My Solution...Same as 30 Years Ago: Get cash to small business

Harvey A. Goldstein, CPA

Hello my name is Harvey Goldstein. I’ve been a practicing CPA for a very long time. I used to be the managing partner one of the largest CPA firms in Southern California. I’ve had quite a great professional career. I've been blogging since 2005. This is a repost from a while back. I challenge you to tell me this same information isn't as relevant as it was 30 years ago or when I posted it early on the new web.

In 1980s, I had the good fortune of being appointed by President Ronald Reagan to his National Productivity Advisory Committee. Our game plan was to provide suggestions to the president on how to improve the productivity of the United States.

If you recall in the early 80s when Ronald Reagan was elected president we were living in one of the worst economic times since the Depression. The President believed that increasing productivity would help our country restore its economic well-being. Our committee had met on many occasions. So the real question about this committee was since we were studying productivity were we productive? Frankly no. We wrote a report. I still have a copy of it in my garage. It was just another one of those Washington committees that meet prepare a report that nobody reads.

The Congress during the early 80s was attempting to do everything it could to come up with an economic plan to help increase employment and improve our economic conditions. As you may know most of the members of Congress spend most of their time sitting in committee meetings discussing ways to improve the economy and making laws we don’t want. Since most of the members of Congress have been around for a long time and have spent most of their careers in committee meetings they really don’t have any idea what it takes to help business people to improve their lot. Yes some of the members may have been in business but their real business is government.

They live in the beltway and never see the real world. Today history repeats itself. Again we have some of the same members of Congress sitting on their butts behind the protection of the Beltway coming up with the same ideas as in the 80s.

Just listen to the rhetoric. Nothing new.

Reduce capital gains to help small businesses raise capital.
Will a reduced capital gain rate really induce people to make an investment in a small business? What is the incentive of investing in a high risk venture when it’s success may come, if at all, some time in the distant future? Incentives should be quick and not something to wait for.

Or how about providing employment incentives so that people in business will hire? Think about this: If I’m a small business owner does it make any sense for me to hire a person who I might have to pay anywhere from $20-$25,000 or more per year and the government is going give me an incentive of $5,000 to hire that person? It’s a joke. Where will I get the other $15-$20,000 to pay them? And does it make sense to hire somebody I probably I don’t need as this time?

In addition to they’re now talking about giving banks billions of dollars to loan to small business. Is that believable? I think not. When a small business owner walks into the bank hands them a financial statement that shows a shrinkage in sales and a shrinkage in profits would any banker loan them money? I doubt it. The goal of the bank is to get paid back. Looking at declining business is a risk the bank will not take. These were all the same ideas and solutions that they were presented during the 80s. What we need is money, cash, green you know that stuff that pays the bills. What should be done?

During my travels in the 80’s to attend my not so productive committee in DC I started to come upon an idea that would provide a sufficient incentive for individuals to take a chance on investing in a small business.

It’s just too simple.

But here goes. Instead of providing an incentive to hire people and an incentive if the business succeeds why not provide an incentive for direct investment into the business up front. I hate to use the terms which in the eyes of the government and the Internal Revenue Service is a real no-no but to why not make the investment in a small business a legal tax shelter.

When in DC I had presented the idea to a number of members of Congress in the 80s and they said to me
“write a bill”. So I sat down with my tax partner and we came up with “The Small Business Investment Incentive Act.” It provided that a group of investors could invest up to $250,000 into a small business and take a tax deduction for the investment. This gives the investor a tax benefit immediately upon the investment in the business as opposed to waiting for some future success to reap a tax benefit.

If all businesses have the same tax benefit then all businesses are on an equal footing. Therefore investors will be looking for better businesses to invest in since the incentive is the same for all. If the business becomes successful and the investors receive their money back through the sale of their interest in the business at that time they would pay back the tax incentive they received when they invested. Anything over and above their original investment would be taxed at a capital gains rate. About 30 years ago this idea was introduced to Congress and had a whopping 26 sponsors.

The bill went nowhere. Actually in the 1986 White House conference on small business it was considered the number 11th most important issue that small businesses at the conference had supported and wanted adopted.

Now is the time to get The Small Business Investment Incentive Act on the books.

This is a direct incentive for providing cash to a small business. Cash that can be used for expanding, marketing, hiring or anything that might make that business successful and sustain itself during these difficult times.

If you think this idea makes sense please send this information to everybody you know
and if you would like a copy of The Small Business Investment Incentive Act as originally introduced in 1983 I'll post it on http://www.cashplan.com/ or email it to you.

That’s my solution.

I'd love to hear what you think, please leave me a comment by clicking on the link below (if no one has left a comment yet, it will say 'no comments.'