Tax Rascal

Reid Hoffman’s Accidental Plot to Bloat the Deficit

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Reid Hoffman’s Accidental Plot to Bloat the Deficit

Reid Hoffman (CEO of LinkedIn, and self-proclaimed ‘free-market socialist‘) says we should let startups bail us out. As an investor in more than sixty startups, he ought to know how effective they can be.

His plan comes in three stages:

  1. He wants a program that will provide small loans (up to $50,000) for startups.
  2. He wants to change the current skilled-worker visa system, so that instead of a quota (65,000 H-1B immigrants per year), there’s an unlimited number of immigrants and a 10% payroll tax on each, to be reinvested in job training for Americans.
  3. He wants the government to match investments for venture capitalists and angel investors (giving them 50% of the profits from any investment).

There are a few problems with this plan. The first one is that, since he suggested it, Reid Hoffman has more or less permanently torpedoed any chance that this will take off. The plan gives him $3 million in cheap loans, a larger labor pool, and millions more in matching funds — all at a time when those of us who aren’t CEOs of billion-dollar startups are hurting for jobs and loans. Not only that, but the hedge fund’s ‘2 and 20’ fee system (2% of assets, 20% of profits)already has people upset — replacing it with the 50/50 is not going to make any new friends. Nice going, Reid!

But there’s more! The reason so many startups succeed in a down economy is that they’re able to offer something cheaper than the alternative. Apple sold a computer regular people could use and afford (other companies got one out of two, at best); FedEx managed to get a better handle on logistics than the competition (and when something needs to be delivered by the next day, paying extra for Fedex is cheaper than delivering late through the Post Office).

What’s wrong with that? The biggest problem is that we’re also bailing out the giant companies that sell more expensive things. Normally, during a recession you’d see huge companies shrink while small competitors snatch up market share. What you’re seeing this time is that giant companies get to borrow money cheaply from the government, and small companies are left to flounder.

If we’re already paying big companies to lose money, we can’t pay small companies to help big companies lose money faster. If you combine Hoffman’s new stimulus plan with the current bailiout system, our entire economy will be devoted to shoveling cash from one money pit to another.

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