Rich venture capitalist Nick Hanauer sounds off (again) on why his taxes need to be raised

Nick Hanauer

Nick Hanauer

Seattle venture capitalist Nick Hanauer was one of the most vocal supporters last year of Initiative 1098, a measure that would have raised funds for public education in Washington state by imposing a state income tax on those making more than $200,000.

Most of Hanauer’s peers in the venture capital and tech community absolutely hated the idea (including Madrona’s Matt McIlwain, Microsoft CEO Steve Ballmer), and I-1098 went down in flames.

But Hanauer, who has been described as a “high-functioning contrarian,” isn’t giving up on floating some of his ideas about economics and public policy. In a guest post that ran on Bloomberg earlier this month, the early investor in Amazon.com and the original backer of aQuantive wrote that there’s been a misperception floating around for years that rich people like him are “job creators”

But Hanauer, a co-founder of Second Avenue Partners, says the real job creators are middle class consumers who have enough money to buy more things. He writes in the editorial:

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.

Hanauer’s attack on the super rich is winning kudos from none other than former Wall Street analyst-turned-new media-titan Henry Blodget, who penned a column titled: “Finally, A Rich American Destroys The Fiction That Rich People Create The Jobs.”

Blodget echoes Hanauer’s points, and concludes:

“Rich people don’t create jobs. Our economy creates jobs. And until we return to more reasonable tax policies that help the 99% instead of just the 1%, our economy is going to go nowhere.”

This was the crux of I-1098, which was one of the more fascinating political battles I’ve watched unfold in the state since my arrival here more than 15 years ago. As part of my coverage of the issue, I interviewed both Hanauer and McIlwain, whose firms are located just a couple blocks from one another in downtown Seattle.

In the end, voters turned against the income tax in part because of arguments that it would eventually expand beyond the wealthy to all residents of the state.

But Hanauer is still proudly waving his “tax-me-more” flag, noting in the Bloomberg column that taxing the top one percent of earners in the country could provide cash to bankroll schools or critical infrastructure.

  • http://betacandy.com Eric Ingram

    I couldn’t disagree more with Nick. Plus, traditional schools have been a complete failure to the productive market that supports them. To withdraw resources from the market to further prop up a failed education system is a misguided idea.

    • Guest

      Right there with you, Eric. When a man underperforms at my company, I fire him. I asked my child’s principal what he does to underperforming teachers. He said, and I quote, “What is an ‘underperforming teacher’?”

      When a man underperforms, you fire him. You don’t throw money at him hoping he gets better.

      I, for one, will not be supporting Seattle’s services financially until the people who run them are replaced with competent administrators.

      • Jonathan

        Business perspective doesn’t translate to education – unless you think the point of education is simply to train people to be cogs in the industrial system (which is what it was originally designed to do, btw, and we wonder why our school system is so uninspiring).  With business, there are clear goals and objectives………ultimately leading back to numbers (i.e. profits).  

        How would you identify a “performing” teacher – btw?  Someone who prods, teaches their students to get certain scores on a test?  Does scoring high on a test mean that they’ve been successful?  

        I think education should be about teaching students HOW to learn (not what answers to fill in on a test – where in the world is that skill useful in the business world??).  Knowing HOW to learn (and not losing that child-like zeal to learn) is going to be extremely useful in a world/economy that is increasingly changing – requiring a lot more reinvention from people that ever before.  

        You speak as a businessman – so I ask you a question:  what would be more useful to you?  A cog-like employee who simply does what’s asked of them?  Or someone who can be creative, think outside the box, recognize opportunities, and have the balls to go for it.  

        I used to be a teacher – btw.  But quit because the system sucked and I barely made any money (you wonder why the system often has defunct people – it’s because the pay SUCKS).  So, I went off and started my own music school to have the freedom to reinvent the system and do it different.  I agree the system is broken, but not for the reason that you mention.  There are many, many amazing teachers out there.  And instead of having people bitch about it, we need people to innovate and support alternatives.  

