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Nick Hanauer on the TED talk, income inequality controversy
Venture capitalist Nick Hanauer discusses his controversial TED talk, why income and inequality has become political and what happens next.
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Kai Ryssdal: There was a story this week about income inequality and politics and the economy that got a decent amount of buzz. A guy named Nick Hanauer -- I should say a rich venture capitalist named Nick Hanauer -- gave a TED talk, those three- or four-minute big ideas talks that started as part of a conference called Technology, Entertainment and Design, TED. They're taped and a lot of them are posted online. But Hanauer's talk from a couple of months ago, about how the wealthy really aren't the engine of economic growth, went viral this week because it wasn't posted on the TED site. Chris Anderson, who runs TED, said it was too controversial politically. The two of them, Hanauer and Anderson, had it out. The video's up on the TED site now, so that part's done.
But we called Nick Hanauer anyway to ask why income inequality raises so many partisan hackles. We reached him -- perhaps appropriately enough -- on a private plane. Good to have you with us.
Nick Hanauer: It's great to be with you.
Ryssdal: So let's stipulate that wealth and poverty in this country, income and equality, has become partisan -- which it obviously has. The question is why -- what happened to make it this way?
Hanauer: I think that's a great and very important question and I wish that I had a good answer to it. We became enthralled with the view that wealth trickled down from the top and that if you poured money into rich people, sort of like an ingredient, prosperity and jobs would squirt out of them like donuts. And if you understand economies in the 19th century way that view is plausible and I think a lot of people accepted it. And look, lots of rich people accepted it because it's a super convenient thing to accept, right? What a great story that the less taxes I pay, the better off everyone else will be. This is a marvelously self-justifying viewpoint, but at the end of the day it hasn't worked. It's kind of been a catastrophe for everybody in the country except people like me and I think it's time for us all to sort of look up and reexamine these assumptions and go another way.
Ryssdal: When you go out for beers with your friends -- who I imagine are in the same socioeconomic strata that you are, what do you say when you say, 'Listen, I think we ought to tax people like you and me more.' They must look at you like you have three heads.
Hanauer: Yeah, not a great way to grow your friend group. But in truth -- and you can talk to them about it -- I suppose when I started to make these arguments, people were angry. But most of my friends have come around begrudgingly. Of course, no one wants to pay more in taxes. I don't want to pay more in taxes. But if you understand how the system works I think in a more realistic way, what you begin to see is that in the end it's better for me because honestly, what do I care if my tax rate is 15 percent or 30 if my businesses are growing twice as fast. Prosperity for people like me is a consequence of the number of customers I have, not the tax rate that I pay. If low taxes were the way that people like me created wealth, then we'd be starting our companies in the Congo or Somalia or Afghanistan, but we're not. We come to places where there are lots and lots of customers. While that may hurt a little bit in the short term, for people like me in the long term it's just a huge winner.
Ryssdal: What happens now in this whole debate, Nick? We're heading into an election and that of course is part of the reason that this has become controversial with you and TED. Where do we go? What happens?
Hanauer: I think that we need to debate this very important issue of where prosperity comes from. If we can come to a more healthy conclusion, which is that it is the middle class and the success of middle class that animates future and shared prosperity and begin to invest again in that middle class; and for wealthy citizens like me to begin to pay more than our fair share, I think the future is very, very bright. I think you'll see the economy begin to grow quickly again and I think you'll begin to see the median wage grow again and I think the country will be in super shape.
Ryssdal: Nick Hanauer, we've reached him on a plane as you might be able tell from the way this sounds. Nick, thanks a lot.
Hanauer: Very pleased to be here. Thank you for having me.
Ryssdal: You can see Nick's talk about income inequality -- click here. We called Chris Anderson of TED, by the way. Didn't want to talk.
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With my three college aged children saddled with debt when they leave school, they'll have less discretionary spending available -- shrinking our economy even more. Now that student debt has surpassed credit card debt, isn't time we started asking the financial industry to stop killing our economy. Here's to Mr. Hanauer who finally brings some sense to the debate. It's not taxes -- it's customers that count.
David Weiner
Wilmette, IL
I have been mulling over this interview for awhile now. As far as Nick Hanauer’s talk being pulled off the Ted site that is regrettable. The more debate we can have on this subject the better.
I disagree with his point regarding higher taxes from the 1% that would somehow grow the economy. I believe that would shrink the economy further. Besides, I don’t believe that Washington has a lack of revenue problem but rather a spending problem that no one in Washington is willing to deal with. The situation is analogous to the man whose wife habitually runs up credit card debt every month. He has two choices; he can call the credit card company to have the credit limit raised or he can confront the situation head on by sitting her down and having a “come to Jesus” meeting with her. Where Greece and Spain are now is where we could end up if our $16 trillion deficit isn’t brought under control. Besides there have been too many Solyndra and GSA scandals lately to give me any confidence in Washington bureaucrats being able to get their collective act together.
Similar to what Deb Fischer did in Nebraska - increase a tax to fund infrastructure - not backfill budget shortfalls - creates jobs which stokes the economic engine as only demand can muster.
Hasn't Robert Reich been saying this over and over for the past two years?
The problem with this story is that it makes seem as if the proposition is true because some rich guy finally believes in it, instead of the truth that another rich guys has finally come around to the truth, as Gates and Buffett have.
Kai - TED has still not uploaded it - can't even find Hanauer's name in the alphabetized list of speakers. "Too controversial?" Since when has that been a criteria for being left off of TED's website? Most of the lectures I've shown my students over the years are HIGHLY controversial --- from sustainable agriculture to women's issues to underdevelopment and the legacies of colonialism. Intellectual curiosity IS entirely about debating controversial ideas. Too bad they're wimping out.
