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Entrepreneur Credits - the Alternative to a Mansion Tax

It keeps rearing its head. Tax the rich! Make them pay their 'fair share'. It's the rich that got us into this mess. And all those other 'make them pay' soundbites designed to grab votes from our ever more squeezed population. The net effect is that wealthy people are pouring money into the Conservative party to help them fight off the scary wealth taxing parties. But all wealthy people aren't the same. What's important is not what they have, but what they spend their money on. And what the UK badly needs is for the people who know how to create jobs and wealth, to do more of it.

I've written previously about why mansion or wealth taxes are both impractical and counter-productive in terms of helping the economy to recover. They are also unlikely to reap vast rewards for the treasury, but popular soundbites put left-wing parties into power. It's not about whether it actually makes money for the country, it's about whether it's popular and sounds like it might.

My basic argument to would-be wealth taxers is:
I live in a ‘mansion’. I bought it with money I made taking risks which created jobs. If you tax me for owning it, the money the Treasury takes can't be used by me (a proven job creator) to risk in new businesses. Who’s more likely to create jobs with that money? Me or the government? 
Instead of penalising me for taking risks, why not encourage me, forcibly or otherwise, to invest some of those rewards in new businesses.
  • I’m happy (because you are respecting me for what I do best - creating jobs, and I might make even more money)
  • You’re happy (because you’re getting me to use that wealth for the public good)
  • The new tax-payers I help employ will be happy.
A mansion tax punishes people who know how to create jobs and reduces their appetite for risk.

My idea is to create a concept I'm calling Entrepreneur Credits. It would work like this:

Private investment incentive schemes like The Seed Enterprise Investment Scheme (SEIS), a little brother to the original EIS programme, already exist. They provide tax breaks on both the initial investment and on any gains resulting from an eventual sale of the business - if certain conditions are maintained. The problem is that they require people to take high risks with their money. For most people it is easier simply to put their wealth into Investment Bank Casinos where returns are generally lower, but less risky. Equally the only people who benefit from investment banking are the gamblers and their bookies. The public are generally the people who eventually pay for these profits - not least by potentially having to bail them out if they take too big a risk to magnify their wealth. This is not the way to create jobs. Risking money in casinos is not going to rebuild our economy.

But as I've argued before, don't brand all fat-cat mansion-dwellers as bonus-receiving gamblers. Some of them know how to create jobs. Some of them are measured risk-takers who can help small businesses to survive and thrive. So my idea is to offer the 'wealth taxing parties' an alternative proposition that forces entrepreneurs in particular to risk their money in ways in which they are probably already dabbling - but on a bigger, more structured and coerced basis as an alternative to simply dumping their cash into casino banking (the lower risk, easier option). Some of that 'investment' wealth (as opposed to bricks and mortar illiquid wealth - eg. mansions) should be used specifically to create jobs but in a way where the investor has 'skin in the game' - helping the money to work harder, and directly using their expertise to minimise the risk of losing it. In other words not just investing, but mentoring and helping in other ways such as effecting introductions. SEIS/EIS schemes encourage this. I am on the board of a couple already. I could easily be persuaded to do more. But they are high risk, so I am reluctant to pour money into them. But if it's a question of 'if you don't we'll take the money anyway', then of course I will risk more. Its a national lottery for wealthy people.

So instead of punitive, vote-grabbing, negative ideas like mansion taxes, why not insist that a proportion of liquid wealth that would otherwise end up in private equity, hedge funds or any of the myriad 'instruments' that investment bankers and their like peddle to wealthy targets, goes instead into SEIS/EIS opportunities.... "We will tax you on your investment wealth unless you can prove every year to have risked some of it in SEIS / EIS programmes".

Don't drive us abroad. Make us use some of our hard won gains to create more jobs as people like us know how, instead of punishing us for our past successes. Success breeds success. Governments don't.


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