Editor's Note: Learn from a panel of experts and entrepreneurs who have successfully financed their own ventures and are helping others do it at the Thought Leaders Live 2013 event May 29, in Long Beach, Calif. Event and ticket information can be found here.
At the 16th annual Wall Street Project Economic Summit, political activist Jesse Jackson offered the seeds of a good idea for helping small-business owners get access to more capital. He proposed establishing a development bank that would tap the more than $1.5 trillion that large U.S. companies have parked overseas for low-interest loans to small-business owners in underprivileged areas.
I don't like most of the idea. Better access to loans won't solve the problems of many entrepreneurs who need equity capital. Moreover, just using the funds for minority entrepreneurs is too narrow. Lending to and investment in small businesses owned by people of all colors has fallen in recent years.
And let's leave aside the packaging of his message. He brought up the idea in the same speech in which he discussed boosting the minimum wage, combating red lining, and a host of other stock messages of liberal activists.
But I have to give Rev. Jackson credit. The idea of tapping big-company funds parked overseas to avoid taxes is good both politically and economically.
The political logic is clear-cut. Big U.S. companies have parked huge sums of money overseas to avoid paying taxes. As a result, many U.S. multinationals are paying a very low average tax rate. The unfairness of Warren Buffett paying a lower average tax rate than his secretary is nothing compared to the inequity of some giant companies paying less than 5 percent of their income in taxes when small-business owners are paying many times that. Couple that perception with the strong positive feelings that Americans have about small business and much weaker ones about big companies, and you have a solid political argument.
While less clear-cut, the economic argument is pretty good, too. Funds left overseas do little to stimulate job and wealth creation in the U.S. Even if each dollar left overseas would be more productive than each dollar brought home and invested in small business, the benefits to Americans of repatriating funds would be higher. From a U.S. perspective, domestic returns are what matters, not objective productivity.
Moreover, despite the arguments of the National Federation of Independent Business and others that the decline in small-business financing in recent years is a demand-side problem (meaning that small-business owners aren't borrowing because they aren't expanding), reduced small-business capital access is a supply and demand problem. Small-business owners are having a harder time getting loans and investments than five years ago because standards have stiffened in response to bank losses during the financial crisis and greater regulatory oversight.
If small-business owners who want capital are unable to get it, then capital constraints may be impinging job and gross domestic product growth. Therefore, moving un-repatriated big-company capital home to invest in small businesses could provide a stimulus to job and income growth.
I would take the central tenet of Rev. Jackson's proposal and modify it as follows: Big business should be given the option of repatriating overseas capital tax free if they invest it in or lend it to small businesses. Otherwise, the funds left overseas would be subject to U.S. taxation up to the point where they paid an average tax rate equal to the average tax rate of all U.S. corporations. The funds could go to any small business -- minority and woman-owned or not -- and located anywhere.
This idea is admittedly back of the envelope, and many details would need to be worked out before it could be made into policy. However, Rev. Jackson has offered the kernel of a valuable idea here, and our elected officials should pursue it.