If you really want to see economic growth, eliminate capital gains tax on seed stage investments. This was the theme of my interview with Newsmax. Enjoy:

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I think we are all sick of the rhetorical stalemate between the left and the right.  Everyday we hear conservatives argue for federal spending cuts and tax reform while progressives argue for Keynesian stimulus and preserving the social safety nets. Each side insists that its preconceived ideological bent is “the way” to job creation and recovery while simultaneously ignoring all of the research and clearly established data on how to really create jobs. To return to the pre-crisis unemployment rate in the next two years we need to add 580,000 net new jobs per month and right now we are not even keeping up with the population growth. We don’t have time for this nonsense.  The jobs were lost for a few simple reasons and they can be replaced with a few simple steps.

It really is simple too.  The economic shock started with the housing market collapse causing an implosion of wealth, a crisis of consumer confidence, and a credit crunch, but the shuttering of millions of businesses is how we lost the jobs. We could replace the jobs by replacing the lost businesses, but for the ways of Washington. The last few years have proven that the right’s hiring incentives for existing businesses and the left’s public infrastructure projects cannot create enough jobs. We need more businesses. Yet, neither political wing is pushing money or focus to the greatest source of new jobs.

One non-profit group that tries is the Kauffman Foundation whose president, Carl Schramm stated, “One of the things that many economists don’t appreciate is that all new net jobs created in the United States come from firms that are less than five years old.” This fact is supported by decades of Bureau of Labor Statistics data. Opening a factory means hiring equipment operators and support, opening an office means staffing it, but if you are starting from scratch it means hiring everyone you need all at once.

Funding rapid business expansion requires replacing the job creating role of home equity, which has long been the primary source of seed money and SBA loan collateral but which is now lacking. The trillions of dollars sitting idly by on the sidelines could be lured back into the economy to fill this void with five easy steps:

First, eliminate all taxes, capital gains or otherwise, on seed investments to new businesses.  This should not apply to later rounds of investment, but be exclusive to startup money for startup firms hiring people. In fact, if this incentive is not carefully targeted to new businesses only, capital would inevitable drift to the more conservative investment in existing businesses that would not create enough employment demand.

Second, losses recognized from seed money investments should be 100% tax deductible in the year in which they occur rather than limiting them as with most capital losses.  The key is to make the risk of creating jobs as painless as possible.  In fact, these first two steps alone would drive billions of dollars into business creation and thus job creation.

Third, during the first five years of a new business, all regulations that don’t have a direct public safety function should be completely relaxed on these job creators.  As Dr. Schramm put it, “We regulate brand new businesses as if they’ve been around for fifty years and they have a hundred thousand employees.”

Fourth, also during the first five years, all excess operational business losses should carry forward and be completely deductible through the first profitable year or years if necessary.  All new businesses start in the hole; giving these businesses the opportunity to gain footing when they finally turn a profit would increase the probability of long-term success and their ability to keep hiring.

Finally, the Startup America Partnership program should be beefed up with grant money and more practical means to not merely support the entrepreneurial spirit but actually drive cash investment to the entrepreneurs.

Those on the left support direct spending by the government and their counterparts on the right frequently repeat that we shouldn’t burden private sector job creators.  Unfortunately the direct spending liberals support often rarely goes far beyond public projects, and the language of “helping job-creators” is used to benefit those who do nothing to create jobs. Instead of trusting in loose correlations, we need indisputable causation. Despite the adamant belief of some that reducing taxes on all the wealthy will spur job creation, there is never any guarantee that money not spent on taxes will be spent creating new jobs. Without targeting policy to promote real job creation, money will remain on the sidelines and, with job creation barely exceeding the 127,000 jobs per month required just to keep up with population growth, it will take decades to recover the 7.9 million jobs we lost in the Great Recession.  If we want to see a full recovery from the Great Recession any time soon, there are only two words that matter: SEED MONEY.

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Over the last 30 years there has been an undeniable acceleration to the shift of wealth to the wealthiest.  Now, 400 people (not 400,000, just 400) have more wealth than 150,000,000 other Americans.  This is an unsustainable pattern that will ultimately hurt the top if not lead to blood in the streets.  Watch this video featuring Milton Friedman, Ayn Rand, Cornel West, Alan Greenspan, Phil Donahue, Tavis Smiley, Gar Alperovitz, Bill Maher, Alan Grayson, Ronald Reagan, and 99 percent.

