Drucker and the Tax Deal

It’s difficult to know just what Peter Drucker would have made of the tax deal reached by President Obama and now facing an uncertain fate on Capitol Hill. Drucker, after all, was very hard to pin down politically, characterizing himself “sometimes as a liberal conservative and sometimes as a conservative liberal but never as a ‘conservative conservative’ or a ‘liberal liberal.’”

But we can take a pretty good guess at what Drucker would have made of specific pieces of the proposal:

Tax cuts and stimulus

Drucker—much more a fan of economist Joseph Schumpeter’s “creative destruction” than John Maynard Keynes’s efforts to create “an eternally stable economy through control of money, credit, spending, and taxes”—would likely have frowned at a good part of the package being debated in Washington.

To be sure, Drucker wasn’t a big fan of raising anyone’s taxes. But, given his concerns about the social costs of income inequality, it’s tough to imagine that he would have been in favor of handing tax cuts that average more than $100,000 a year to people whose annual incomes exceed $1 million.

[EXPAND More]Above all, we believe that Drucker would have called for going much, much further to stimulate the creation of new businesses—the real key to a long-term economic rebound. “For the first few years of life, the new and growing venture—whether standing by itself or part of an existing enterprise—should . . . be exempt from income taxes, for the same reason for which we do not expect a small and rapidly growing child to produce a ‘surplus’ that supports a grown-up,” Drucker wrote in his landmark Innovation and Entrepreneurship. “By the way,” he added, “exempting the new venture from taxation until it has ‘grown up’ would almost certainly in the end produce a substantially higher tax yield.”

Beyond that, Drucker called for all new ventures to be able “to charge the government for the costs of regulations, reports, and paperwork that exceed a certain proportion (say 5 percent) of . . . gross revenues.”

Extending unemployment benefits

It’s tough to imagine that Drucker wouldn’t have been in favor of extending jobless benefits in the current climate. That’s because he expressed particular concern about the effects of being without work for a prolonged period—and that’s exactly what many Americans are facing right now; in fact, new data shows that nearly 6 million looked for a job but weren’t able to find one at all last year.

But Drucker also felt that such benefits aren’t an adequate solution in and of themselves. “Unemployment insurance does give high economic protection,” Drucker wrote in his 1980 book Managing in Turbulent Times. “But it has failed to produce what its original inventors, the British, were rightly most concerned about: psychological security.”

With that in mind, Drucker might well have focused, instead, on the urgent need for companies and the government to retrain job seekers so they better match up with those opportunities that do exist out there—a point that’s also been made by, among others, former President Bill Clinton.

So, what do you make of Drucker’s ideas?[/EXPAND]