There are some “conservative”* folks out there who would have you believe that the only thing keeping them from being wildly successful entrepreneurs is regulations and the tax code. It follows, of course, that these folks think the path toward American greatness starts with (a) the assumption that entrepreneurship is the zenith of American usefulness, (b) entrepreneurs do better when there’s zero regulation, and (c) entrepreneurs are unfairly targeted by the tax code.
Of course, as is the case with most things conservatives would have you believe, this idea is not only poorly thought out and negated by facts, but also represents a major blind spot in their own place as voters and citizens of this country.
Entrepreneurship Uber Alles?
First, let’s start with the assumption that being an entrepreneur is the absolute pinnacle of what an American can be. You’re a job creator. Your self-determination is off the charts. There’s nothing your hustle can’t overcome.
I like entrepreneurship. There’s something really fun about taking nothing and turning it into something. And not to get all Ayn Rand on you, but there’s a lot to be said for-profit motive driving people’s work, and the idea of altruism being bullshit. You would be hard-pressed to find an easier way to motivate (most) people than through the promise of money, and you’d be equally hard-pressed to find an example of someone working day in, day out strictly for the good of others.
It makes sense that entrepreneurs occupy a special place in American lore. They literally do create jobs. They literally do look into the void and create a profit-making enterprise, sustaining themselves and others in the process.
I’m really glad there are a lot of entrepreneurs in our country. I’m really glad that I have a bit of entrepreneurial spirit in me. But I’m also extremely happy that there are boatloads of great people – people without whom our society couldn’t function – who choose not to be entrepreneurs.
I’m glad that the men and women who serve in the armed forces forgo the profit motive to protect and defend the Constitution of the United States. I’m thankful for the men and women of law enforcement, who risk their lives to protect the rest of us instead of starting small businesses.
I’m grateful that we have career civil servants who become subject matter experts in the administration of the behind-the-scenes minutia that makes this country work…and grateful that 99.9% of them do so without leveraging their positions for personal gain beyond their paychecks.
I’m appreciative that we have educators in our country who value creating a future for our children more than they value having the biggest house on the block. I’m humbled that there are assistant district attorneys, public defenders, and judges who place the administration of justice above the desire to get rich.
I’m amazed that there are countless ministers, rabbis, imams, priests and other faith leaders who value their personal callings more than the chance to scale, synergize and optimize their way to beating last year’s numbers.**
I’m happy that we have millions of people who are content to come to work, do a great job, and go home as well. I’m pretty sure our economy would fail without a steady stream of people willing and able to do jobs in exchange for pay.
I haven’t even touched on the wildly successful employees of companies – many of which lost their entrepreneurial founder years ago – who risk zero of their own capital while leveraging the profit motive of an entrepreneur. CEO’s, COO’s, C-blank-O’s, VP’s, Directors, etc.
The conservative economic elevator pitch is that if you want to make America great, you have to make things great for entrepreneurs because they are the backbone of our society. A few generations of poor, working-class people have bought into this, and accordingly vote against their own self-interest, because they, too, will someday start their own businesses and make it big.
My take is this: there are a million other things you can do besides starting your own business. And the reality is, you’re a lot more likely to do any of those things than you are to start your own business and derive 100% of your income from it.
So rather than start the conversation with the assumption that being an entrepreneur is the end-all for any red-blooded American, I humbly proffer a counter.
Being happy, relatively self-sufficient, and fulfilled is the end-all for an American.
Some people do that via entrepreneurship, but it’s hard to deny that a lot more people do that in other ways.
And if that’s the case, why do we always have to talk about the economy in terms of what’s best for entrepreneurs? It’s a vital part of a much bigger conversation, that’s it.
Zero Regulation? Hold The (Regulated) Phone.
Capitalism is pretty simple, as a concept: private owners (as opposed to the government) control capital and use that capital to create things or services to sell for profit.
If you asked most Americans to tell you about a great example of a purely capitalist country, they’d point to the good ol’ U.S. of A. Truth be told, we’re actually #17 on the Index of Economic Freedom, published by the conservative Heritage Foundation and the Wall Street Journal.
