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Job creation in political fantasyland and the real world

by William McGaughey

The conservative mantra is that we need to lower the capital-gains tax and the corporate-tax rate so that business will have more money to spend on activities that create jobs. It is said that wealthy taxpayers are the ones mainly who invest in new businesses. They are the ones who launch start-up companies. Therefore, tax cut for the rich will ultimately benefit lower- and middle-income people by increasing employment opportunities for them.

Being a small-time investor in the stock market, I associate the capital-gains tax with what I have to pay when I sell my shares for more than the purchase price. I have no thought of starting a new business with the money saved from lower taxes on the capital gain. Investment in the stock market represents to me, quite frankly, a gambling opportunity with better odds than the lottery. It’s mystifying why money made this way should be taxed more lightly than money earned from wages.

If I were a rich man who had extra cash to spend, I would probably be thinking about relative returns from various kinds of investment rather than opportunities to start new businesses. I would be thinking about which money-market funds had the higher rates of appreciation, whether investing in gold or collectables made sense in today’s investment environment, and how bonds are doing than about investing in a business that employs people.

Now, of course, my investment horizon is quite limited. I have no experience with Initial Public Offerings or high-level finance. Maybe some rich people do start new businesses in such ways. On the other hand, it seems foolish to start a business unless the market for its product seems sufficient to turn a profit. Nowadays, consumer spending is weak. Also, if a business invests in capital equipment, it is often for the purpose of improving production efficiency so that more output can be produced with fewer people. That leads to job loss rather than new hiring.

So much for job creation in fantasyland as I understand it. The role of rich people in this process is overstated. What about the real world? It so happens that I have helped to create a new job lately - not a minimum-wage job but one with real career promise. How and why did that happen?

I am a landlord of modest means. My former wife’s eldest daughter, Lena, has been one of my tenants. She has fallen behind in paying rent. This young woman, now in her early thirties, has managed stores in shopping malls. Since losing a job of this sort, she has applied for mall-store manager positions at least a dozen times but has never been hired. I kept her on as a tenant hoping that her employment ship would come in. She was often a finalist in interviews but never received a job offer.

While Lena was waiting to be hired as a store manager, she started her own women’s apparel business. She bought mannequins and set up clothing racks in the front of her apartment. She solicited customers through a website and by word of mouth. Lena worked hard at this and soon had a small but growing clientele of young women who came into her apartment to shop. A small loan from me helped to finance inventory purchases.

Somehow a man who owned a small shopping mall in Stillwater, Minnesota, heard about this and contacted Lena. He offered to let her occupy a vacant store in his complex, initially without paying rent, for a certain percentage of sales. I loaned her a small sum of money for supplies to help the store open.

So now this formerly unemployed woman owns and manages a stylish store in Stillwater called “Catwalk”. It is in the middle of six stores that include a nail-polishing parlor, a hair-cutting place, a home decor store, and two fast-food businesses. There is a steady stream of young people coming to those stores. “Catwalk” created a buzz even before it opened. A reporter for the Stillwater Gazette has requested an interview with the owner.

I cannot say for sure that Lena’s store will be a success but, having just opened, it seems positioned to do well. My point, however, is that this particular real-world job did not come as the result of a business started by a wealthy investor but through a shopping mall owner’s flexibility regarding rent payments, two small loans from me, and Lena’s own initiative in acquiring merchandise, soliciting customers and building a business.

 

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