President Reagan: there's a California man named Harvey Goldstein who would like to talk to you about your tax program. You may have heard the name; he's the guy you appointed to your National Productivity Advisory Committee. Anyway, he thinks your tax program has come a cropper, and he wants to help you. The trouble with your approach, he says, is that to the extent it reduces personal taxes, it takes money out of the Treasury without guaranteeing it will be used in economically helpful ways. And the part of your package that helps big business is used most notably to acquire other businesses. In neither case does it generate new business and new jobs.
Goldstein, a Los Angeles certified public accountant, has a better idea. He wants to amend the tax code to allow individuals to claim deductions of up to $15,000 ($30,000 on a joint return) for cash investments in small businesses--operations with no more than 25 employees. That, shorn of the legislative safeguards against various forms of abuse, is it. He thinks you'll like it. You already know the two critical factors behind his plan. On the one hand, small entrepreneurs and would-be entrepreneurs suffer a chronic inability to raise sufficient operating capital. They often can't get bank loans, and private loans to small businesses are treated for tax purposes as non-business loans. On the other hand, small businesses are the critical source of new jobs. Well over half the net new jobs in America are generated by small and new businesses. Yet, according to Rep. Jack Kemp (R-N.Y.), the Fortune 500 have created no net new jobs in the last decade.
Goldstein's plan would cost money, and he is frank to say he doesn't know how much. "I ran my own guesstimate and came up with around $650 million," he says. "But that's just a guess. I assume that the businesses created under the proposal would employ a lot of people--that's the idea to begin with--so there would be a recovery of some of the outlay through income taxes." One reason Goldstein can't figure the cost is that no one knows how much of the money now drained from the Treasury under current IRS provisions that encourage investment in economically worthless tax shelters would be attracted to small businesses.
"As an accountant," says Goldstein, "I spend a lot of my time with people who have a lot of money trying to find places to put it so they can avoid paying income taxes. To me, the most productive place to put it would be into a business, as opposed to some nonproductive investment. . . .
"I'll tell you another thing: it's already on the books. There's a provision in the tax code that says that if a business fails, an investor in the business can write off up to $50,000 of his investment as an ordinary tax deduction. If it fails. What we are saying in this bill is, why wait till it fails? Let's give the write- off up front and create some incentive for going into that business, giving some money to that business, and maybe it won't fail."
If I may say so, Mr. President, that sounds like something you might have said.
The basic legislation was introduced last year by two Republican representatives, Bobbi Fiedler of California and David Marriott of Utah, but it got lost in the shuffle of your own tax package. It will be reintroduced shortly. Would you take a look at it? Harvey Goldstein would be grateful. America might be too.