Wednesday 22 April 2009

Why taxing the rich is bad for the economy

HM Treasury
"The rich get richer, the poor get poorer".

In very simple terms, those who have money are able to make more money quicker than those who don't. They have access to investment opportunities that are not available to those with lesser capital.

It's unfair, isn't it?

Yesterday I attended the excellent Geek'nRolla event organised by TechCrunch Europe. Around me were scores of budding entrepreneurs, many of whom need investment to get going - they're not "rich kids", as Fred Destin of Atlas Ventures put it.

In the earliest stages of a high-growth business, it tends to be wealthy individuals who stump up the money needed to get them to take off. These Angel Investors might put in £50,000 or more at a time into promising new businesses.

These businesses could fail. Actually, many do and the investor stands to lose everything: these are very risky investments.

On the other hand, according to Paul Gompers and Josh Lerner in The Money of Invention,
Ninety percent of new entrepreneurial businesses that don't attract venture capital fail within three years.

It is vital, then, that entrepreneurs find the financial backing they need, or else they stand to fail, very quickly.

Meanwhile this goverment supposedly expects our 'creative' industries to be the growth engine of the British economy.

Moreover, Alistair Darling announced measures today to train people for this new economy and said
Taking money out of the economy would damage services and create more unemployment.

Yet the 50p tax rate would do exactly that: reduce one vital source of direct, efficient funding for the engines of future economic growth and employment in Britain.

I'd rather that the wealthy put their cash into start-ups rather than handing it over to a poor allocator of capital.