This morning I was watching a YouTube debate between Neil Cavuto of Fox Business News (FBN), and Nick Hanauer, a billionaire businessman.
Hanauer was one of the first investors in Amazon.com. He also founded gear.com, and had sold Avenue A Media to Microsoft for $6.4 billion in 2007 (under another name). In 2000, he co-formed the Seattle-based venture capital company, Second Avenue Partners. He is also the co-founder of The True Patriot Network, a political action tank.
Neil Cavuto is an American television anchor and commentator on FBN. According to some websites his net worth is around $20MM. I can’t verify this information, but let’s just say these guys are both in the proverbial 1% of income earners in the USA, worth at least several million each.
Cavuto hosts three television programs. He tapes a nightly wrap-up of business news which airs on local Fox affiliates during the late news, and has a syndicated radio business news segment that airs on weekday afternoons. He is the senior vice president and managing editor of business news for FBN, and oversees content and business coverage. He is the author of two books.
They have radically different positions on taxing the rich (or 1%ers, if you’d prefer).
Cavuto’s positioning is that the rich already pay more than their fair share of taxes. This is true, as is his positioning that the wealthy carry most of the entire tax burden already, anyway. He also objects to any proposed levy of greater taxes on the wealthy, a group he regards as the nation’s job creators.
Hanauer is one of the self-titled “Patriotic Millionaires” who wrote a letter to the Obama White House. He offered that this elite group of ultra high net worth individuals (and their supporters) should pay more income tax. Hanauer’s positioning is that higher taxes on the rich would lead to more job creation and a stronger economy overall. He objects to the low rate of income tax paid by wealthy people – like him – levied on a variety of different income sources at a lower tax rate than regular income tax, e.g. 15% tax on investment income.
I’m comfortable in saying that they’re both correct at a macro level, but that they are incorrectly meshing different concepts together as if they were one, singular macro topic for discussion.
While there cannot be any doubt that wealthy people do create jobs (after all, they start, and/or invest in businesses that employ people), it would also be fair to offer counter-positioning to this hypothesis. You see… capitalist business people want to generate as large a return on their investment as possible, at the lowest possible cost. That is why new businesses start with one or two employees, and also why acquirers of existing businesses often lay off workers almost immediately when an acquisition is made. People cost money, and fewer employees would therefore simply be better than the inverse, at a macro level.
Regarding Hanauer’s positioning, counter-positioning is relatively easy. Taxing the rich at a higher rate – a desirable concept for the 99%ers – will not lead to a burgeoning and thriving middle class. Two high level reasons: the revenue would be insufficient as a means for uplifting the 99%, and the Federal government is hopelessly inefficient in creating jobs (other than perhaps in the public sector itself).
The solution is to reform the tax code. Period! One way to do this would be to scrap the entire mess, and to introduce a flat consumption tax at a rate applicable to everyone and everything purchased, of e.g. 25%.
I have no ability to do the math in order to determine future government revenue, but I’m guessing that if such a value added tax – replacing (not in addition to) individual and corporate tax – were implemented, then individuals, corporations and the federal government would all be financially better off, than presently!
Corporations like Apple ($AAPL) and General Electric ($GE) that pay little, or no corporate tax would like the competitive rate of taxation, coupled with input and output tax offsets. Consumers, aka salaried employees, would be subject to a lower tax rate, based on their consumption only. The government would benefit from a broader tax base, because corporate taxes would flow into the bucket, instead of us having stupid discussions about repatriation of corporate cash currently tucked safely outside of the IRS’ reach, in overseas domiciles, exclusively for tax-savings purposes.
Until elected officials start governing, rather than posturing and pandering to their base in order to get re-elected, nothing will get done! Until then, I’ll just keep ranting in the hope that someone, somewhere, will listen and take action.