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  • 'Buffett Rule' Tanks in California, Is Bad News for Tech Startups

    President Obama is touting his new mega tax on millionaires–a.k.a. “the Buffett Rule”–as the best thing since sliced bread (or since his plan to spend $447 billion on more stimulus), but not everyone agrees–namely, entrepreneurs and those who have seen the effects of soaking the rich in order to pay for more government spending.

    In today’s Washington Post, Eric M. Jackson, formerly of PayPal and now CEO of CapLinked, an online platform for private investing, explains how the President’s plan to set a minimum tax rate for those with annual income above $1 million is bad news for tech startup companies. In short, Jackson says Obama’s increased taxation of capital gains would guarantee that investors have a lower rate of return, would decrease the pool of capital available for early-stage investments, and make the U.S. less competitive on the global stage. And he speaks from experience:

    Capital gains are how technology investors make money. Experienced investors in early stage companies—often called “angels”—make extremely risky investments with the hope of having some companies in their portfolio generate extraordinarily high returns. They know that many of their portfolio companies could fail, but the potential payoff from the winners justifies this high risk, high reward strategy.

    It’s investments from these kinds of individuals that have been the seed money for popular technology companies such as Facebook, PayPal, YouTube, Yelp, and many others. This is how I funded my Web start-up. In short, tech start-ups depend on angel investing to exist.

    Hitting millionaires with an added tax surcharge hasn’t worked well on the state level, let alone federally. California has a Buffett-Rule-esque tax policy where those with income exceeding $1 million pay an extra 10.3 percent in taxes (in addition to federal taxes). George Skelton of the Los Angeles Times explains how the tax works:

    According to the state finance department, families with adjusted gross incomes of between $1 million and $2 million, on average, paid an overall state tax rate of 8.4% in 2008, the last year for which data are available. The average rate rose as incomes did to 9.3% for those earning $5 million and up. (There were 3,757 of them.)

    Families earning between $200,000 and $300,000 paid, on average, 5.5%. The rate fell sharply as incomes tailed off: 1.4% at $70,000 to $80,000, and only 0.2% at $40,000 to $50,000.

    How has that tax rate worked out? Poorly. Skelton paints the picture of a state that has financed its over-spending addiction on the backs of the rich, rather than living within its means:

    The revenue stream is unstable and the state budget has been a deficit disaster.

    Soaking the rich — relying heavily on them for income taxes — has resulted in a precarious revenue roller coaster ride. It’s either boom or bust in Sacramento, depending on how the wealthy are faring in the stock market and their other investments.

    Unfortunately, this is the road President Obama wants to head down. He seeks to increase stimulus spending to fund bigger government, then turn to millionaires and billionaires–read “job creators”–to pay for it. In California, that led to a fiscal nightmare, and as Jackson argues, it also leads to pain for entrepreneurs who use capital to invest in new businesses. And that means fewer jobs for working Americans.

    A better direction: get spending under control, reduce the size of government, eliminate unnecessary regulations, and free America’s job creators to get back to business. Read more about it as laid out in Saving the American Dream: The Heritage Plan to Fix the Debt, Cut Spending and Restore Prosperity.

    Posted in Featured [slideshow_deploy]

    21 Responses to 'Buffett Rule' Tanks in California, Is Bad News for Tech Startups

    1. Vanessa says:

      You do realize that Peter Thiel makes 1.7 billion annually right? Also, please provide more concrete examples — your vague and generalized "better direction" is far from convincing… but on the other hand, who has time to sit and read 53 pages outlined in the link — Is there another option available?

      • TimAZ says:

        The other option is to downsize the govt. foot print and reduce the amount of necessary spending. I don't think it's any of my business how much money anyone makes annually or otherwise. I live in the same country as Peter Thiel and had all the opportunities as Peter Thiel to make as much or more income than he. so I can't see any reason to be bitter about his income or anyone elses. I personally wouldn't care to spend most of my time trying to protect my earnings from all levels of govt.. I just don't want the responsibility that comes with that high of an income. I have seen more people who are considered lower class to be far happier in their everyday life then those who are considered wealthy. You can't buy happiness It's a state of mind that you must decide to implement or not.

