Zero In Sramana Mitra 09.05.08, 6:00 AM ET LINK Barack Obama's Finance Lesson Barack Obama wants to create jobs in America, and as he declared at the Democratic National Convention last week, he also wants to cut capital gains taxes for small businesses. Although his speech was fabulous, Obama still exhibits a colossal ignorance of economics and small-business issues. For starters, small businesses don't pay capital gains taxes. And Obama plans to tax wealthy individuals and angel investors who can afford to invest in start-ups more than ever before. This will choke up entrepreneurship--precisely what he doesn't want to do. If it weren't for wealthy individuals willing to take a gamble on new ventures, we wouldn't have entrepreneurs or small businesses--the backbone of America's economy. Take Rafat Ali. He could not have turned his side hobby, business blog PaidContent.org, into a multimillion-dollar business without seed money from legendary media investor Alan Patricof. Ali founded PaidContent in 2002. (PaidContent has a partnership with Forbes.) By 2008, the blog was generating several million dollars annually in advertising revenues, and Ali recently sold the company to Guardian New Media group for close to $30 million. (Read my interview with Rafat Ali here.) Variations of this story can be found all over America. Entrepreneurs build up small businesses with their blood, sweat and angst, like journalist Om Malik did with GigaOm and lawyer Michael Arrington did with Techcrunch. Malik took a small amount of financing from True Ventures, a small, relatively new venture capital firm, and Arrington funded his blog with his own money. (Read my interview with Om Malik here.) Another former lawyer, J.R. Johnson, founded VirtualTourist.com in 1999 with $313,000 of friend and family money and this year sold it to Expedia's TripAdvisor for a handsome amount. (Read my interview with J.R. Johnson here.) Hydro Green Energy Chief Executive Wayne Krouse is an Atlas Shrugged kind of guy who waited four years for a patent that would allow him to launch a cleantech company that holds the promise of greatly enhancing hydropower capacity in the U.S. His friends and family--all doctors--put in a little over $500,000 to make his vision a reality. Today, Krouse has raised substantially more money and is on his way to building a company that creates the kind of "green" jobs that Obama dreams of. If you read these stories carefully, much of the money that enabled the creation of these ventures came from angel investor-types--friends and family, doctors, lawyers, and of course, the entrepreneurs themselves. There is a very simple fact that Obama's socialist rhetoric misses: You have to make and have money first before you can invest in start-ups to help entrepreneurs realize their dreams. By taxing wealthy individuals, Obama wants to take away their ability to recharge the economic engine that is clearly already faltering. Someone needs to sit him down and give him a lesson in entrepreneurial finance. A man with degrees from Columbia and Harvard, if he puts his mind to it, should be able to understand the mathematics of the issue in question. Assuming that he does, Obama should use his extraordinary talent for public speaking to explain this to his electoral base--people who want to hear populist rhetoric such as "punish the rich for being rich, and redistribute the wealth to the poor." Yes, angel financing and bootstrapped entrepreneurship are critical weapons for mass reconstruction of the American economy, but only if government doesn't take away the money that would otherwise go into jump-starting entrepreneurship. (See "Weapon of Mass Reconstruction.") In the days of sound bite politics, I am anxious to see Obama teach his base that it is important to tax the rich angel investors less--not more--to achieve what he claims he wants to do; energize the economy and create jobs. And to close, here's the math, Sen. Obama: If you can get a million new ventures started, and if each creates 35 jobs, 35 million jobs get created. Aim for the moon, and even if you can get to the stars--say, to 5 million jobs--the American people will thank you. Sramana Mitra is a technology entrepreneur and strategy consultant in Silicon Valley. She has founded three companies and writes a business blog, Sramana Mitra on Strategy. She has a master's degree in electrical engineering and computer science from the Massachusetts Institute of Technology.