Austerity Watch: Why Giving The Young More Tax Breaks Might Work

Youth may be wasted on the young, but people starting out in their careers deserve more assistance than they are getting from the government.   That’s the gist of an interesting p9st on The Daily,  Rupert Murdoch’s iPad only publication, which is backed up the work of Matthew Weinzierl, an economist at Harvard Business School. It makes plenty of sense.

For one thing,  younger workers are probably more willing to take risks than older ones such as starting a new business because they have fewer family responsibilities.   There is also the Horatio Alger effect, the very American notion that anyone can become wealthy with a lot of hard work and more than a little luck.  Is it any wonder that a Gallup poll found that 7 out of 10 high school students say that they are interested in starting their own businesses.  What stops many of them from pursuing their entrepreneurial dreams is of course, money.  Many lack the credit to rent an apartment without an  older person agreeing to co-sign the lease for them.    They also can’t afford to plunk down the two months rent most landlords require for security deposits and a 20% down payment on a house is out of the question.

“Giving a substantial tax break to the young would hardly represent a huge conceptual leap,” The Daily says, adding that some countries give incentives to older workers. “Rather than give young workers a lump-sum credit, we’d make the rate schedule for under-30 workers significantly lower. For example, the basic rate would be 5 percent instead of 10 percent. This would recognize that the marginal tax rate makes a bigger difference in decision-making when you’re young and carefree than it does when you’re middle-aged and have to make mortgage payments.”

Business loans are tough to get for established businesses as credit continues to dry up.  They are about impossible for entrepreneurs who lack a solid credit records.That’s a pity because most of the new jobs that will be created as the economic rebound slows will come from small businesses, according to many economists.   That’s why it’s vital that the U.S. government boost its support for these wannabe business owners.  If  managed right, the rewards will outweigh the risks.  Remember,  many of the most vibrant American companies started as dreams of young entrepreneurs.

For instance, Mark Zuckerberg founded Facebook while still a student at Harvard University.   He is 27 and worth a reported $13.5 billion.   Google Inc. (NASDAQ:GOOG) co-founders Sergey Brin and Larry Page met while graduate students at Stanford University.   Brin is 37 and Page, now the company’s CEO, is 38. Andrew Mason, founder of Groupon, called the fastest-growing company in history, is set to become a billionaire after his firm’s Initial Public Offering.  He was born in 1981.  Twitter co-founder Biz Stone is an ancient 37.   It is holding off on plans for an IPO because the company is profitable and does not need the money.

Creating an economy where young people are able to create new businesses will be one of the keys to bring the U.S. economy out of its doldrums.  Research has found that countries with older populations such as those in Europe have fewer entrepreneurs.  The U.S., which continues to attract throngs of young immigrants, can avoid economic stagnation if only it can muster the political will to do it.

–Jonathan Berr