Amen Brother Cuban

by joshstaiger • 18 years ago

21 67 18 years ago

brm• 18 years ago

Precisely why you shouldn't have people who don't start businesses enacting policy for people who do... I make a general effort to vote for politicans who have eaten their own dog food on their policy platform, be it having spent time in the energy sector, run their own business, or whatever else...

Prrometheus5• 18 years ago

Most politicians at the national level have law degrees.

dangoldin2• 18 years ago

Why not just have income be considered the sum of all the money you've made in a year? 100k salary with 25k stock gains would give you an income of 125k and that's just taxed normally. Why should capital gains be treated differently at all?

Also, just simplify the entire thing and have a simpler tax rate. It may also be interesting to see what happens if the party responsible for what tax dollars are spent on is not the same party that decides the allocation of the money. Group 1 creates a list of priorities A, B, C but voters then get to choose the tax dollar allocation.

timcederman5• 18 years ago

The knock-on effects are why tax law is as (necessarily) convoluted as it is.

Prrometheus5• 18 years ago

If, by some miracle, you managed to simplify the tax code, then lobbyists would be there the next day trying to add loopholes to it for their clients. Without constraints on government (and ours has none de facto) there is plunder to be had in Washington, and people respond to incentives.

ckinnan• 18 years ago

You'd penalize the investment gains with double taxation. The person already paid income taxes on the money that was used to generate the $25K. Why should government policy penalize savings and investment?

jfarmer• 18 years ago

Because it's not necessarily in our interest to favor capital over labor.

dangoldin2• 18 years ago

So if I buy a lottery ticket for $1 and then use it to win $50 million I shouldn't be paying taxes on the $50 million because I already paid income taxes on the $1?

mynameishere• 18 years ago

A lot of strawmanism going on. It's not that taxation prevents entry-level entrepreneurs from starting businesses. Rather, taxation represents a misallocation of capital. If a company or person loses an extra million dollars to the government, I promise you that the money will be converted into dust [1], or handed out to failed businesses [2], or spent directly on tyrannical activity [3], or redistributed to pressure groups, or any company or foreign nation with a good lobbying firm or PAC, instead of being allocated responsibly.

[1] Literally, via TNT. [2] AIG, Goldman, Fannie, GM, Ford, etc [3] The TSA, the FCC, the CIA.

timcederman5• 18 years ago

Sure governments make mistakes, but most first world countries do a pretty good job of converting taxes to public services and a generally good framework for supporting the citizens.

Prrometheus5• 18 years ago

I don't know which country you live in, but most of my tax money goes towards killing brown people and paying for other people's healthcare. I pay most of my taxes to the Federal Government and receive the most services from my state and local governments.

timcederman5• 18 years ago

Wow -- downvoted to troll status? Maybe I should clarify my argument. The parent PROMISED us that our money would turn to dust. I think it's safe to say that generally taxes get turned into 'good' things, even if some misappropriation does occur. I think to say that any extra taxed money goes to waste is a little extreme.

Dilpil• 18 years ago

Perhaps 90% of the money will be wasted on stupid shit like that, but at some point, someone has to fix the roads and service our national debt.

nazgulnarsil8• 18 years ago

fixing the roads comes from gas tax. infrastructure in general comes from state sales tax.

jeremytliles• 18 years ago

Umm, yeah, and unfettered capitalism does such a wonderful job of allocating resources. Government is terribly inefficient, but what other entity is going to maintain infrastructure, a social safety net, schools, and other basic services from which society benefits? I hate that so much money goes to DOD, TSA, farm subsidies, and the like, but reducing government revenues doesn't force the government to make tough choices, it simply causes it to run an even more unsustainable deficit.

By the way, if you lower taxes (and thus government revenue), it's not defense and corporate subsidies that suffer--they always get their piece--it's infrastructure and social programs. The "starve the beast" concept simply creates more suffering for those who can't afford things like private schools, expensive out-of-pocket health care, and jet time-shares.

laut2• 18 years ago

> Umm, yeah, and unfettered capitalism does such a wonderful job of allocating resources.