  • Guest

    The government has so much waste and fraud it’s hard to
    figure out how much revenue is really needed. 
    Even after you dramatically reduce the waste and fraud, there are still MANY
    questionable areas of spending.  Then even
    if you narrow down the focus of government by eliminating the questionable
    areas of spending you still have issues with how much government employees are
    paid and what type of benefit packages are given out.  Cleaning up the mess we call government is a
    big challenge.  The government may or may
    not need additional revenues but giving it more money without cleaning up the
    mess first will not have the desired effect, it will only exasperate and expand
    the pig at the trough called government.

  • Steve Chayer

    But Hanauer, who has been described as a “high-functioning contrarian,” isn’t giving up on floating some of his ideas about economics and public policy. 
    It is so easy to shout for higher taxes. How is Hanauer being a contrarian?.Being contrarian in this context, is to demand a smaller and more efficient government … and fighting for it.

  • TomjEra1

    Hey Nick! Lead by example. Write a check to the IRS already!

    • Anonymous

      This isn’t about Nick–just like global warming isn’t about Al Gore and federal income tax rates aren’t about Warren Buffett. It’s about all of us pitching in to address the problems facing our state and our country.

      Nick is right: job creators don’t create jobs. Demand creates jobs. And until ordinary Americans (i.e., consumers) get some extra pocket change, you won’t have demand.

  • Jonah

    Nick is smart enough to know he can look good by saying tax income, because he has already made his money.  Very similar approach to Bill Gates Sr, who knew his income would be limited going forward and he would live of susbtantial assets.

    When he advocates taxing an asset base over say $2M or so, then I will listen.  Until then, he is simply asking the future generations with no assets and income earning potential make up for all the mistakes his generation has made.

  • Anonymous

    All these “rich” people who want to give more in taxes (read want you to pay more) can go here to put their money where their mouth is: 

    Gifts to the United StatesU.S. Department of the TreasuryCredit Accounting Branch3700 East-West Highway, Room 622DHyattsville, MD 20782

    I couldn’t find how to donate money to the state of Washington but I’m sure you can. What our current educational policies have shown is that no matter the money you throw at education, the government are very very bad managers of our state’s, country’s and children’s future.

    • Anonymous

      Read what he actually said in his various interviews: “I reject the idea that I am advocating higher taxes for myself and other wealthy people because I’m a good person or because I love you,” Hanauer tells weekends on All Things Considered host Guy Raz. “Let me just be very clear: I do not love you. I value you as a potential customer, and we have rigged the economic system in a way to destroy my customer base.”

      He’s right.  It’s not about him individually paying more taxes.  He could do that and it won’t make a dent.  The middle class as a whole, getting a bigger share of the pie, or keeping more of their income (thus increasing disposable income) is what will get the economy going.  After all, consumer spending is a huge portion of the economy. 

      • Anonymous

        I read what he said. He wants everyone making $200K or more to pay more. In a society where most people don’t pay anything. Let me repeat that, most people in our country pay no income taxes. How then is it fair for some people to pay most of what we use and most to pay nothing? 

        And my anecdotal experience is that once you give the government rights to your livelihood they will continue to take more and more. Again, if he feels he isn’t contributing enough there are channels he can use to assuage his feelings. But leave me an anybody else who think we are already paying enough, and in fact paying more than our fair share, alone. Fact is if you take 100% of the income of the people in this country who make $200K or more we still couldn’t fund all the entitlements in our country, not to mention the total debt including non-entitlement spending.That’s my problem. BTW, I’m not in his bracket but hope to be there soon.Reducing the burden of government on all of us and creating a balanced market place is what the government, imo, should do. What it shouldn’t do is take from the producers and give to the unproductive, because that frankly doesn’t work. (Europe anyone?)Then there is the whole discussion of why he wants to raise taxes, so that we have a better education system. When the system we have is the best funded on the planet and is in the dumps competitively with the rest of the world. Perhaps we can  look to that great bastion of freedom, Sweden, and see where most of their schools are out performing ours and the reason…is they are competitive.

