Choose Thinking: A Blog by Dan Gilbert

“For the strength of the Pack is the Wolf, and the strength of the Wolf is the Pack.”

- Rudyard Kipling

August 19, 2011

An Idea to Get Our Economy Moving Ahead Quickly

I believe there is a quick, easy, no-brainer initiative that both Republicans and Democrats could get behind and would have an immediate significant and positive impact on the U.S. economy, create millions of jobs and have zero negative effect on the federal budget.

We are currently in a state where cash is at an all time high on the balance sheets of U.S. corporations, banks and a smaller amount of individuals.  But for various reasons, including unstable markets, fears of a double dip recession, and general economic uncertainty, this capital is not being actively invested to grow the economy and create jobs.

In addition, the returns on this capital are, ironically, also at historical lows due to the unprecedented low interest rate environment and fearful investment climate that exists today.

So, we have enormous amounts of capital sitting on the sidelines providing almost no return, in a significantly challenged economy that is in dire need of job-producing capital investment.

The Proposal

Congress passes and the president signs a bill reducing the capital gains tax to 0% on any new capital investment beginning immediately and made through the end of 2012, with certain important stipulations (which I will explain in a moment), if the investment is held for two years or longer. It would not matter how long after the two year holding period the investor realized profits on his investment for the 0% tax rate to apply to the gain as long as the investment was made after the enactment of the legislation and is this type of investment:

  1. All NEW capital investment made by corporations, partnerships and individuals for newly issued shares of stock in both private and public companies (including start-up businesses) after the enactment of the capital gains legislation.
  2. All NEW investments made by corporations, partnerships and individuals purchased after the enactment of the new capital gains legislation for all new capital assets.
  3. All NEW construction real estate, both commercial and residential by corporations, partnerships and individuals developed after the enactment of the new capital gains legislation.
  4. All NEW capital improvements made by corporations, partnerships and individuals to existing real estate, both commercial and residential, made after the enactment of the new capital gains legislation.

The 0% capital gains rate would NOT apply to:

  1. The sale of any stock, bond, etc. (private or public) that existed prior to the enactment of the new capital gains tax.
  2. The sale of any capital asset, including real estate, that existed prior to the enactment of the new capital gains tax.
  3. Any and all capital gains realized on any asset purchased prior to the enactment of the new capital gains legislation and sold after the enactment of the new legislation.

In other words, this special capital gains tax rate would only apply to new job-producing investments made after the enactment of the legislation. It would not apply to gains on investments that were made prior to the enactment of the legislation.

It would also not apply to the mere exchange of capital assets that existed prior to the enactment of the legislation, but were both purchased and sold after the enactment of the legislation or purchased before and sold after the new legislation.

This simple approach highly incentivizes the movement of the enormous amount of dead capital from the sidelines into the economy in the form of desperately needed new job-producing long-term capital investment with no negative effect on the federal budget and without any windfalls to those who only trade existing capital assets.

Seems like a win all around and one both Democrats and Republicans can get behind in a bi-partisan manner that would also have the residual effect of boosting confidence in Washington, which is as desperately needed as new job-producing capital investment is needed in the economy.

Posted by: in Your Money & The Economy | Comments (31)


31 Comments »


  • Comment by Michael — August 19, 2011 @ 5:01 pm:

    Heck yes! Application of common sense should not be halted at the red and blue divider! Way to go, Dan; thank you for your contribution towards a step in the right direction!

  • Comment by Robert — August 19, 2011 @ 5:08 pm:

    No more free trade

  • Comment by Josh Linkner — August 19, 2011 @ 5:19 pm:

    Absolutely 1000% spot on! Investment of this nature will create jobs, tax base, and hope. It will also restablish the US as the leader of innovation. Let’s get it done!

  • Comment by Alex Linebrink — August 19, 2011 @ 5:19 pm:

    I could definitely get behind that! Now where’s that congress contact info list….

  • Comment by Brian — August 19, 2011 @ 5:26 pm:

    Quit extending unemployment benefits and people will find jobs

  • Comment by Gary — August 19, 2011 @ 5:27 pm:

    Seems like a smart plan Dan. Much to simple for our leaders in DC to comprehend. Maybe you should run for office. That group of folks could use an insightful man, such as yourself.

  • Comment by Dan (not that Dan) — August 19, 2011 @ 5:29 pm:

    Seems like a good idea that would hopefully cause a huge investment push and loosen the stagnant capital in the economy.

    Government refuses to be this innovative however. If they were wrong then things would be totally screwed up . . . wait a minute, things ARE already screwed up.

