View From a Height

Or, "Taming the Wild Entrepreneur."

From the WSJ's description of the President's tax plan:

As expected, Mr. Obama proposed raising taxes on private-equity fund managers and venture capitalists, by taxing their profits as ordinary income instead of capital gains. That change would raise $23.9 billion over 10 years, according to White House budget office estimates.

I seem to recall the President making some comment in his speech to Congress about helping entrepreneurs. (Maybe I remember it because it was one of the few times where Nancy "Jumping Bean" Pelosi took a brief break from her calisthenics.) Where does the President think entrepreneurs get their capital? Removing this tax break may raise a few billion in the short term, but it removes a key incentive for capital to flow to entrepreneurs in the first place, which means that, like all tax increases, it will ultimately raise far less than projected.

This is self-defeating. Unless, of course, the President wants the government to pick the inventors who'll get the money instead. Almost certainly, he'll claim that he's supporting entrepreneurship by redirecting money into green energy startups. That, combined with his ongoing attack on the oil and coal industries, designed to make green power more competitive by making oil and coal more expensive, will allow him to claim that government investment in just as efficient and effective as private investment.

Of course, it does expand another patronage class, directing creativity where the government wants it to go, with the added satisfaction of making the inventor beg to the government for support.

As for the private-equity funds, those are the funds that have the most flexibility and creativity. Obviously, we'd want to punish them, as well. Stock appreciation is no less a capital gain when one of those funds sees the benefit, than when yours or my 401(k) or IRA sees it, but the President wants to treat them differently, because most private equity investors are successful and prosperous.

One last note. On Tuesday night, the President said that, "if you earn less than $250,000, your taxes won't go up one dime." Turns out he wasn't talking to individuals, but to married couples. If you live in the northeast, it's pretty common for each spouse to bring home $125,000 apiece, and it doesn't go all that far.

We really have elected a cross between FDR and Wesley Mouch.