work and to to earn more money, get raises, etc.

~~~
random28345
> I'm going to need a cite for that.

You're going to need a citation for... employers seeking lower wages? And that
these lower wages are subsidized by government benefits?

The citation would be nearly every company, ever. So start with Walmart and
work your way down, I guess.

[https://americansfortaxfairness.org/files/Taxpayers-and-
Walm...](https://americansfortaxfairness.org/files/Taxpayers-and-Walmart-
ATF.pdf)

tl;dr: Taxpayers pay $5/hr in benefits to allow the employees of Walmart to be
paid a wage under the poverty line.

== EDIT ==

You would agree that rent subsidies flow to landlords, and mortgage tax
deductions flow to sellers, right? Why would you not understand that wage
subsidies flow to employers?

~~~
jnordwick
No I'm going to need a cite for the EITC claim. I speaking about how it
specifically aligns motivations and interests, because it is different than
other welfare programs.

Or are you just saying all welfare programs are bad? That's not a discussion
I'm willing to engage in.

On the edit - yes I agree that part of the subsidy is split, as with all
subsidies, but I think the EITC uniquely incentivizes those in the program to
work themselves out of it, unlike other programs. That's why I like it so
much, because I think other programs do fall under your critique.

~~~
random28345
> I think the EITC uniquely incentivizes those in the program to work
> themselves out of it, unlike other programs. That's why I like it so much,
> because I think other programs do fall under your critique.

This experiment has never been done, but I think we could probably agree on
the outcome of this thought experiment: In the absence of any other social
programs, the net effect of EITC would be higher employment and lower
(employer paid) wages as the demand for labor is (somewhat) elastic, and
employers and labor will settle on a lower clearing price for hourly labor at
a higher employment level.

I also agree that many welfare programs have a negative impact on work and
personal income, as many social services have cliffs that reduce a recipient's
net income if their wage income goes over a certain amount. That's not
necessarily bad; some people do not have the option of meaningful work, a
problem that many think will be exacerbated by automation. If we start
actually seeing the 42% unemployment rates that were recently promoted by
Trump, then tying social services to income would be devastating.

------
kratak
This is a bad title.

This article is not proposing a tax credit for startup workers at all. It's
proposing a tax credit for _everyone_. It tries to make the case that this
would be good for startup companies. But the proposed tax credit is NOT
confined to workers at startups, at least that's the way the article reads. It
says so right in the first paragraph: "a giant negative income tax for the
average American." Average Americans do not work at startups.

------
peterwwillis
Instead of this tax credit for the already-middle-class, why not raise the
standard of living in poor areas by investing in education, food security,
health care and jobs in those areas? If it works, you raise the poor up to the
middle class, reduce dependence on government subsidies, and grow the economy.

Let's say you start a business in a poor neighborhood. If you hire locals
you're by default investing in the local community and the local economy can
grow. If you hire outsiders, they can come into the city and help new services
start that will serve the needs of the workers, which will provide a limited
impact on the local economy.

If you provide assistance for education/job training, food assistance, daycare
and healthcare, the local community can gain the advantages they need to get
jobs. But if the jobs aren't local, they usually need major investments in
public transit, so IMHO it's better to invest in local small businesses in
these areas.

So perhaps this $6,000 credit isn't a bad idea, but spend it where it really
counts: poor cities and neighborhoods whose local economy could use it the
most.

~~~
kratak
How do you decide which neighborhoods qualify, and which don't? Just offering
a tax credit isn't going to convince many people to start a business in a poor
neighborhood anyway; usually, people avoid them because they don't want to
work in a poor neighborhood every day, and because they worry about their
safety. So are you going to have the government create businesses there?

Also, what about poor rural people? It doesn't make any sense to start
businesses there, because the population density is too low (and again, how do
you convince people to start businesses in economically unviable areas?). The
ruralites need to move to where the jobs are, but they don't want to do that.

~~~
peterwwillis
Finding the disadvantaged areas is the comparatively easy part. Many
municipalities have maps of neighborhoods that have food insecurity, housing
insecurity, an obvious lack of transportation, terrible graduation rates and
test scores, high crime rates, and a lack of registered businesses that aren't
primarily liquor stores or fast food.

Yes, it is hard to get businesses past the stigma of these neighborhoods. But
what's the worst thing that happens? You offer the tax credit and nobody takes
it? I think the bigger risk is if they take it, but the government doesn't
step up to provide other services that are needed for these businesses to
thrive.

No, I would not say having the government open offices is going to do anyone
any good. But it could be beneficial to start a program in addition to this
credit where the government can go into these neighborhoods and have classes
where they teach people how to become local entrepreneurs (I think they do
this already in a limited fashion in "nicer" areas)

Mainly my proposal applies to the urban poor, but rural areas still have some
untapped opportunity. Take the rest of the world's rural poor as an example:
small farmers organize into co-ops whose products are then sold on one or more
markets (which depending on the market will be either horrible or great for
them). I think in 20+ years when automated transportation starts to become a
real thing, we'll be able to more cheaply scale out small manufacturing jobs
to rural people. Ideally this could again use a co-op model, but I haven't
seen many tech companies with that in mind.

Everything I have mentioned, btw, you could start with a private organization
and then get government funding to cover a portion of your expenses. For
example, most food banks and school lunch programs get most of their funding
privately. They could also re-route some of the ridiculous defense spending
back into food assistance programs, which we know is a benefit to local
economies.

------
Shivetya
Instead of calling it a corporate tax cut I would prefer to state it as
equalization among competing jurisdictions. Meaning, even Canada runs a 15%
tax rate and brings in more by percentage of GDP than the US does with a 35%
rate.

Its pretty dishonest in linking new jobs as the metric to make startups look
better than corporations when its always been small business which employs the
most and works through more people than start ups.

Plus the idea of lowering the tax rate is to give the big players a reason to
bring the money back here instead of sitting overseas.

We did it before and the treasury benefited, other countries have done it as
well; see Canada which went to 15%. So please tell me how we justify more than
twice that rate????

------
Danihan
No, they aren't. Massive corporations are America's job engine.