        • Keith V

          Your ideology makes you incapable of seeing that those trees there, that’s a forest. It’s OK, we can’t all be smart.

          • Anonymous

            And your incredibly failed and vapid ideology not to mention your inane remarks leaves you completely outside reality…but don’t let that get in the way of you making yourself feel good riding on the coat tails of your betters.

  • Samjohansen

    Johan’s point is right on the mark – I wonder how many of the super rich would feel about taxing their wealth? 

    • Anonymous

      Perhaps some would but if they wish to contribute they always can.

  • Growing Tired of Hanauer

    With all of Nick’s grandstanding about what other people should do with their money I certainly hope he is paying in a lot of extra, voluntary tax to the State of Washington and the Feds this year (and every year).  I’m sure that since he is so altruistic he has avoided the creation of any fancy estate planning mechanisms that would shelter his estate from taxes to the benefit of his family and charities of choice.  Certainly the government will be better at allocating his capital to its programs and recipients of choice.  Well done, Nick, save us all with more taxes, more regulation, big government and a little heart.  We’re too dumb to make our own decisions.

  • theleftmakesmegag

    Gosh Nick, I guess you won’t be writing off any of your airplane expenses on your tax return then? If he is talking about increasing capital gains taxes by some percentage to capture more money from HNW individuals, fine.  There is indeed a serious wealth and income discrepancy in this country due, in part, to tax rates.  But to what end?  Throwing more money at any level of gov’t–federal, state or local–without real improvements in how gov’t agencies staff themselves or in the case of K-12, without meaningful reforms (teacher and principal evaluations, layoffs no based on seniority) and slowing the growth of cop and firefighter health care and pensions, is a waste of time.

    • Anonymous

      How is that. The income gap in this country is a direct effect of entitlements to mostly retired individuals taking money from working individuals. It is well documented the income gap is between young and old not so much between haves and have nots. 

      Just one example. The state of Maine has 46% on medicare or medicaid while 45% are paying into the system. Our entitlement programs have redistributed wealth from the producer to the non-producer. We have the highest corporate income tax in the world.

      A minority of people in this country pay taxes while a majority pay nothing. What more are you going to do? Confiscate all the wealth and make sure all have the same? That is a recipe for doom. Corporations are moving more and more of their revenue sources out of the country while wealthy individuals seek states without high taxes. I moved from California to Washington to start my business because it has become impossible to be profitable in California.

      If it becomes that way countrywide, does anyone doubt people will seek havens outside this country? Already Panama for example is giving a 20 year moratorium on payroll taxes for anyone who starts a business down there with 5 employees or more. Keep on and that is what will happen.

  • http://www.facebook.com/people/Jim-Wolfson/100003102927273 Jim Wolfson

    If rich leftists want so desperately to feel good about themselves, they should send all their money to the government parasites and STFU.

    God, we’re sick to death of guilt-wracked white liberals.

    • Keith V

      You’re unbelievably ignorant.

  • http://www.facebook.com/people/Trina-Mccall/100000865309423 Trina Mccall

    Hello NICK. Hanauer. The Hydrogen Car Fender Replacement program will FREE UP $31,200,000,000 a month  to be
    spent back into the US Economy. When we spend more, your revenues will go up .
    So everyone will benefit for this that frees up  $31.2Billion a month
    revenue program.  That’s $375BILLION a year 

    google it

    • d

      Trina,

      375 Billion dollars sounds like a lot, and it is, but it would only raise the median household income a mere $2,420, from ~$50,500 to $52,920. At the most, it would raise $4,840 to $55,340.

      Yes, those are great gains, but they aren’t enough to seriously stimulate the economy. Just look at the economic stimulus bill that everyone complained about.

      Nick Hanauer wants to raise the minimum wage to $15/hr, that would be a ~$16,000 raise for minimum wage workers who currently make ~$15100 working 40 hour weeks.