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entrepreneurial session because there will be no entrepreneurial opportunities. Tax policy One of the most prominent attorneys in America happens to reside in Dallas and is named Vester Hughes Jr. I read his testimony before the Subcommittee on Economic Growth and Stabilization of the Joint Economic Committee of the Congress of the United States. It would be particularly relevant for our subject today to review some of the things that Mr. Hughes discussed. First, he brought out that the United Stares tax policy had to be fair, and also that it had to recognize as one of its objectives, capital formation. He expressed it as “the formation of capital by allowing an entrepreneur that does not have capital to express his ability to engage in business. This takes cooperation of someone who does have capital. In essence, this is the American dream.” Specifically, he made reference in his testimony to the interest limitation. In 1969 if you borrowed money against stock, the maximum amount of interest which you could deduct was $25,000. Recently, the amount was lowered to $10,000. Any entrepreneur, therefore, who was beginning a business which, for purposes of our example, required $2 million in equity would have an interest cost of $160,000 to $175,000 a year and could deduct only $10,000. While it is true that you could offset it with investment income, there certainly aren’t going to be any dividends from a company that is in its initial stages. Not only has that tax policy thwarted entrepreneurs, but concomitantly, capital gin rates are going as high as 49.2 percent effective rate through the minimum tax and effects of the maximum tax on earned income. These kinds of punitive tax programs are probably the major cause for the fact that in 1969 there were 1,298 new common stock issues of companies going public for the first time. The comparable figure for 1976 was 46, or less than 5 percent of the number of companies going public in 1969. The American public is rapidly going out of the equity business. We have about 20 percent fewer individual stockholders than we have had from the previous high. If we don’t have new companies being formed, where are the new ideas coming from? They come rather slowly from the giant companies. Innovations have always come from the young and small growing companies. Let us address ourselves to another problem that seems to eat on entre preneurs, and that is this thing of regulation. We are experiencing an era where the regulators are wanting to clean up everything. In too many instances, they are cleaning out companies and industries instead of cleaning them up. Let me tell you some of the things I have in mind when I make this statement. A number of years ago when a small company wanted to start business, there were many regional brokerage houses. If you needed a couple of hundred thousand dollars in capital and you had a good story and a good reputation, you could generally interest one of these regional houses in doing a stock promotion. Many of our finest businesses in America today began in this manner. Today with the elimination of most of the regional houses, the major brokerage firms just simply are not equipped to handle small capital requirements. Laws Congress recently passed laws which inhibited pension funds from investing in small business. Our congresssmen and senators, and I know this was not with malevolent intent, almost flashed a message to the American people that small companies are not reliable, and that you can only trust the giant companies. This kind of legislation is another discouragement for entrepreneurship. Interestingly enough, it is always the newer companies that are more labor intensive than the older companies. You have to be a certain size before computers and technology are affordable. With the kind of tax policy that we have, we are helping to sustain unemployment as well as discourage investment. Yes, we are cleaning up we think, but in reality, we are cleaning out the opportunities and those attributes that made America a land of opportunity. As one who had the pleasure of starting a business from scratch, I don’t know of any more satisfying experience, and it is one that I want you to have the opportunity of having too if you so desire. There’s one thing for sureif you have an interest in free enterprise, you had darn well become politicized. There is little opportunity for entrepreneurship when you have excessively high interest rates or when you have uncontrolled inflation as we have experienced these past years. It becomes increasingly difficult for a businessman to make intelligent forecasts when government policy is as indeterminate as it is. When you are an entrepreneur, you have to be a lot more accurate than the executives of giant corporations. Some companies as we have seen throughout the years can lose two, three or four hundred million dollars and through sheer size be sustainable. And size can cover up a multitude of mistakes. On the other hand, an average businessman who makes a mistake of the same proportion ratio-wise might go bankrupt. Don’t let that deter your enthusiasm for entrepreneurship. That’s the fun and the challenge of being an entrepreneur. What you have to do is seek that kind of business that is iow in capital requirements and one in which your hard labor will make up for lack of capital. Let me share with you the one fundamental that enabled me to start a business with $25,000. Today it has some $110 million in assets and 98 percent of these assets have been internally generatedthat is, it hasn’t been accomplished through mergers or buying business. We just went out and did itthe business, that is. We were in an industry where there were really only 10 or 15 companies and 670 or 680 little minnows; and what held us in good stead was the recognition that if you are a minnow, you had better not go where the whales are. We sought and found a market that the major companies didn’t want, and in the market we serve, we became the largest underwriter of insurance plans in the country. Hard work This very morning I was reading about the restaurant business. It confirmed that the only way you could compete with the chainswhich incidentally now run 24 percent of all United States restaurants; 10 years ago it was only 10 percentis to have a menu that is in no way competitive with that served by the chains. One of the tenets of my company’s philosophy is “to recognize what is and can be” and another is to “dream big and implement realistically.” It would be sort of silly to want to organize a steel company to compete with U.S. Steel, or an automobile company to compete with General Motors or Ford. On the other handand these giants don’t want to own a small franchise in Waxahachie or have a general agency in Waco or start a new windshield wiper company in Ennisthere are indeed lots of opportunities within certain intelligent parameters. Your success as an entrepreneur will depend on your willingness to recognize tne limitations tnat are necessarily attendant to being in business for yourself, and always to recognize that the best way to work smart is to work hard. ALBernard Rapoport, Chairman of the Board P.O. Box 208, Waco, Texas 76703 American Income Life Insurance Company 18 FEBRUARY 17, 1978