Steven G. Percifield--author

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Steven G. Percifield  Author and consultant
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An Open Letter to the GOP
Presidential Candidates

May I propose, for your consideration, a very simple, specific stimulus package with almost no costs and all-but-guaranteed benefits? Its purpose, which it WILL fulfill, is to stimulate commerce—ALL commerce, by targeting a currently non-existent portion of it for growth. The obvious effect of more commerce is more jobs--and with these, more tax revenue.

All businesses (and all institutions for that matter) become moribund as a result of success. Past success dictates current directions even when those directions are no longer valid. Preexisting relationships form the basis upon which hiring and purchase decisions are made to the exclusion of possibly better choices. Accumulated expertise remains long after the need for that expertise has dissipated. Established institutions become fat and staid even as leanness and agility are required. Capital, rather than being invested in the future, is retained as a safety net and to maintain this status quo.

Consider, please, affecting a change in the tax code aimed solely at stimulating the development of new manufacturing enterprises:

  •       A new manufacturer would be defined as one newly-created for the purpose of manufacturing a tangible consumer or business-to-business product (service companies, professional firms, brokers, consultants, etc. would not be included)—it would not include new ventures of existing businesses

  •       For the first five years following that new business’s establishment, said business would pay NO Federal corporate income tax (if a sub-S, there would be no taxes on any undistributed income)

  •       For the second five years, the enterprise would be liable for 20, 40, 60, 80 and finally 100% of their Federal corporate income taxes

  •       For the first five years, newly created manufacturers would be exempt from unemployment taxes

  •       For the first five years, newly created manufacturers would be exempt from FICA taxes

  •       For the first five years, new businesses would be immune to interference by the NLRB

  •       For the first five years, customers buying from one of these newly formed companies would receive a tax credit equal to 5% of their purchases from them

The most obvious effect of such a plan would be to encourage the creation of new manufacturers by easing the capital requirements and headaches of such start-ups. Other benefits would include the hiring of additional people and the more immediate rewarding of innovation (leading to increased development of it).

Even though this program would seem to provide a competitive advantage, unfair to existing manufacturers, it would benefit them as well: equipment and parts  sourced through these start-up companies would provide them with a tax credit helping them to maintain their competitive positions as well. Further, the increased numbers of working Americans would provide these existing companies with the potential for more sales. Remember, as you on the right are wont to say: a rising tide raises all ships.

Lastly (and perhaps most importantly) it would cost the Federal Government next to nothing. The primary tax benefits would go to companies that do not presently exist so the revenues given up do not presently exist either. Further, it is inconceivable that the tax credits given away for purchases FROM these start-ups would be less than the additional revenues generated from the people they would employ.

Is there a downside to this? Not for us but likely for you--it might be detrimental to the cozy relationships all politicians (but you guys in particular) seem to have with big-business interests.

In any case, the government cannot and should not attempt to “create” commerce or reduce unemployment by viewing business through its myopic eyes, handing out favors, or by insulating selected businesses from market decisions. However it can most certainly encourage commerce by loosening its strangle-hold on it.