Rand Paul has submitted a bill titled “Economic Freedom Zones Act of 2013’ which takes any area with an unemployment rate 1.5x higher than the national average, and gives big benefits to people doing business there.  There is also a requirement that the area be “at risk of insolvency”.  This seems like a difficult to pin down requirement and the bill would be better without it.  There is also a requirement that it be in one of the 10 “most impoverished states”. Again, this is a poor requirement as many cities that need help (camdem) come from states such as New Jersey which have other power houses of economic growth.

First the individual income tax would be reduced to just 5%. Similarly corporate tax would be reduced to just 5%.  AMT taxes would not apply.

This is a great idea, but we should take it one part further, we should extend this to ALL of America for entrepreneurs who start new businesses who have NET WEALTH of less than $100,000 dollars not including property equity for primary home and less than $300,000 including all sources of wealth including primary home equity and other properties.

The act also prohibits bail outs of a municipality. And really, we should prohibit federal bailouts all together.

Unfortunately, this act alone WILL NOT HELP the situation in America where 60 TRILLION dollars of wealth has been given to the banking cartels. Instead, we need a way to get that initial 100k funding to entrepreneurs who are starting companies and we need to do it in a way that mimics the private sector – perhaps provide 50 Million dollar grants to VCs who already manage over 100 million in assets, and let them disperse it in 100k “freedom” grants to new company starts. This would bridge the seed money problem yet still have a critical eye for which companies would get a chance to get it.  Further stipulations would be that the VC could take no more than 5% of a companies stock in exhange for this “pre-seed” grant.  And that if they accept the grant, they have to disperse it within 2 years and then can apply again for another.  The 5% stock of the receiving company is a good “management fee” for the VC to provide some support and counseling and take them under their wing of portfolio companies.

 

And all of this begs the question, why do the VCs hold back on these kinds of investments so much? It’s because they have been risk averse and want long track records or “traction” with companies. But the funds to produce the company to get the traction is a sticking point with entrepreneurs who have to almost kill themselves to get a company out the door. So the government grant solution for VCs allows them to take a NO RISK investment while still qualifying the best companies out there. This is a much better solution than the company taking out a SBA loan. That type of loan works for Pakistanis who open up gas stations and can then flee the country if it goes south, but it doesn’t work very well for American citizens who then lose everything in bankruptcy.  Really who wants to take such huge risk?