I am updating my Facebook page to list Nick Hanauer as one of the people I admire. His opinions are central to real tax reform and why we need to focus on restoring the middle class consumers. The tax code has redistributed income and wealth to the top for over 20 years at the expense of the middle class and the economy as a whole. This was made worse by 12,000,000 unemployed, cheep labor as women entered the workforce and fewer consumers as a result of and 50,000,000 abortions (- factors generally avoided by politically correct economists). The economy is no longer resilient. Tax expenditures and government subsidies have enabled businesses to show profits as the national debt grows. Neither Mr. Obama's Buffet Tax nor Mr. Romney's 20% across the board cut in income taxes will heal the middle class. Please consider the 2-4-8 Tax Blend – a comprehensive tax reform for both individuals and business that can be defined in one sentence:
Tax individual and corporate income at a flat 8% rate (with no deductions, credits or loopholes), tax individual net wealth at 2% (excluding $15,000 cash and retirement funds) and impose a 4% Value Added Sales Tax (VAT) on business.
For business the combined 8% income rates and 4% VAT would be the lowest and most competitive business taxes of all the developed countries. [The U.S. is the only developed country without a VAT]. The 8% income tax rate also resolves the significant problem in the deferral of taxes on foreign profits caused by imposing a 35% tax (less credit for foreign taxes paid) when the money is brought back into the U.S.
For investors, the net wealth tax might seem revolutionary by U.S. standards, but most high earners would willingly pay a 2% net wealth tax in exchange for eliminating the capital gains and estate taxes and keeping 92% of taxable earnings. The ability to buy and sell assets without being taxed on the gains would spur a new era of investment freedom. The increased after tax income would also create wealth much faster than a 2% net wealth tax could diminish it.
For workers, the elimination of the payroll tax and reduction of the income tax rate creates an immediate boost in take home pay. For example, a young family earning $70,000 currently pays combined federal taxes of 19% but would take home $7,700 more with an 8% income tax (assuming net wealth of under $30,000). This additional $641 per month represents an enormous opportunity for both savings and consumption. The $15,000 per person cash wealth tax exemption also encourages a responsible level of liquidity. The retention of tax exempt retirement savings programs recognizes the need for the elderly to have sufficient assets to supplement social security. Current interest tax deductions for mortgages and student loans are replaced by the ability to deduct the loan principal in computing net wealth. This is the equivalent of a 2% reduction in the interest rate and is arguably a better incentive for both home ownership and higher education.
Eugene Patrick Devany, JD, MPA
http://www.TaxNetWealth.com
Mr. Hanauer comes up rather short on explaining exactly how a little more money taken from the rich and given to the government will make such an enormous difference to the economy. He also fails to mention just how much more he should pay. Since you can live comfortably just about anywhere in the U.S. on $250,000 a year (the Democrat's official threshold for the "rich"), I would suggest that the gov't should take everything Mr. Hanauer earns over $250,000. And we should also take everything he owns beyond, oh about $2 million, since no one really needs more than that to retire and be comfortable. Same for Mr. Buffett and the rest, since no one really needs more than that. Then they can evaluate whether they would like to work long hours and take risks with their capital for a $250,000/yr. maximum paycheck and $2 million net worth. Ah, but you say that's too draconian, of course no one would start businesses or take risks if that were the maximum permitted net worth or income. So what are the right numbers? Who gets to decide. Will Mr. Hanauer's number be the same as Mark Zucherberg or Warren Buffett.
Let's just assume the gov't took a lot of money away from the "rich" and does what -- give it to the poor? Well, that's basically communism, and besides, the Gov't just borrowed nearly $1 trillion from China to spend on economic stimulus and that didn't accomplish much. Given that we know how inefficient and wasteful the gov't is, that's no surprise.
It's hard to figure out where Mr. Hanauer is coming from. I assume he invests in new business startups, so he should realize that private capital does a lot better job of financing real businesses (thing Facebook) rather than crony businesses (think Solyndra.)
@ GoNuclear: The government is a big hirer of people; it can put a lot of people to work in short order, if it has sufficient capital: teachers, police and firefighters, foresters. It can build and maintain mountain trails, bike paths...heck! it could replace its cars, when they retire, with modern electric vehicles from GM and Ford.
Franklin Delano Roosevelt learned this in the 1930s and it is time to re-learn it, today.
As for Mr. Hanauer: perhaps he was a bit short on specifics, but what he said rang true to me. Use the government to create the types of jobs private industry does not, then those people will have income to buy the things his company produces.
Well I listened to the censored TED talk, and I have to say it was truly not up to the usual TED standard; I sympathize totally with Mr Anderson. Now if millionaires feel so strongly that they really want to pay more taxes fine, I’m all for it. But Mr Hanauer does a very poor job (no job at all really) of explaining how giving the government more money is magically going to expand the economy.
Now if Mr Hanauer were implying that we should at the same time reduce taxes on the middle class by an equal amount (and if he is saying this he is not communicating it very well) then that would totally make sense. But if he is simply saying we should give the government more money then he is a naive fool with no powers of observation (or perhaps he is just blinded by his political ideology). Our government is notorious for spending our tax dollars on things that are at best a waste of money and at worst actually hurt our economic strength and competitiveness. No mater what the government spends that money on we would be far better off simply burning it; at least then we could heat our homes and cook our food with it.
By the way the graphs he presented, while interesting in themselves, are extremely questionable as supporting his points. At best they don't really prove anything, because they cover a very short period of time that includes the last two severe economic downturns, while not showing the periods of prosperity that preceded them.
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