McClaughry: Capital gains tax hike would stifle innovation

By John McClaughry, Ethan Allen Institute

Leafing through a new Cato Institute monograph the other day, titled “How Wealth Fuels Growth: The Role of Angel Investment” by Chris Edwards, I extracted a few useful thoughts.

John McClaughry

Angels are early money investors who “provide their money, effort and experience to help new businesses grow.. Angel-backed start-ups often pioneer breakthrough products and technologies that create broad-based benefits to society … Wealthy angels fund startups that pry open rigged industries and generate competition. The best check on big corporations is vigorous competition in deregulated markets from well-funded start-ups.”

“Democrats are now proposing to sharply raise capital gains taxes. If applied to startup investing, that would kill incentives for angels and starve cash from the virtuous cycle in technology hubs of successful investors and entrepreneurs generating wealth and then plowing it back into new businesses.”

“America needs diverse sources of funding for innovative businesses, and wealthy individuals are a crucial source. Wealth is central to the nation’s entrepreneurial ecosystem, which has spawned so many great companies and advances over the decades.”

Leftists like Senators Elizabeth Warren and Bernie Sanders constantly rail against inequality of wealth. Parenthetically, Bernie and his wife and Warren and her husband each have more wealth than the total of the lowest forty percent of citizens – keep that in mind.

Weeding out tax loopholes that unfairly benefit the wealthiest is worth doing, but destroying the angel investor and venture capital market is a notably bad idea.

The author, a Kirby resident, is founder and vice-president of the Ethan Allen Institute. To read all EAI news and commentary, go to

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2 replies »

  1. Stifling innovation is part of the master plan for the party that hates America and eschews capitalism. Thanks John, for pointing out yet another design for a failed America, put forth by hypocritical leftists.

  2. Agreed it may stifle, but lets not fear monger.

    Angel investor are a small subset of the small business engine we are riding for growth. I doubt capital gains increases will materially impact investments in truly worthy endeavors.
    It merely increases, the cost of doing business with them.