  • Comment by Steve — August 19, 2011 @ 5:29 pm:

    Good common sense approach, but the reality is that the Democrats have gone to the mat for taxing anyone who has done well in life to fund social programs that bring them a lot of votes, and the Republicans are afraid of directly standing up for anyone who has done well in life for fear of furthering the notion they’re the party for the rich. The solution is leadership and at the moment, I think both parties lack someone who will actually put the country before themselves and their hunger for re-election. Here’s the good news. You can still succeed in this wonderful country, people are doing it everyday! God Bless.

  • Comment by Richard Marcum — August 19, 2011 @ 5:34 pm:

    Sounds great! A tax incentive for capital investment that is truly new. Reward the entrepreneur and people who invest in new businesses, without a giveaway for Wall Street. Brilliant!

  • Comment by Walt Wiessner — August 19, 2011 @ 5:34 pm:

    Sounds like an outstanding idea! One that would help create jobs, (which our country desparatly needs,) provide new revenue streams and help decrease our tax burden. We need to get congress behind this!

  • Comment by Rick Lederman — August 19, 2011 @ 5:36 pm:

    Love it! How would you suggest we can help this concept gain traction with our legislators?

  • Comment by Mike — August 19, 2011 @ 5:41 pm:

    How do you account for the failure of the tax holiday that happened in the past? How do you ensure that in the future corporations will hold on to cash waiting for the next tax holiday?

  • Comment by Bill Carver — August 19, 2011 @ 6:19 pm:

    Put me in the whacko camp if you must, but how about having a taste of economic reality. All business pay 0% taxes no matter what rate the government chooses. One of three people pay those taxes. The business owners, its investors, it’s employees, or its clients.

    So let’s get Washington (and Lansing) honest. So many people thinkg that by taxing corporations they’re somehow not paying the increases.

    In fact, let’s change our federal tax stucture to stop punishing success and start promoting it. Let’s get rid of capital gains tax, and all income tax and instead have a national sales tax.

    This way, all people see the tax. All people pay what they can afford and all people have “skin in the game”

  • Comment by Josh — August 19, 2011 @ 6:39 pm:

    A simple concept that would make a difference! If we set politics aside and use common sense we wouldn’t be in the situation we are in. This is a step in the right direction and more similar steps need to be taken. I wonder how much red tape our government would wrap around this one??? “Too easy… how can we make this confusing?”

    Dan for President!

  • Comment by Jeff — August 19, 2011 @ 6:48 pm:

    A. Common sense approach that is good for all. As such our government leaders will find a way to stand in it’s way. They are so busy keeping their jobs, they have forgotten to do their jobs. Cash is indeed king. It opens the door to innovation and opportunity. You must spend and offer incentives to build and grow. Insane that the resource is their but we reward not using it to create.

  • Comment by Sean — August 19, 2011 @ 8:23 pm:

    I agree. That’s a huge incentive to invest! The two-year minimum holding time for investments to avoid capital gains tax would also encourage long-term thinking and keep money in the market. Whatever the government loses in capital gains taxes, they will more than make up for by all the new taxpayers with jobs as well as with the new businesses.

  • Comment by Pete — August 20, 2011 @ 1:14 am:

    Dan,

    First, I find your proposal to be a very legitimate idea of “stimulus,” that most importantly, doesn’t require government spending based off of Federal Reserve printing.

    While I love the idea’s common-sense approach that is indeed, a non-partisan politics-free proposal, I disagree a bit on whether or not our current “state” is a bad thing.

    We have a giant monster on our hands, and it’s called the Federal Reserve. Your idea would indeed spur private sector growth in the immediate future, but it sadly would be another house of cards ready to collapse at the sight of any uncertainty. The problem we have in this country, is that so little of our “investments” are built on a solid foundation.

    The way I see it, businesses NEED to have cash reserves to keep themselves from NEEDING credit. As we’ve seen, when credit availability slows down as a result of market worries, or new regulations, etc, businesses then pull their “Well we can’t make payroll,” or “Well we can’t buy holiday inventory” lines… Well, maybe if they had a better FOUNDATION (that is, not overexpanding on employees and inventory) then they’d have more cash to take care of payroll or holiday inventory needs. Indeed, this would cause our country to experience “slower” growth rates, but if we could STICK to this type of business dealing, and allow risky aggressive businesses to go bankrupt if they fail (rather than bail them out), then we’d virtually never have decay as a country.

    This, IMO, is important to note. If we can begin by restoring a proper foundation to our monetary and fiscal policies, then we can begin to see slow(er) but REAL growth in our economy, rather than these boom/bust cycles that Keynesian economics brings.

    Love the thinking though Dan! You’re a great NBA owner, a great ambassador for Detroit and Cleveland, and a great writer, regardless of your font choices! ;)

  • Comment by Ron — August 20, 2011 @ 8:44 am:

    Your idea is a great one and it’s disheartening to know that this has always been an option.