~~~
dev1n
exactly.. The point of a startup is to utilize technologies so that they can
run more efficiently than big corporations, thus giving them a competitive
advantage and an economical one as well.

------
mmgutz
What differentiates a startup from a normal business? A standup desk?

~~~
nostrademons
"The ability to grow really fast." \-- Paul Graham

More specifically, we normally think of startups as businesses where you can
do the work once and then sell it multiple times, while in a normal small
business or consulting shop, you have to do the work for each customer.
There's a pretty big grey area - enterprise software companies often need a
significant amount of customization for each customer, while with the
sharing/gig economy, whether you can "do the work once and sell it multiple
times" depends on whether you consider "the work" to be the service the
customer is paying for or the service of connecting an independent contractor
to potential customers. But it seems to work pretty well as a functional
definition.

~~~
CM30
I think it's just as simple as a company that can grow really fast, usually
backed by some form of venture capital. Otherwise you'd be saying a simple
product/service bysiness is a startup, since someone selling a forum script or
web hosting is also 'doing the work once and selling it multiple times'.

------
bnolsen
Lower the taxes and don't let government get their hands on it at any stage of
the process. This smacks again of redistribution of wealth and I'm totally
against this.

~~~
random28345
> Lower the taxes and don't let government get their hands on it at any stage
> of the process. This smacks again of redistribution of wealth and I'm
> totally against this.

Brilliant! I'm sure that startups will flourish in an environment where there
is no functioning government. What I don't understand is why the movie Mad Max
didn't show a vibrant startup community with flowing rivers of lattes and
soylent, rather than the human misery that comes from the absence of rule of
law, retirement, and health care.

Serious question, do you really want to live in a world devoid of
"redistribution of wealth", where life is cheap, the working class is treated
like disposable trash, and treatable illnesses are a death sentence?

What would it take to convince you that the wealthy contributing some of their
riches back to society is the foundation for a functioning civilization?

~~~
winstonewert
How about we start by not attacking straw men?

Objecting to the redistribution of wealth isn't the same as trying to do away
with the rule of law.

~~~
random28345
> Objecting to the redistribution of wealth isn't the same as trying to do
> away with the rule of law.

The rule of law depends on the redistribution of wealth. Courts, public
defenders, police, regulators, juries don't magically appear out of nowhere.

Therefore, it seems obvious that if you are _absolutely_ opposed to the
redistribution of wealth, you are therefore absolutely opposed to what most
people would consider civilization: rule of law, education, public services,
etc.

Do you agree that being part of a functional modern western civilization is
impossible without the redistribution of wealth (paying taxes, serving on
juries)?

~~~
winstonewert
That's not what people mean when they talk about the redistribution of wealth.

The redistribution of wealth refers specifically to taking from those that
have more and giving it those who have less. In particular, having everyone
pay to maintain the rule of law is most certainly not what most people mean by
redistribution of wealth.

------
s73ver
Isn't this similar to Walmart not paying their workers enough, and encouraging
them to go on welfare and food stamps?

------
muninn_
Makes more sense to cut corporate taxes.

------
tmaly
I still think $6000 is a large amount in some sense for someone just getting
started.

I would much rather see this along with a flat tax. The recent discussion on
here about USFacts.org highlighted that revenue was growing in proportion to
population. What someone had said is that it makes the case for a much simpler
tax system. We spend 6 billion man hours a year on taxes in the US. Is that
really the best use of our time?

~~~
kratak
Flat tax is a horrible libertarian idea that simply hurts lower-income people,
because to get the same revenue you end up having to massively raise the taxes
on the lower classes, which they can't afford since they're already struggling
to make ends meet. We've had progressive taxation in this country since the
invention of income tax, for good reason. If you want simpler taxes, you don't
need a flat tax, you just need to eliminate all the deductions and credits.
Calculating a progressive tax is not hard: you just see which bracket your
income falls into, and then do the simple calculation. Or, you just look it up
in a table which most people do.

~~~
tmaly
Flat tax was just something that came to mind. I am not stuck on the idea, I
just think we could have something much simpler than what we have that
requires less of peoples time each year. I heard in Canada, the system does it
all for you and its much less of a time suck than what we have here.

~~~
Arizhel
It's not just Canada, it's all the developed nations. The US has a horribly
complex tax system, while the developed nations do not. It's because of all
the credits and deductions for everything. And it's hard to get rid of them
because someone will be mad and will write their Congressman, and also because
companies like Intuit (Turbotax), plus uncountable CPAs, profit from this
system.