That means that Hong Kong, Singapore, New Zealand, Switzerland, Australia, Estonia, Canada, United Arab Emirates, Ireland, Chile, Taiwan, United Kingdom, Georgia, Luxembourg, The Netherlands, and Lithuania all rate higher as pure capitalistic societies than the granddaddy of capitalism.
Now to be fair, that’s the lowest the US has ever been since the analysis started in 1995…but we’ve also never been higher than #4, and that was in the very first year of the rankings. Save the argument that Obama did it, conservative brethren…(a) this was written by the Heritage Foundation, for God’s sake, and (b) he fixed about 99 other problems while we were falling a few notches on this survey.
Back to this topic. Interestingly, if you factor out the scoring for “Government Integrity,” the US falls to #22, and we get leap-frogged by Mauritius, Malaysia, Latvia, the Czech Republic, and South Korea.
We also have, far and away, the biggest gross domestic product of the group, our inflation is at 0.1%, and our unemployment rate is around 5%. We’re doing pretty damned well, notwithstanding the fact that we could be more “economically free” by this rating system if we had less government regulation.
On a rating of just “business freedom” from regulations (broadly, how easy is it to start and run your own business), we’re #17 as well. If you look at just “labor freedom” (from a business standpoint, not from a laborer’s standpoint – all of the criteria are focused on how the business is required to treat the laborer), we’re #1 in the entire world. There are a few left out of the survey, but suffice it to say, there’s not a better country on earth for business with regard to labor (education, availability, how you have to treat them) than the United States.
So, we’re the richest country on the planet, we have almost zero controls on how you have to treat workers, and there are only a few countries on earth where you’d find fewer business regulations than you’ll find in the US…and those countries all have GDP’s and populations a fraction the size of ours.
What that means is that we’ve somehow managed to create one of the biggest economies on the planet with one of the largest populations on the planet, with very low unemployment and very high GDP per capita, and we’re in the highest 9.3% of economic freedom vs. the world. There are 166 countries, representing 6.5 billion people, with worse economic freedoms than the good people of the United States of America.
Arguing that regulations are holding back the US is like standing at the Ferrari dealership with a briefcase full of cash, crying that they don’t have the red one you wanted. Get over yourself, if you have enough money to buy a Ferrari, you have very little to cry about in general, and all of us are thinking of kicking your ass.
We’ve clearly done well for ourselves in our “heavily regulated” economy (that’s less regulated than 90.7% of the nations on the planet, and less regulated with regard to workers than about 99.9% of the world).
But why do we even need regulations? Shouldn’t we just let the economy manage itself? A little laissez-faire action?
WTF, didn’t you pay attention in middle school? In the absence of regulations, you get monopolies, unsafe working conditions, a completely lopsided economy, zero rights for workers, wild speculation on the markets, and eventually dudes in top hats and monocles are drinking bathtub gin while the rest of us become dirt farmers in Oklahoma.
And let me assure you, dear would-be business owner, that in the absence of regulations, there’s literally a zero-point-zero chance you’d ever get the chance to open up shop. Laissez-faire capitalism doesn’t much like competition, and there are a few hundred ways to wipe you out before you get started.
Yep, you read right: the US economy has minimal regulations vs. the rest of the world, but we have a stronger economy than just about any country on the planet…and we have just enough regulations to make starting a business possible even if your name ain’t Rockefeller.
Death and Taxes
So entrepreneurship isn’t the pinnacle of human existence, but if you want to be one, you live in a society that’s regulated just enough to make sure you can do it.
So if that’s not it…it must be taxes. Our entrepreneurs are clearly taxed at too high a rate. It’s a disincentive to starting businesses.
Ignoring the fact that the same people think it’s the pinnacle of human existence (until they read my blog) and that nothing should stop them from hustling their way to a Rick Ross-level of opulence…
At first blush, it could be argued that our tax code is not written to advance the cause of the entrepreneur. But I don’t like stopping at first blush, in economics or in life…if I did, I would have never met my girlfriend.
America’s corporate tax rate is 35%, and our top income tax rate for individuals is 39.6%.
Our corporate tax rate is the 8th highest in the entire world. Our income tax rate is the 38th highest in the world.
These, of course, are looking at the statutory rates, not the effective rates. That is, they’re looking at what the stated rate is, without reference to the litany of deductions and accounting maneuvers available to reduce the actual taxes paid by any company.