    I agree with Steve that Leadership is the issue and that lies at the feet of 1 Party. Republicans have stood up for individuals and corporations that have done well – their stance in the debt limit debate demonstrated their focus on not limiting growth, but promoting it (even though they were still vilified and will continue to be). Otherwise, taxes would have been raised (and they’re still positioned to at the end of this year).

    The current administration won’t agree to this even it did pass both houses – it’s not who they are and they don’t do the right thing. They’d reject this idea simply because it was sumbitted by a corporate jet owner…

    The economy doesn’t stand a chance until 2012, and that’s only if new Leadership is put into place.

  • Comment by jason — August 20, 2011 @ 9:58 am:

    While this idea sounds great in theory, I personally doubt that it’ll translate into much for the working-class in the way of higher employment and wages—except, of course, for a select few industries like construction, and that only temporarily. What we need more than anything are consumers who have money to spend to keep the money moving and the economy growing (or at least relatively stable), not easier-to-produce goods and services when there’s little in the way of real demand or a financially stable consumer base.

    The key buzzword here is ‘job-producing investments.’ However, many investments don’t necessarily translate into new jobs, and according to a report by the Nation Employment Law Project, close to 75% of the new jobs added in the last two years are below $14 an hour (http://bit.ly/pwYGqF), which isn’t as helpful in terms of economic growth as peoplr might think. Most people at that pay rate have little in the way of discretionary income. Moreover, I don’t think that growth for the sake of growth is sustainable. In my opinion, we need to be focusing on high quality full employment, not just ‘job creation,’ since many jobs are wasteful, unnecessary or even harmful.

    Moreover, giving tax breaks and such to the wealthy usually allows very little to ‘trickle down’ to the average worker/consumer since they tend to try to save it more than invest it (http://bloom.bg/ciQCm2). The enormous amount of capital currently available isn’t ‘dead’ so much as it’s being hoarded or transformed into even higher record profits for the top 10% (http://bit.ly/q5JAbn). They could use it if they really wanted to. Banks, for example, have plenty of money to lend; they’re simply sitting on it (http://bit.ly/p0vVxo). Same for large multi-national corporations. Whether it’s out of fear of economic instability or whatever, lowering tax rates even more is like begging them to start doing something with their hoards of cash. We shouldn’t be begging; we should be demanding.

    But, even if this idea does spur ‘new job-producing investments,’ which I admit is certainly possible, I think it’s an extremely bad idea to encourage investment in, and construction of, even more commercial and residential real estate when we’ve just experienced a housing bust, record high foreclosure rates (http://lat.ms/cQdBF6) and currently have a large numbers of commercial properties already sitting empty all over the country. These kinds of measures to stimulate job growth and consumer spending simply by increasing supply, when they actually work, tend to create artificial bubbles, which is half the reason we’re in this mess in the first place.

    Those are my thoughts, anyway. Just thought I’d share.

  • Comment by aunt salsa — August 20, 2011 @ 1:02 pm:

    !!Good 4 all who want to work. Dan, saw a bumper sticker in the “D” today… ” Politics is like driving… D is for forward… R is for reverse” .

    My bumper sticker idea … ” D is for Divide the Wealth,… R is for Reduce taxes and , Return to work” . I’m just saying…..

  • Comment by Patty Soltysiak — August 20, 2011 @ 3:55 pm:

    Brilliant!

  • Comment by elee — August 21, 2011 @ 8:28 am:

    *slaps forehead* *shakes head eyes blinking*
    “DUHHHH!!!”
    but wait, that will never work! makes too much common sense…

  • Comment by Brian Kenney — August 22, 2011 @ 1:01 am:

    Dan, love your comments, but wish you could apply more of your expertise to our situation locally. I am a graduate of the Maxine Goodman Levin school of Urban Afairs at Cleveland State, and a former Cleveland Police officer, who switched to the Cleveland Fire Department, where I have been laid of 2x in 2 years and am currently laid off. I love my city, but am very discouraged about the political climate and the inability to get things accomplished that would envigorate our local economy. While I am enthused about your Casino project, I fear that after an initial surge, the crime, absence of downtown development, and perception of lack of safety will be a strong deterrent to your project. Have you had conversations with the mayor regarding these concerns? I just returned from the National Sports Collectors Convention in Chicago, (I had never been there)and was amazed by the overall “feel” of the city. After the convention, the Cubs game, no one FLED downtown, they congregated at local bars, businesses, and restaurants. We rode the L back to our hotel at midnight, and it was PACKED with people. I sincerely hope your projects can foster this type of development for our city.
    P.S. I have a chronically Ill daughter who has a Mitochondrial condition. It was awesome to see your son represent the Cavs at the draft. Must have been very special for him. Great job Dad

  • Comment by J.B. — August 22, 2011 @ 8:57 am:

    Sounds like it could be a producer, but since this about job creation why not have have the reduction contingent on new jobs actually created. Or perhaps an additional/supplemental credit per job created and sustained for X years. To create a job in new company one to move an employee and close their old position does not assist in the solution. How you could address this I don’t know. I have a feeling it would be complicated but then it would targeted.

