The Stamp Act of 2025
The Stamp Act of 2025
AI will democratize entrepreneurship just when governments are looking to impose the highest capital gains rates in over 100 years to pay for past sins.
Mike Carter is a great entrepreneur, patriot, and close friend. His article outlines the perils of misaligning incentives and why a vibrant entrepreneurial culture is the secret sauce of America.
– MM
By Michael M. Carter, first published on RealClearMarkets
It was 1765, and the British parliament after winning the very costly French and Indian War passed a new tax called “The duties of the American Colonies Act of 1765. The new tax act was not meant to incite a riot or the reaction that it did, but it hit a chord with the colonial citizens. The colonists felt that this new tax was unfair because they did not vote for it and it was, yet another tariff delivered to them by an elite administrative state. The Stamp Act of 1765 was the tax imposed for stationed British soldiers in the colonies, something their American brothers and sisters did not ask for. Unlike other taxes, this tax felt different to the colonists as it passed through to all the citizens, not just the merchant class. This tax would prove to be a galvanizing force, which helped all the citizens together against those who sought to alter their liberty.
This brings us to the summer of 2024 and the talk of a potential impending economic agenda for 2025 should the current administration win despite all the polls and the overall tenor of the electorate against this regime. Central in this new economic agenda which is being proposed and leaked by the administration academics is the idea of moving the capital gains tax for long-term holdings to a historic, 100-year high of 42% before state taxes. This go-around we are not being taxed to pay for a foreign war, but rather the new increased capital gains rate would be imposed to pay for the federal spending which has seen us create a printing press out of the Federal Reserve.
Today, short term capital gains typically held by traders, short-term investors, and executives are already taxed as ordinary income rates approaching 40% for the highest earners before state taxes are applied. Yet the new tax hikes being proposed look to move up Long-term Capital gains, which are gains from founders of companies often and the long-term shareholders and investors behind these companies to the highest levels in over 100 years (42.5% before state taxes). The class warfare rhetoric being used in the details of the proposed Biden economic plan hides a clear and present danger which could have the same effect on our republic and the idea of America as the Stamp Act before it. What if this new heightened tax on the entrepreneur class that take the economic risk to hire teams of people and build companies that create products and services for people and businesses to do things better, faster, and more cheaply is implemented. Like the Stamp Act before it, the new Biden Capital Gains (or Loss) Act really would be disastrous for the administrative state imposing it once the citizens understood what it would mean to their livelihoods and the economy and innovation. Why would the United States be wanting to provide a disincentive to those with whom our country should seek to create more of – The Entrepreneurs who help shape and support our economic might.
Today, we are witnessing the second industrial revolution with the rise of artificial intelligence (AI) which will make “brain muscle” liquid to enable the creation of new enterprises, while automating logic and tasks. The first industrial revolution created the consumer led economy which helped to proliferate democracies everywhere. The second industrial revolution will create mass entrepreneurialism to enable the “mass creation” of companies, not just things. So, at the same time when we should be incentivizing and subsidizing entrepreneurship and investment, we are looking to douse the flames of this fire by taxing its very creation.
Taxes have become the sort of political discussion that polarizes people into the binary political world that exists in 2024. If you are for lower taxes, you may be labeled a right-wing conservative. The truth is – and always has been - that lower taxes are good for all when directed at the producers of job growth, the creators, and innovators of the economy. In the U.S. it is the Entrepreneur/Small Business Owner who is responsible for most of the new job creation and growth in real wages for America’s working class. Our greatest threat as a nation will not be from China or Russia or an AI-enabled cyborg but from our unwillingness to help spur on entrepreneurship which is the greatest export, by crippling them with taxes and burgeoning regulations. Although two-thirds of Americans feel they pay too much in federal income taxes (AP-NORC Center for Public Affairs Research), it appears that an even smaller percent pays taxes today.
The entrepreneur or small business owner has been the engine of private sector job creation and growth throughout the history of the US. As of 2024, the average business owner in the U.S. runs a business that is estimated to be worth around $1,232, 451 dollars according to the market leading business valuation service BizEquity. To climb into this club of successful businesses, the average business owner or entrepreneur has mortgaged their future by taking out personally guaranteed small business loans, i.e., they are not funded by angels or venture capital/private equity firms. In fact, less than 12,000 companies every year are funded by Venture Capital Firms (VC’s) or Private Equity (PE) firms. More than 99.7% of businesses are either self-funded or self-financed by a bank loan that is personally signed or guaranteed.
Imagine as an entrepreneur after over 12 years on average of having built your business through years of investment, hardships, risk, grit, time, and self-determination now the government wishes to nearly double your exit taxation. Already the typical entrepreneur has contributed and paid taxes more than any other member of society when you factor in the following breakdown:
Annual Income Tax Rate of anywhere from 25% to 40%
State Taxes during that time from anywhere from 2% to10%
Property Taxes on Real Estate and Possibly Equipment +/-5%
Sales Taxes of 6% to 9%
Payroll Taxes to have the gift of paying for your employees +6%
If successful capital gains will then take 25 – 42.5%
Then when you pass away if not properly protected you can expect another 40%
Jensen Huang from Nvidia has said one of the miracles of AI will be that it will ensure “Everybody in the world is now a programmer.” I believe AI will democratize entrepreneurship, allowing everyone in the world to have the opportunity to be an entrepreneur. This is the miracle of artificial intelligence. A study cited at the ASU-GSV Summit for educational technology revealed that as many as 7 out of 10 high school students (72%) today aspire to become an entrepreneur.
According to the Global Entrepreneurship Monitor (Babson College), Americans are starting and running their own businesses at record levels in conjunction with a post-pandemic shift led by women and people of color. Nearly 1 in 5 adults are in the process of founding a business or have done so in the past 3.5 years. This means that businesses are introducing innovation, creating jobs and contributing to the competitiveness of the US economy.
As these charts illustrate and the data suggests, entrepreneurship is on the rise. We should be looking for ways to keep the momentum we have and not look for ways to hasten its accession. We should pull together as a nation and not be a country of “Red and Blue” states as President Obama so eloquently stated at the 2004 Democratic National Convention. Tax incentives to support growth and entrepreneurship should not be a “Red and Blue” issue. Supporting entrepreneurship at this critical time when so many young people hold it in such high regard and the nation and the world needs its growth to propel its citizens to be able to pursue “Life, Liberty, and the pursuit of Happiness.” It should not be a political football to simply divide a country and world that is already divided. We are in the middle of a critical time when AI could help democratize entrepreneurship for everyone as knowledge and networks of relationships and capital are made more liquid. Supporting entrepreneurship through lower taxes not higher long-term capital gains rates should be on the table. As Lawrence Summers, the former Treasury Secretary once said, Washington is focused on the wrong things. We should focus on growth and entrepreneurship is a critical vehicle for it. Entrepreneurship is one of the things the United States does extremely well, it’s time we focus on ways to democratize it through incentivizing its creation, not penalizing it through higher long-term capital gains rates.
The great American economist Art Laffer has shown through his seminal work with the “Laffer Curve,” that increased taxation on citizens will decrease tax receipts above a certain threshold of taxation. Governments around the world should take heed that not only will an increase in taxation on entrepreneurs through raising long-term capital rates disincentivize their creation, but that broad tax rate increases will impact their very own tax receipts to fund their spending sprees for votes.
Michael M. Carter is the founder of BizEquity, Co-Founder of The Mission Capitalist Club, and the co-author of “The Mission Corporation.”
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