    2. Bfree says:

      I'd argue that not too far in the distant future, there will be a revolution not the convoluted Tea Party type, but one that will be led by people that are sick and tired of the systematic elimination of middle class. And guess what, their first visit will be to the door of the selfish rich or "Angel investors! "

    3. Poor, poor billionaires. I feel so sorry for them.

      • Bobbie says:

        I feel sorry for influenced beggars who would rather steal from someone else instead of living free to do for themselves!

    4. Bobbie says:

      this man is irrresponsible in budgeting and holds the American tax payers as his backup! No self control. Obama not Buffet. His concentration is focused on spending beyond the budget on special interests and special people and then says we don't have enough for military, fire fighters and police? What benefits all Americans. "We got bridges ready to fall down?" very irresponsible with priorities to his secret select.

      Then he manipulates the vulnerable who happened to have made something of himself through America's freedom. Mr. Buffet looks old and feeble and Obama is just using him. But since his billion dollar tax fraud has come to light, sign the check so Obama can be happy. Oh that's right, Mr. Buffet is just exposure to thieve money from those the president has enjoyed punishing since he's been in office.

      Obama is leader of nothing but weakness. He's displaying America(ns) the same. He intrudes on personal issues for government unconstitutional gain and nothing his position is required to do for the better of this country alone! He promotes weakness and punishes those with dignity to bring them down to Obama and those he sees weak, same level. Too many people fell for it. We can't continue to pay this man's deceiving ways! He's a glutton for other peoples hard earned money. He needs to stop! Fed job is to America not individual personal issues! ACCOUNTABILITY!!! America deserves NOTHING LESS!!!!

      Whatever is hindering the economy, remove. GOVERNMENT!

    5. Julescator says:

      What a crock. They have had lower taxes for 10 years and will have them to the end of 2012. Insead of whining why don't they get started now! When did our business sector become wussy. They need a road map the scratch their heads. Ridiculous. Who couldn't be great if they had everything handed to them? Guess what the Middle Class not only has major uncertainty but it also has no money. It's really hard for MOST people in this country to sympathize with people talkiing that after making $6 million and paying all costs on a number of stores, they only have $400 LEFT. Give me a break!

    6. Jeff, Illinois says:

      Let's stop the false labeling of "soaking the rich". The tax rate on the wealthiest among us is at the lowest it's been 50 plus years. It's very reasonable to ask those who have done very well in our system to pay a bit more to help our country. It's stupid to call this class warfare. If any thing the middle class has been soaked and exploited for years. There's a stat our there that CEO's averaged a 23% pay increase over the past year and of course that's dealing in millions where as the middle class averaged less than 1%. What's fair is fair and what's simple greed is clear.

      • Neil says:

        Gross misrepresentation of the facts lol

      • IrishgalfromDE says:

        Jeff, it seems pretty obvious to me that you are under the bracket the President has set to tax. I don't pretend to know how much money you make, nor is it any of my business. I suppose you want the government to continue their spending habits as well, and with that assumption I think you must be one of the receivers of my hard earned money. Please, tell where is the middle class anymore? As a former middle class member, and a state government employee, I am getting poorer and poorer. I see no future for my grandchildren, no where near what I had and that wasn't perfect. I don't expect anyone else to pay for me. I like to carry my own weight. My question to you is why should the wealthy, the middle class or the low income pay for 49% who do not pay? Possibly they cannot help their situations. There will always be those in need. I give when I am able to support charity, BUT, I don't want you or anyone else telling me to which charity I must contribute.

        • IrishgalfromDe says:

          It is still about jobs, jobs, jobs and more jobs. Manufacturing is going and almost gone. I don't know about you, but my hope is fading and will be gone soon as well. To me the only FAIR solution is for a fair tax, everyone must share in that includes illegals, rich, poor, you and me. Class warfare it is and I was "hoping" for such better "change". I am worse off now than I was 4 years ago. How about you?

      • Bobbie says:

        Jeff, I agree with your first sentence. Because WE'RE BEING SOAKED TO! and we don't want to be forced to drop down to your level! If the budget was worked responsibly according to the budget, AMERICA wouldn't have this problem so it is very unreasonable to beg for anyone's money when it's a beggar who is irresponsible and doesn't spend it in the best interest of those he's taking it from.

