Higher taxes will tend to depress entrepreneurship, as they reduce the payout from a successful company exit. One effect of huge deficits is the rational expectation of higher future taxes. So, one effect of stimulus is likely to be fewer start-ups.
During the campaign, presumably thinking of his Silicon Valley support, Obama proposed the elimination of capital gains taxes on start-ups in order to partially offset some of the impact of his tax proposals on company formation. This idea was always make-believe. As I predicted last July, this proposal has been "delayed" until 2014 in the budget that the President has just released (i.e., it isn't going to happen).
Like the college students who stayed up late to be inspired by his campaign rallies only to find Obama's first significant action to be a stimulus program that will transfer about a trillion dollars from them to the Baby Boomers, Silicon Valley Obama supporters are likely to find that a government-dominated economic era will not a great one in which to start companies that threaten big incumbent corporations that have juice with the government. I hope they appreciate the irony.
The college students who stayed up late at campaign rallies have as much experience in the real world as Obama does: none. So to them, having a guy who has never run a lemonade stand, never held a real job that he actually did anything at, running the world's largest economy and saving the world from economic collapse seems normal to them. Because that is the adolescent worldview: they know more than everyone who has ever lived before. All you need is ideas and great rhetoric. We are the ones we have been waiting for. Of course.
The Silicon Valley types work all the time, but in a narrow field. The VCs and entrepreneurs are tough to figure: they should know better. I guess they let their idealism and thrills running up their collective legs get the better of their worldly wisdom and economic savvy. They fell for the star power act. Intelligence turns out to be overrated. It turns out judgment and character are worth a lot more.
The Silicon Valley workers in the trenches work hard, but in a narrow field. They don't have much time or opportunity to acquire an informed overview. So they fall back on the glorious lessons they learned in college, at the hands of our tenured radicals.
They will all pay, along with the rest of us, for their foolishness. It turns out that a mediocre guy with a thin grasp of economics would have been far preferable to a hard-focused ideologue with a burning contempt for the American economic system.