Cannibal Capitalism is the short-sighted destruction and neglect of the long-term engines of economic growth. Cannibal Capitalism is the problem, but all capitalism is in the crosshairs of the Occupy movement. We’ve all see the damage, but this video takes a look at the causes. The Occupy Wall Street has a passion that everyone can relate to or at least 99% of everyone. But, so long as it can be well categorized as fringe, communist, or anti-capitalist, there will be no way to keep it going. The passion has to be informed by history and current economic reality.

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During National Small Business week, as the head of NLS Venture Capital, I announced an ambitious campaign to spur the creation of a million small businesses nationwide. While as a guest on the talk radio show American Underdog, we talked about starting businesses and getting funding and what it takes to make it work.  Set your own course. Steer your own ship. Start a business!  Here’s how.

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Economically speaking all Americans fit into four buckets.  People are either in business, in the labor force, in prison, or in some form of welfare or entitlement system.  It is in the nation’s best interest to minimize the population in the latter two buckets because those in prison or welfare are not only failing to add to the economy but actually weigh it down with a heavy burden.  We may not like to think of unemployment insurance, Medicare and Social Security as welfare, because while working we pay into these, but really, we call these deductions “payroll taxes” for a reason because in the end it still comes down to tax dollars paying for stuff that the individual can’t pay for at the time.  Yet, with all of the discussion of taxes, deficits, the state and direction of the economy, so very little attention is ever given to this fundamental problem of the attrition of the productive population while the unproductive population is growing rapidly.  The practice of cannibal capitalism, which pours people from the additive buckets into the deductive ones, is allowed to continue completely unabated while fiscal discussions rise and set with strategies to further burden the labor force with the weight of welfare for the rich and poor alike.

Our nation jails twenty-five percent of the world’s prisoners although we represent only five percent of the population.  The millions of able bodied men in prison and the millions more who are unemployed are not contributing to the economy.  That problem belongs to all of us and yet we are doing more to accelerate that problem than address it.  It is not a comfortable conversation but one should ask why we lead the world at producing convicts.  At what point would a decent person, one who would like to positively contribute to the economy, resort to crime perhaps even violence to feed his family?  People are regarded as heroes when they fight and even kill to protect their country.  At what point, would a man feel so cornered by his exclusion from the economy that he would feel a duty to fight or even kill to protect his family from deprivation?

There has been a lot of talk about changing the social contract or compact.  Some, including the President, would say that certain policy proposals are attempts to renege on this agreement.  What is the social compact? According to Thomas Hobbes, a man considered to be one of the fathers of Western political philosophy, in the absence of political authority we would live in a state of nature, where each person would have unlimited natural freedoms, including the freedom to harm all who threaten his self-preservation leaving us in a state of bellum omnium contra omnes (“war of all against all”). To avoid this, we have attempted to develop civil society through a “social contract” in which we each supposedly gain civil rights in return for subjecting ourselves to civil law.  But, when “civil society” fails to serve fundamental needs and actually works against the personal interest of people, a person may justly feel that subjection to the laws of such a system is a losing proposition.  Our messy history is replete with painful and often violent adjustments to the social contract.

In the twentieth century, though, this country arrived at a proposition where concessions were made to both rich and poor alike in order to pacify and grow the middle.  The deal was basically this: the rich can amass whatever wealth they can so long as others also can have the prospect to grow rich, the labor force in general can live a comfortable life, and the poor aren’t completely destitute.  The civil rights movement was really just a campaign to get the excluded minorities, especially African Americans, in on this deal.

Now, it does appear that some want to renege on that deal as conditions, costs and opportunities have changed.  Conditions?  The rising cost of living amid stagnant wages for the middle-class has forced families to depend on multiple incomes to have that “comfortable life” while our latchkey children are left to fend for themselves and it still feels like we are falling behind.  Costs? The threat of more and more of the baby boomers living longer and drawing Social Security, while healthcare costs rise out of control leave many convinced that entitlements will bankrupt the nation.  Opportunities?  Businesses just don’t need most of us as much as they did in the past.  Globalization has permitted businesses to resource their enterprises with the cheapest labor in the world reducing their dependence and thus their concern for the plight of the domestic labor force.

Nevertheless, if you renege on the deal that has given you a “civil society,” how long can you really expect things to remain civil?  The only hope, if there is one at all, is to push more people into the productive buckets.  Subsidizing the living standard of labor force and the creation of new business is the only way to stop the cannibalization and really improve the fiscal state of this country.

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