Cullen in the thread linked here (where I asked about a rational federal budget process), you said in part:
I’m wondering if the U.S. government could achieve the same effect by fully implementing your view that holding stocks and bonds is not truly investing, but rather allocating savings.
Returns from stocks, bonds, and other related instruments that are currently considered to be “investments” are taxed as regular income (or near that rate).
Returns from truly risky investments are taxed at a very low rate, say 5%. So, when people put their money truly at risk, they are greatly rewarded.
I’d consider all pre-IPO investment to be in this category, from angel investing on up. I think you’d also want to allow stock purchases at the IPO to get the same low tax rate, partly because it’s still a bit risky, but mainly becuase you want the early investors to be assured of as big a payoff as they can get. After that (one week post IPO?) purchases are taxed at the full rate.
Perhaps index funds might arise where ordinary citizens could get a small piece of the action, spreading their risk across thousands of startups. Maybe having some small percentage of your portfolio in such a fund would become a recommended practice to provide upside potential.
It seems to my fairly unsophisticated understanding of our monetary system that this could provide vast amounts of capital to fund innovation. And the government would not be in the position of deciding who the favored venture capitialists are, a situation that could invite backroom deals with politicians to gain access.
In essence, the government takes the hit on the tax receipt side, so is still investing in innovation.
Would this work?
Marked as spam