True.

nazgulnarsil8• 18 years ago

federal government does not provide schools. propoerty taxes (state) provides schools. federal government does not provide infrastructure. gas tax provides roads, state funds and tolls go towards bridges and the like.

as for a social safety net? i'd be fine with it if it wasn't so obviously rotten. it needs to be gutted before any good can come of it.

look at yourtaxes sometime and see what percentage goes towards state vs. federal. ponder how state government can accomplish so much more with so much less.

Prrometheus5• 18 years ago

Read:

http://www.econlib.org/library/Essays/hykKnw1.html

mlinsey3• 18 years ago

That's interesting (and partly true), but it's nowhere close to the argument being made in the context of political debate about what capital gains taxes should be. After all, you've presented an argument against all taxes (or at least, all taxes beyond what's necessary to maintain a minimal government). That's quite frankly a much different (and more fundamental) debate than whether capital gains taxes should be fifteen or twenty five percent.

The debate in Washington and in the political media largely centers around whether or not a higher capital gains tax will discourage innovation, which is the argument that Matt is addressing.

I think you have a perfectly valid and consistent view, but the original article was most definitely not "strawmanism". It might have been strawmanism if he was writing the article as a reply to you, but he wasn't.

newt0311• 18 years ago

How about the Laffer curve? Historically, whenever the capital gains tax rate has been decreased, revenue has increased due to secondary effects. That sounds like a pretty good argument to me.

antidaily• 18 years ago

Papyrus!

neilc4• 18 years ago

When I started my first company I’d never even heard of capital gains taxes

Granted, but I guarantee that the limited partners in the VC firms you might consider for funding are very familiar with the tax structure in the US. If you raise the taxes on investment income, you effectively reduce the return on venture capital funds, which reduces the amount of money VCs will be able to raise, which reduces the amount of money available to entrepreneurs.

mhartl2• 18 years ago

I'm a big Cuban fan, but I was surprised and a bit disappointed when he made this statement (and I'm also surprised to see Matt defending it). I agree that many entrepreneurs don't consider tax rates when starting up (at least not consciously), but for any given rate there is a marginal entrepreneur who is just over the threshold for starting a company. Mark is so far over that threshold for current rates that he reaches the erroneous conclusion that taxes don't matter in general. I guarantee that there is a rate---whether 90% or 99%---at which even Cuban would throw in the towel, by quitting the game or (more likely) fleeing the country.

Taxes hurt entrepreneurship; higher taxes hurt it more. Denying this just increases the likelihood of more taxes.

comatose_kid• 18 years ago

I think the term you used 'marginal entrepreneur' is appropriate if the tax rate is a significant factor in going forward with a business.

As you said, if the tax rate was in some ridiculous extreme, of course that would be a factor. But then I'd wonder what kind of country/economy would raise taxes to such a high altitude.

Prrometheus5• 18 years ago

In my old line of work, we whipped up a spreadsheet model to show a new company's potential return on investment before we took the idea to investors. For any given company, there is a tax rate high enough that would have made it non-worthwhile.

Of course, we weren't in the web business, so numbers mattered to our investors.

mhb• 18 years ago

That's the definition of the word "marginal" here. It is axiomatic that the tax rate is the deciding factor for the marginal entrepreneur.

If you think it has some meaning dependent on the tax rate, then you're not understanding what marginal means.

netcan4• 18 years ago

Depends also what you see as an entrepreneur.

What A lot of people see as entrepreneurship is a largely binary exercise: success/failure. Since tax rates do not really effect the venture in this way, they shouldn't effect the decisions of an entrepreneur.

A 'marginal entrepreneur' would need to be very marginal. Even if you consider complex effects (the effect of your uncle making $1m in the 80s vs $.75m on inspiring you). Cuban's talking about the 'within reason' limits based on practical choice a government is likely to make.

What might be affected by the tax situation is the flow of investment capital. Since Cuban is disregarding that as a factor, that has no effect.

neilc4• 18 years ago

In addition to the supply of capital (which is quite significant!), tax rates also affect the likelihood that the startup is successful. The higher the tax rate, the higher the company's burn rate, and the less time the company has to gain traction / positive cashflow.

mhartl2• 18 years ago

You misunderstand the meaning of the term "marginal" in this context: it means not "mediocre" but rather "on the margin".

timae• 18 years ago

Wrong, Matt (and Mark).

