In the State of the Union address earlier this year, Obama acknowledged that “the true engine of job creation in this country will always be America’s businesses,” and that to spur the economy and job creation “we should start where most new jobs do—in small businesses” prior to declaring that we should “eliminate all capital gains taxes on small business investment.”
The result of this effervescent, yet evanescent evangelism? Our lawmakers deliberated and subsequently concocted a legislative scheme to incentivize private investment and job creation that lasted all of 100 days.
That’s right. On Sept. 27, 2010, President Obama signed the Small Business Jobs Act that provided for 100% relief from capital gains taxes for investments in qualified startups and small business that are held more than five years.
The exemption expires on Jan. 1, 2011, coincident with capital gains taxes at the highest bracket rising from 15% to 20%.
Most private investors take at least 100 days to evaluate an opportunity. Few angel investors I have spoken with are even aware of the exemption and not a single offering out of a couple of dozen that I evaluated during this period pointed out the perk.
Policy penchants and partisan politics aside, politicians have extolled upon the virtues of no taxes on capital gains for the past 50 years. Prior to his tax cuts, President John Kennedy accurately noted that “the tax on capital gains directly affects investment decisions, the mobility and the flow of risk capital…the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy.” Most of our politicians know intuitively that small business is the primary and most reliable engine of job creation. Irrefutably, two-thirds of net new jobs are created by companies with fewer than 500 employees.
This past August, a research study entitled, “Who Creates Jobs? Small vs. Large vs. Young” further clarified that there is more to the equation than merely size. “Business startups contribute substantially to both gross and net job creation,” says John Haltiwanger, who co-authored the study along with two economists from the Census Bureau, but, “it’s all age—startups are where the job creation really occurs.” Most job creation occurs in the early years of new companies.