|
(Bloomberg News) 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.
Even so,
I’ve never been a “job creator.” 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.
That’s why I
can say with confidence that rich people don’t create jobs, nor do
businesses, large or small. What does lead to more employment is the
feedback loop between customers and businesses. And only consumers can
set in motion a virtuous cycle that allows companies to survive and
thrive and business owners to hire. An ordinary middle-class consumer is
far more of a job creator than I ever have been or ever will be.
Theory Of Evolution
When
businesspeople take credit for creating jobs, it is like squirrels
taking credit for creating evolution. In fact, it’s the other way
around.
It is
unquestionably true that without entrepreneurs and investors, you can’t
have a dynamic and growing capitalist economy. But it’s equally true
that without consumers, you can’t have entrepreneurs and investors. And
the more we have happy customers with lots of disposable income, the
better our businesses will do.
That’s why
our current policies are so upside down. When the American middle class
defends a tax system in which the lion’s share of benefits accrues to
the richest, all in the name of job creation, all that happens is that
the rich get richer.
And that’s what has been happening in the U.S. for the last 30 years.
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.
Significant
tax increases on the about $1.5 trillion in collective income of those
of us in the top 1 percent could create hundreds of billions of dollars
to invest in our economy, rather than letting it pile up in a few bank
accounts like a huge clot in our nation’s economic circulatory system.
Consider,
for example, that a puny 3 percent surtax on incomes above $1 million
would be enough to maintain and expand the current payroll tax cut
beyond December, preventing a $1,000 increase on the average worker’s
taxes at the worst possible time for the economy. With a few more
pennies on the dollar, we could invest in rebuilding schools and
infrastructure. And even if we imposed a millionaires’ surtax and rolled
back the Bush- era tax cuts for those at the top, the taxes on the
richest Americans would still be historically low, and their incomes
would still be astronomically high.
We’ve had it
backward for the last 30 years. Rich businesspeople like me don’t
create jobs. Middle-class consumers do, and when they thrive, U.S.
businesses grow and profit. That’s why taxing the rich to pay for
investments that benefit all is a great deal for both the middle class
and the rich.
So let’s
give a break to the true job creators. Let’s tax the rich like we once
did and use that money to spur growth by putting purchasing power back
in the hands of the middle class. And let’s remember that capitalists
without customers are out of business.
Nick Hanauer
is a founder of Second Avenue Partners, a venture capital company in
Seattle specializing in early state startups and emerging technology. He
has helped launch more than 20 companies, including aQuantive Inc. and
Amazon.com, and is the co-author of two books, “The True Patriot” and
“The Gardens of Democracy.” The opinions expressed are his own. |