Entrepreneurs "have business to do" as Mark puts it because they stand to make some money from their efforts. The less money they stand to make, the less incentive. period.

Also, you state the following as if its fact:

"what capital gains taxes really do is favor the ultra-wealthy who live off of their investments, rather than those generating wealth directly"

No. In order for the ultra-rich person in your example to have accumulated $5M, he EARNED $6,750,000 and paid the government $1,750,000. So, by paying tax on his investment income, he's paying tax twice on the same money. That simple error aside, you're also missing the point that capital gains tax discourages investing in companies! Which has an impact on a company's cost of capital which has an impact on the price of goods and services which has an impact on you.

deepster3• 18 years ago

Absolutely correct! It's double taxation!

trominos• 18 years ago

So?

Tax rates are determined (well, should be) by what works. If some double taxation is good for the nation, more power to it.

mlinsey3• 18 years ago

I do not understand why people make such a big deal of the "double taxation" argument specifically in the context of capital gains.

If I hire an employee, I have to pay payroll taxes on the salary I pay him or her, and then I also have to pay business taxes on the value that the employee gives to the company in the form of increased revenue. Is this "double taxation" also a cause for moral outrage?

rms• 18 years ago

If you don't tax capital, then only the wealthy will own capital. Eventually the capital starts owning itself and then the people don't even own capital anymore.

Our tax system has to try and fix one of the fundamental flaws of capitalism -- the tendency for the rich to get richer and the poor to get poorer. Without a capital gains tax, this very worst aspect of capitalism becomes even more emphasized, as capital will last forever.

brlewis• 18 years ago

What are you talking about when you say double taxation?

$6,750,000: money

Interest paid on the remaining $5MM: other money

I'm seeing two sums of money and two taxes, a 1:1 ratio. Where's the double taxation?

deepster3• 18 years ago

1.) The money you've invested was already taxed. 2.) The money you received as dividends was taxed through corporate income tax.

I have no qualms about paying captial gains tax. But the blogger's comparison of capital gains tax vs. income tax is incorrect.

far33d• 18 years ago

A quote from Bill Gross, bond manager extraordinaire:

"That ol’ Laffer Curve has a certain logic to it, but it only makes sense at the upper margin. People did work less at confiscatory tax rates imposed pre-Thatcher/Reagan but once they got down to 50 percent or lower, it was all gravy – promoting conspicuous consumption as opposed to higher productivity and overtime at the office."

http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2...

llimllib• 18 years ago

I too believe that this is wrong, but for a different reason than does timae. It breaks a simple economic axiom:

You Are Not the Marginal Case.

It is simply not valid to extrapolate (especially if you're MC, jeez!) from yourself to all entrepeneurs. You Are Not the Marginal Case.

Just because you and Bill Gates persevered, Mark frikkin' Cuban, doesn't mean that the marginal tax rate on entrepeneurs is unimportant.

Let's restate the argument this way: "Two of the most successful entrepeneurs of all time were undeterred by high marginal taxes on their fledgling businesses, therefore high marginal tax rates do not kill fledgling businesses". Sounds a bit different, eh?

imgabe• 18 years ago

I think the case against capital gains is less about the entrepreneur and more about the investors. If the capital gains tax is raised so high that investors can get a better after tax return by putting their money into lower risk investments, then they're not going to want to bother funding new businesses. This may not be an issue if you're making a web app and your only capital outlay is living expenses and hosting fees, but this could seriously hurt innovation in fields where money is required up front to even get started (hardware, pharmaceuticals, etc.)

davidw2• 18 years ago

Bzzzzzzt! Politics!

I think the most that can be said without much of anyone besides accountants disagreeing is that simplifying the tax code would actually do a lot of good.

edw519• 18 years ago

I doubt that any great business or invention started with a discussion or even a consideration of what the current or projected income or capital gains tax was or would be.

In the beginning, this is the whole point. It's not about the money. It's about doing the thing that you just have to do.

0% of nothing is a lot less than x% of something. I still prefer the latter, whatever that may be.

Amen Brother Cuban

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