        You and the rest of the beggars are so worried about what other people make, it's none of your business!! What's fair is fair and what's simple greed is those pointing out high paying jobs as greed, instead of getting one themselves! High paying jobs aren't GREED JEFF! they're WORKED FOR! TRUTH you simply choose ignorance to. although under obama and his select, no one has to prove themselves! truly unpatriotic but protected by the president.

        In America, people are suppose to discover themselves not be discovered by government! Have you been exercising your mind to be able to comprehend, yet? We'll see…

    7. jonityson says:

      TRS does require 30-50 percent of the total fee up front before proceeding forward with your tax resolution. http://bit.ly/pb1lpg

    8. Armin says:

      Hi Mike

      yes I aggree 100 % with attacking our free spending and reducing the costs, streamlining!

      Also we should support better our own large Corporations, like Boeing etc.

      Make it harder for the power hungry Euro Instigators – I guess the chinese with their hugh $ volume now can buy more and more into Euro Countries.

    9. With the new Obama fiscal policies, focusing on taxes with the “Buffett Rule,” there is nothing that is actually new. Mr. Obama revealed to us in his campaign for President that his mission, as President, was going to be to “spread the wealth.” And it came to pass that in 2008, voters in this country elected the first black President. Maybe his supporters did not know they were electing the first Robin Hood to serve as President. But they should have. It is quite obvious that the heart of Mr. Obama’s tax reform plan is based on the fiscal policies of the Merry Men in Nottinghamshire, back in 15th century England. So, I say, let’s just go with folklore, to save our country from economic disaster today.

    10. JB, Illinois says:

      Well, after reading these posts so far, I think the case for class warfare has been made. When you hear gross generalizations about the "selfish" rich, "soaking the rich", and "poor, poor billionaires", it's very easy to see that this IS class warfare. That's what Obama is promoting.
      If this is the land of liberty, no one should be a target for taking LARGER hunks of their income. If this is to continue as the land of the free, then we need to be really free…able to set our sights high and make our dreams come true. Those who haven't been able to earn a lot of money need to drop the bitterness, and their bigotry toward the rich. They are making an argument for a nation where you cannot have big dreams. These attitudes are the "poor me" crowd who would lead us down the road to socialism.
      Income tax doesn't work because there is such a disparity of incomes. I'm all for the Fair Tax.
      I'm middle income, I am not greedy or resentful for what the rich have nor do I think the country owes me an income. I won't play the blame game.

    11. Todd says:

      If you want to be fair, pass a flat tax rate – 15% for everyone, no loopholes or deductions – no matter if you make $30,000 a year or $6,000,000. (Then Buffet's secretary gets a good tax cut) Then it is fair for everyone and this issue is dead.

      • Bobbie says:

        would that include tax exemptions on basic necessities of survival? food and water, clothes (since people in the colder climates can't survive the cold without?) the clothing industry will be next to deport from America!!! Oh wait, it already has been!

    12. kickk says:

      Wasn't Buffet Governor Schwarzeneggers' chief economic advisor? Look how well that worked for California. 2nd worst in unemployment. Buy Buffets stock Berkshire, shortsell Beffets politics.

    13. TimAZ says:

      This isn't about taxing the rich this is purely about taxing capital gains. The regime knows that if they were to confiscate all the wealth of those that have a yearly income of a million dollars and up would only keep the federal govt. operating for one month. This confiscation would be a one time act because no one would be fool enough to earn enough money to pay taxes ever again after experiencing such theft. The real revenue collection to be had is within the middle class as the regime defines middle class. That means you will be paying greater taxes on payouts from every kind of private retirement accounts you may have built during you lifetime. You will owe 15% on capital gains plus what ever percentage in income tax the govt. desires. We all know that govt. has an insatiable appetite for every American citizen's money.

    14. LOU says:

      Put in a flat tax for everyone, no deductions. When 47% don't pay Federal taxes at all and get money back because of deductions, that should be where we start. Without loopholes and deductions in the tax code, the revenue will increase and everyone is doing their fair share. The Federal Gov needs to downsize significantly, with a flat tax, the IRS can be cut by 80%, so can the government lawyers. There is so much waste they should be cutting before they raise taxes on anyone. If you haven't seen the web site Youcut.com it show you all types if wasteful government spending that is on the table for cutting. It also shows you how your congress person voted on these cuts. Check it out, it is eye opening on what government spends our tax dollars on.

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