    I do agree with another poster that new construction could further water down the housing market. Could there be something written instead for investments on energy reduction per employee or per sq foot? If the next manufacturing market is going to be, at least in part, a green one and that market isn’t built out this would stimulate jobs as well as have the potential benefit of reducing actual energy consumption.

  • Comment by Mike Maleski — August 22, 2011 @ 9:31 am:

    Dan,

    I think you’ve created a tremendous idea. Your proposal is a cornacopia of economic growth opportunities and incentives. It would stimulate private sector activity and, as you point out, put cash back in play.

    Your proposal makes one very incorrect assumption…that the President would actually sign it. Mr Obama’s bleak re-election outlook has him playing the corporate blame game and declaring class warfare. Mr. Obama only wins in 2012 if those enduring economic hardships are swayed by his anti corporation rhetoric. He only wins if he can convince enough Americans that the American Dream is to blame for their lot in life. Obama’s agenda is pro redistribution and anti innovation. He said so imself on his re-election tour last week. Mr. Obama cannot win if a bi-partisan measure creates an uptick in the economy. He has set his re-election course as a battle against Congress.

    Thank you for your idea and I will forward those on to my Congressman. We can never give up and we must also continue to uphold the flag of Capitolism. We must unite behind the swords of ideas and freedom. We must defend ourselves against the crutch of government provisions and the handcuffs of Mr. Obama’s regulations (executive orders).

    Proudly submitted,

    Mike Maleski

  • Comment by David — August 23, 2011 @ 9:21 am:

    This will only work should America ever realize we prosper is the pursuit of happiness not as the lazy entitled with no commen sense. Its never more true than now to say “there are those that work for a living and there are those that vote for a living.”

  • Comment by Janette E. — August 24, 2011 @ 1:07 pm:

    Wonderful Idea. I’ve forwarded the link to your blog entry to various twitter accounts… Including the President’s… @BarackObama

  • Comment by Jeffrey — August 26, 2011 @ 10:02 am:

    Love the concept, but my observation is that the economic climate and current state of Washington has cannibalized the entrepreneurial spirit in many Americans. In my opinion you have to be willing to take risks, in most instances lose money, in order to build a successful business. To that end I believe most Americans are fearful of taking any “perceived” unnecessary risks financially. The solution is great, but does it solve the problem of breaking the cycle of conservative investing? I guess simply put, is this enough to make people stop being scared?

  • Comment by Chris — September 20, 2012 @ 12:17 am:

    Assuming people are on board and ready to go with your plan, but there is nowhere to start? Whenever you ask for capital resources in a public forum, you are certainly going to be asked about the fund deployment that will boost the economy in Cleveland and Detroit. Are these safe bets? I think there are a few key leaders who might have some ideas to get this going (including yourself) that can act as fund managers for their respective constituents in the local markets. Without the proper framework, you run the risk of this proposal getting passed through congress without a structure on the back end to handle the capital influx and the inherent accountability of deploying capital in the best possible for the benefit of all constituents. Get that set, and we can get this country into a better place!

  • Comment by Joe — October 8, 2012 @ 9:52 am:

    It sounds like this may be a platform for large corporations, who, through transfer accounting practices, have large cash balances that are sitting in offshore accounts. I do not believe that the lack of investment is a result of the tax implications but a lack of foresight into the industries of the future that will yield the appropriate returns. It is clear that energy, food, and infrastructure have become areas of opportunity, particularly as they integrate with the overall national agenda, however, I believe fears exist that extraneous regulatory concerns will stifle any investments made. Additionally, firms could offload cash into newly formed entities that invest primarily in existing financial assets without actually creating jobs. I certainly like the direction of your proposal and believe it is certainly worth consideration, however, I think the implementation requires further structural development. The next question becomes, do we include foreign direct investment as part of the tax free proposal?

  • Comment by Terry — December 19, 2012 @ 1:24 pm:

    Great idea! It will help make sure that instead of the short-term movements of big money investors, they will be incentives to put money in places for longer terms and help create stability that so many companies need to grow and hire. Superb idea! And I am a Democrat.

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