My friend Steve Broback asks a very good question:
…eliminate all capital gains taxes on small and start-up businesses to encourage innovation and job creation.
This is all that’s mentioned about this elusive break in the “Barack Obama’s Plan For Small Business†PDF on his site.
I don’t understand. Where and how do startups and small businesses
pay this tax now? I’m trying to imagine the scenario where this
happens. Perhaps someone who sells stock to fund a startup would not
have to pay capital gains? Seems unlikely.
Seriously, if anyone has any knowledge about this I’d like to know.
I can't find any further discussion out there either. But I can say this–something that should be obvious to Steve since he and I built and sold an eventually-not-so-small business together as partners. (And paid whopping capital gains taxes on the sale–see here.)
The obvious answer is that when startups sell their businesses, they don't pay capital gains taxes on the sale. I don't know if that's the plan, or how it would be implemented, but the basic idea is straightforward.
I'm equally curious about the details and implementation, though. Realistic? Practical? How much would it cut tax revenues? Harder question: what would the incentive impact(s) be on the overall economy?
I sent an email to the gang at Economists for Obama, to see if they might plumb these murky depths for us.
Update: Just found this on Business Week, characterizing Obama's position: "Zero capital gains tax on sales of shares in small companies." Not sure where this interpretation came from, but it seems to support what I surmised above.