Archive for December, 2005

“You Deserve It”

December 3rd, 2005 1 comment

I’m one of the lucky ones, even by American standards. My business partner and I built a company in the ’90s that created and ran professional conferences covering web design, web marketing, web advertising, and other frenzied subjects of the day.  We were selling Levis to the gold miners. And we were lucky enough to sell the company in July of 2000. I managed to walk away with enough money for my family to live very comfortably–though not opulently–for the rest of my life and beyond.

My partner does not endorse all the opinions here, by a long shot. But here’s my take on it all. We built that company from scratch, with our own sweat and our own equity. It had real revenues and real profits, it supported dozens of employees and hundreds of suppliers, cohorts, colleagues, and co-conspirators, and provided real value to tens of thousands of customers. We made sure that our employees and long-time associates shared quite liberally in the jackpot when it arrived, even though it meant serious money out of our pockets. And we paid a wopping large chunk of capital-gains taxes–no shelter in sight.

So you’d think that I’d be the first one claiming a right to keep the money we made. I should be singing hosannahs to the Bush tax cuts that are putting (some would say leaving) so much money in my pocket and my children’s pockets.

But I don’t feel that way, because I don’t subscribe to the basic tenet underlying the neoconservative religion. I’m not under the illusion that I “deserve” it.

The “you deserve it” mantra-cum-moral is as American as SUVs. The self-help gurus and most maistream psychologists lead the chorus with their inordinate esteem for “self-esteem,” and their injuctions to tell yourself that “you deserve” that car, or that raise, or that new outfit. Many of them are wondering right now whether I have a self-image problem. The marketers are more than happy to jump on this mutually congratulatory just-deserts bandwagon.

And the neocons are right at the front of the you-deserve-it parade. Moments of googling turn up dozens of examples, but the most stunning recent expression I’ve come across came from the neocon’s favorite lobbyist, the dollar-gobbling Jack Abramoff, in the New York Times Magazine: “I felt that the resources coming into my hands were the consequence of God putting them there.” Whoa.

The neocon ideology in a nutshell: If business people keep more of their well-deserved profits, they’ll have more incentive to create and build businesses, jobs, and prosperity. All boats rise.

But if other entrepreneurs are like I was, the neocons’ incentive argument is wrong by 180 degrees. First, I can assure you that my partner and I weren’t eyeballing the marginal tax rate when we started our business. It never crossed our minds; we did it because we thought we could make a success of it and it seemed like a cool thing to do.

As the business grew, I kept a regularly updated spreadsheet that calculated our revenues and profits, how those might translate into a sale price–minus taxes on the sale—and how much money I and my partner would be able to spend per year (after taxes) throughout our lives if we sold, while leaving something for our kids. We wanted our employees and cohorts to do well as well; we made sure they did, and we calced that into the total. But we were quite clear-eyed in our mercenary intentions. When that projected spending-per-year number got high enough, we sold.

I explain this because it utterly contraverts the neocons’ “incentive” argument. Since we were looking at what would be left from a sale after taxes, higher taxes gave us more incentive to grow the business faster–employing more people and contributing more to the economy (and the government), so we could get to the magic after-tax number. This may or may not be a universal rule; I can only say that it was uncontrovertibly true for us.

But what about the neocon’s other argument–that we earned that money, and we deserve to keep it?

When I look back at what allowed me and my partner to do what we did, it’s not the hard work or sometimes-smart decisions that come to my mind first. Lots of people work very hard and make smart decisions. It’s the simple, fortuitous fact that we were born, grew up, and started our business in America in the last half of the twentieth century. We were beneficiaries of all the policies that have brought us to this point. Despite decades of supposed strangulation by the purported sea-anchor of so-called socialism, we were playing on a field where prosperity and stability reigned–and have reigned for all the decades of our lives. That is the main reason we were able to do what we did.

By contrast to that world, I think of the trips I’ve taken to Rio de Janeiro (that’s in Brazil, in South America). Millions of people in Rio live in hillside favellas–whole cities, unimaginable in America, built of cardboard, scrap, and tin. The people of means live in walled compounds topped with broken glass and razor wire, protected by armed guards. My then-wife-to-be went shopping with a protector hovering behind her. There’s no feeling of stability there, or security, or widespread well-being–the feelings that give young men like I once was the confidence to take a chance on a new business.

You may say that America is nowhere near that point. And it’s true that Brazil in 2003 was fifth from the bottom if you rank countries according to the “Gini index,” measuring equality of income distribution. The U.S., on the other hand, is way up there at 73rd out of 123, right between Senegal and Turkmenistan. Not terribly comforting. America’s gated communities, the decades-long stagnation in wages for working people, and the phenomenally expanding wealth of others, increasingly bring those walls and guards to mind. It’s a world I don’t want to live in. I want to walk freely on the streets of America. And that means that all Americans need to have a decent piece of the pie–not necessarily because they “deserve” it (it’s easy to find individuals who don’t seem to), but because it gives us the world that we, or at least I, want to live in. It’s a world of true social security, where my children can grow up like my partner and I did–secure in the peace and prosperity around them.

It’s programs like Social Security and progressive taxation that give us that world, because we all participate in them. Sure, if I want to spread the wealth I can just donate to charity instead of paying money in taxes. That’s what I do. But the result is nothing resembling the sense of security that emerges when we all band together and agree to a social contract that places a high value on an egalitarian society. That’s what gives us the kind of true social security on which my partner and I built our company and our families’ lives.

That’s why I’m quite happy to pay taxes at the rates we paid before the red-ink Republicans descended on Washington: So my daughters will live in a world worth living in, and continue to have the kind of opportunities that I was so amazingly lucky to have had.

Update: For you economics types out there, this post is evidence of the very real “income effect,” and how it plays out in the minds and spreadsheets of real entrepreneurs–the “intrepid souls” whose incentives are supposedly destroyed by taxes. Supply-siders are in many cases unwilling to admit that the income effect even exists. Here’s a discussion by a more judicious soul.