Mark Zuckerberg, founder of Facebook, has in six short years become the youngest self-made billionaire in history. He's made the Forbes 400 with an estimated wealth of $6.9 billion, more than Steve Jobs of Apple, a company that actually makes things. The Wall Street Journal reports Facebook has over 1,200 employees, many of whom have become fabulously wealthy as a result of Mr. Zuckerberg's success. He's jumped into the philanthropy game by giving $100 million to public schools in Newark, NJ. He's done Oprah. He's even got a major motion picture about his life in theaters now. Not bad for 26 years old, right?
The Republican theology about taxes would have you believe there are no Mark Zuckerbergs because of high taxes. You'll hear them often say, "We cannot punish the job creators." If the wealthy pay higher taxes, they wont invest in new businesses that create new jobs. Instead of using their money to build and expand, that money will go to a wasteful government that won't do anybody any good. This sort of thinking dominates policymaking in Washington and New York, and also has managed to get accepted by large sections of the public at large. "I never got a job from a poor man," they note. It is as if higher taxes will make people like Mr. Zuckerberg suddenly give up on their ambitions and head straight to the soup kitchen, taking all of his employees down with him.
I wonder what sort of businessmen operate like this. Mr. Zuckerberg, for example, in 2004 was staring at a top marginal tax rate of 35 percent, the Bush rate. It seems to me he considered paying that rate of tax would be worth the cost of earning himself almost $7 billion. Does anyone really believe he would not have founded Facebook if the tax rate was 39.6 percent, the Clinton rate? Is that extra 4.6 percent such a huge obstacle to success, that Mr. Zuckerberg would have decided Facebook and its prospects weren't worth the effort? How about Bill Gates of Microsoft staring at a top rate of 70 percent in 1979? Or perhaps Gordon Moore of Intel starting out with a top rate of 75 percent in 1968? Why did Bill Hewlett and Dave Packard start HP in a garage in 1939 with a top rate of 79 percent and then take the company public in 1957, during which time the top rate rose to 91 percent? 91 percent!
The fact is the idea that tax rates have anything to do with business creation is a myth. Nobody who has a great idea and good prospects is going to not go for it because of tax rates. Even if the tax rate was 100 percent over annual income of $1 billion, it isn't going to stop someone who has some moxie for going for that $1 billion a year. Lets face it, a billion dollars is a good living. Furthermore, it has almost nothing to do with job creation. American Express surveyed small business this year and found only 18 percent cared about high taxes. Only 8 percent were worried about the federal deficit. When asked "Which of the following would most incent you to hire," 67 percent of small businesses said more consumer demand or better economic outlook. Only 11 percent said tax credit.
The only people who think that tax rates are keeping them from success are, quite frankly, losers and cowards. Joe the Plumber comes to mind as an example. Joe told then-candidate Barack Obama a couple of years ago that he was going to buy a company that made about $280,000 a year but he was afraid of being taxed more. He constructed, only in his own mind, a scenario in which he would buy a truck and get taxed more and more:
Joe: Well, the reason why I ask you about the American Dream I mean, I work hard. I'm a plumber, I work 10-12 hours a day ...Joe never bought that company and instead became a garden gnome for the Tea Party people. I'm sure he blames his failure to even try to make a success of that business on the prospect of the punishing top taxes Obama seeks to restore to the Clinton rate. The same rate, by the way that didn't seem to hold back Larry Page and Sergey Brin of Google in 1998. People like Joe the Plumber will either collapse and fail or not even try at all. That has nothing to do with tax rates and everything to do with them being losers and cowards. There are people who having a tough time in business right now, but I'm sure they know that has nothing to do with taxes and everything to do with forces they can't control. Sometimes you can do everything right and still have bad luck.
Joe: ... and I'm, you know, buying this company and I'm gonna continue to work that way. Now, if I buy another truck and adding something else to it and, you know, build the company, you know, I'm getting taxed more and more while fulfilling the American Dream.
This is just common sense. An increase in the top marginal tax rate is going to have no effect whatsoever on job creation or business investment. Business success has nothing to do with income tax rates and everything to do with the old-fashioned things: passion, perseverance, inspiration, timing, moxie, and most of all luck. For some, it is simply a matter of not wanting to work for anybody. If you've got a good idea and some fire in the belly, you're going to go for it no matter what the top tax rate is. Those are the sorts of people who are the true job creators and they don't let the rate of taxation guide their entrepreneurial decisions. People like Mark Zuckerberg are going to keep doing what they are doing if the top rate is 35 percent, 39.6 percent, or even 50 percent. They don't go into business or not based on taxes, but for reasons that have nothing to do with taxes.