It’s hard to say exactly what the US effective corporate tax rate is. That being said, it is easy to say that our tax code makes “what you are supposed to pay” and “what you actually have to pay” different…and different depending on how good your accountants and tax guys are.
In fact, there were 27 companies listed on the S&P 500 in 2015 that paid zero income tax, despite being profitable for that year.
How? Without boring you too much, companies can write off losses from previous years, they can depreciate capital expenditures, they get tax credits, some utilize pass-through taxation so only the shareholders get taxed, and about 5,000 other ways that are too complex for me to understand or write about.
Let me simplify it for you. You make $100k this year, and the tax rate is 39.5%. So you pay $39,500? Of course not, you have deductions, and this year you get a credit for being you. So now, you only have to pay $20,000 in taxes, so your effective tax rate is only 20%.
Not bad, right?
Well, if you were a company, and that $100k was your profit, you could just spend money on enough things the company needed to bring that down the rest of the way from $20k to zero.
Or, you could pass that through and say it wasn’t me that made $100k, it’s these 1000 people that each made $100, tax them each a few bucks, but don’t tax us.
I might be oversimplifying, but the truth is in there…to say that our tax system keeps entrepreneurs out of the game is a gross misrepresentation of how the United States tax system works.
Excuses are like…well, you know.
So we’ve established that there are many other things to do in the world besides starting your own business, and the number of people who don’t own businesses as their sole means of income greatly exceeds the number who do.
And we’ve established that the regulatory environment for American businesses isn’t ridiculous, and is likely the right mix to keep us from dancing the Charleston like it’s 1929. Not to mention it’s the only thing keeping you in the category of potential entrepreneur…without regulations, you’d be toast before you set foot in the kitchen.
And, we’ve established that our corporate taxes, while objectively high versus the rest of the industrialized world, are offset by a ridiculous amount of deductions, loopholes, pass-throughs, and accounting tricks. There are many, many ways to wind up paying significantly less than your “on paper” rate would indicate, and most successful companies navigate these waters with considerable skill.
My original point was this:
There are some “conservative” folks out there who would have you believe that the only thing keeping them from being wildly successful entrepreneurs is regulations and the tax code.
Not only does this argument fail on the merits, but it’s also a giant cop-out.
I personally know numerous millionaire entrepreneurs. None of them have a time machine, most of them started relatively small, and all of them live and work in the United States of America.
That means each of them became successful doing what they wanted to do, in spite of (or thanks to) the regulatory scheme of our country, and in spite of (or thanks to) the tax code of our country. They wanted something, they went after it, they got a little lucky, and they wound up leveraging their hard work and talent into something great.
And to round it out, I know several wealthy non-entrepreneurs as well. I know many men and women who worked their ways up to the corner office, working for others. They’ve earned MBA’s and JD’s or BS’s or Pharm.D.’s, they’ve put in the hours, and without risking a dime of capital, they’ve earned a ton of money. Right here, in the good ol’ USA, where “starting your own business” is the gold standard.
So what that means is, if you ain’t rich, it ain’t because starting your own business is the only way to get there. And even if it was the only way, you ain’t poor because the regulatory scheme or the tax code has been stacked against you.
It could be bad luck, it could be bad timing, it could be health issues….
It probably just means that you haven’t wanted it bad enough.
Everything else is an excuse.
My humble request, dear reader, is that you ask your government to look beyond what’s best for the entrepreneur and do what’s best for everyone, including the entrepreneur.
Real entrepreneurs who want success are making things happen to an amazing level in our current system.
And, the vast majority of us are not and never will be pure entrepreneurs…many because they don’t want to, some because they’re making excuses, and many because they’re just parroting the lines with which they’ve been indoctrinated.
And that’s…okay! I still love you all anyway and welcome you with open arms when you decide to leave the Republican party.
* I say “conservative” in quotations because there’s hardly anything actually conservative about the modern conservative movement. For the most part, they are just as (if not more) radical than the “radicals” on the left they demonize. Their agenda is just radical in the other direction.
** I’m not counting mega-church leaders who make millions off of their huckstering ways and a friendly, pandering tax code.