We are afraid that if we change the tax structure it might make things worse. And we wring our hands about whether keeping the present system might have the same impact. We have spent years arguing about the minutiae of policy design and implementation. All the while forgetting that as a global economy progress has always been driven by experimentation. If history teaches us anything, especially with regard to economics, it is that policies and tax rates are made to be changed as circumstances warrant.
There was a time when tax rates were confiscatory. No more. There was also a time when manufacturing created jobs. No more. The rich may or may not be job creators right now. Research may determine that they either will or will not in the future. Whatever we decide - or refuse to decide -it should be based on our willingness to try new approaches until we find one that works. It will take time. Some ideas will not work. Some people will suffer. Just like they are doing right now. JL
Robert Frank reports in the Wall Street Journal:
The argument over whether the rich create jobs is ultimately unwinnable. Democrats point to the lousy job market and revived fortunes of the rich and argue that the rich just create wealth for themselves rather than employment for others. Republicans argue that the rich are the most productive, inventive and dynamic people in our economy. Taking their hard-earned investment capital would kill jobs, they argue.
Now a millionaire entrepreneur has weighed in with his own twist on the debate. Rich people don’t create jobs, he says. Demand does.
“I’ve never been a ‘job creator,’ ” writes Nick Hanauer, who helped start several start-ups, including aQuantive, which was sold to Microsoft for $6.4 billion. “I can start a business based on a great idea and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate.”
It is a tenet of American economic beliefs, and an article of faith for Republicans that is seldom contested by Democrats: If taxes are raised on the rich, job creation will stop.
Trouble is, sometimes the things that we know to be true are dead wrong. For the larger part of human history, for example, people were sure that the sun circles the Earth and that we are at the center of the universe. It doesn’t, and we aren’t. The conventional wisdom that the rich and businesses are our nation’s “job creators” is every bit as false.
I’m a very rich person. As an entrepreneur and venture capitalist, I’ve started or helped get off the ground dozens of companies in industries including manufacturing, retail, medical services, the Internet and software. I founded the Internet media company aQuantive Inc., which was acquired by Microsoft Corp. in 2007 for $6.4 billion. I was also the first non-family investor in Amazon.com Inc.
Since 1980, the share of the nation’s income for fat cats like me in the top 0.1 percent has increased a shocking 400 percent, while the share for the bottom 50 percent of Americans has declined 33 percent. At the same time, effective tax rates on the superwealthy fell to 16.6 percent in 2007, from 42 percent at the peak of U.S. productivity in the early 1960s, and about 30 percent during the expansion of the 1990s. In my case, that means that this year, I paid an 11 percent rate on an eight-figure income.
One reason this policy is so wrong-headed is that there can never be enough superrich Americans to power a great economy. The annual earnings of people like me are hundreds, if not thousands, of times greater than those of the average American, but we don’t buy hundreds or thousands of times more stuff. My family owns three cars, not 3,000. I buy a few pairs of pants and a few shirts a year, just like most American men. Like everyone else, I go out to eat with friends and family only occasionally.
It’s true that we do spend a lot more than the average family. Yet the one truly expensive line item in our budget is our airplane (which, by the way, was manufactured in France by Dassault Aviation SA), and those annual costs are mostly for fuel (from the Middle East). It’s just crazy to believe that any of this is more beneficial to our economy than hiring more teachers or police officers or investing in our infrastructure.
More Shoppers Needed
I can’t buy enough of anything to make up for the fact that millions of unemployed and underemployed Americans can’t buy any new clothes or enjoy any meals out. Or to make up for the decreasing consumption of the tens of millions of middle-class families that are barely squeaking by, buried by spiraling costs and trapped by stagnant or declining wages.
If the average American family still got the same share of income they earned in 1980, they would have an astounding $13,000 more in their pockets a year. It’s worth pausing to consider what our economy would be like today if middle-class consumers had that additional income to spend.
It is mathematically impossible to invest enough in our economy and our country to sustain the middle class (our customers) without taxing the top 1 percent at reasonable levels again. Shifting the burden from the 99 percent to the 1 percent is the surest and best way to get our consumer-based economy rolling again.
It’s this “feedback loop” between mass consumers and businesses that creates jobs.
“When businesspeople take credit for creating jobs, it is like squirrels taking credit for creating evolution,” he writes. “In fact, it’s the other way around.”
The spending of the rich can’t make up the difference for a gutted middle class. Hanauer said his biggest expense is his jet, which doesn’t support many American jobs since it was made in France and fueled with oil from the Middle East.
The answer, he says, is to tax the rich so their money can be used to improve the purchasing power of the middle class.
Some might argue that tech titans like Hanauer can’t talk about job creation since tech companies aren’t big employers. Yet he is CEO of the Pacific Coast Feather Co., which manufactures pills and bedding. And he helped start a picture-frame chain.
True, Hanauer has a political agenda. He co-founded “The True Patriot Network,” whose slogan is “Patriotism is Progressive.”
Yet his argument is worth considering in a debate that’s become as fraught as the argument over squirrels and evolution.
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