America is the greatest entrepreneurial nation in the world. But there are really two kinds of entrepreneurs here – product entrepreneurs and financial entrepreneurs –- and only one of them truly builds the economy. Product entrepreneurs find new ways of satisfying customers. Financial entrepreneurs find new ways of ... well, making money off money.
Often they have to cut long-term investment – research, employee development, and basic innovations – in order to pump up profits so they can dump the company back on the stock market at a big profit.
What’s the answer? At the very least, stop giving tax financial entrepreneurs huge tax advantages over product entrepreneurs. Treat their compensation as income, not capital gains. And tax their partnerships that go public at the same rate public corporations are taxed.
Warren Buffett has warned about this very issue of the tax treatment of hedge fund managers, which I have linked to before.
Mr. Reich's article is well worth a read and it is not very long.