Higher taxes will tend to depress entrepreneurship, as they reduce the payout from a successful company exit. One effect of huge deficits is the rational expectation of higher future taxes. So, one effect of stimulus is likely to be fewer start-ups.
During the campaign, presumably thinking of his Silicon Valley support, Obama proposed the elimination of capital gains taxes on start-ups in order to partially offset some of the impact of his tax proposals on company formation. This idea was always make-believe. As I predicted last July, this proposal has been "delayed" until 2014 in the budget that the President has just released (i.e., it isn't going to happen).
Like the college students who stayed up late to be inspired by his campaign rallies only to find Obama's first significant action to be a stimulus program that will transfer about a trillion dollars from them to the Baby Boomers, Silicon Valley Obama supporters are likely to find that a government-dominated economic era will not a great one in which to start companies that threaten big incumbent corporations that have juice with the government. I hope they appreciate the irony.
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