Majority of Americans Fail to See Link between Taxes and Investment

According to the latest Reason-Rupe poll, most Americans do not believe raising taxes on the rich will impact investment or the rate of technological progress. This explains why 66 percent approve of raising taxes on the wealthy, since they see little cost in doing so.

It will be an uphill battle to convince Americans that hiking taxes even on the rich will actually impact all of us because it will slow the rate of technological innovation and thwart new jobs associated with innovation.

Specifically, only 35 percent of Americans think raising taxes on the wealthy will reduce the pool of funds available to invest in new companies, for instance the money that started companies like Facebook, YouTube, and PayPal. This is particularly troubling because less investment money available invariably means fewer startups and less technological innovation. This is essentially what Edward Conard tried to explain in his book, Unintended Consequences.

Warren Buffet’s anecdote-based pontification persistently overlooks this fact that tax rates affect more than individual investors’ decisions, but the aggregated sum of money available to be invested in business startups. On-the-ground entrepreneurs see tax policy differently than does Mr. Buffet. For instance, the Washington Post interviewed Christopher Hum, CEO and co-founder of Mercantile Capital Corporation, during which he explained:

“When income tax rates are higher, or even raised from current levels, the “pool” of potential startup dollars, especially early stage capital from angel investors, is greatly diminished…the more income startup investors keep the more they’ll have to invest [in startup companies].

Likewise, Eric Corl, president and co-founder of Fundable LLC explained “any tax incentives that can reduce tax burdens for…investors will help foster more entrepreneurship.”

A majority (68 percent) of Americans also do not believe raising top rates will cause high-earners to reduce the amount they work and invest. Instead, only 21 percent of Americans and 41 percent of Republicans believe higher rates will cause high earners to work and invest less.

Without understanding the economic consequences of raising taxes on capital gains and upper income households directly, it’s understandable that three-fourths of Americans believe raising taxes on the wealthy will not impact the rate of technological progress. Republicans are the most likely (25 percent) to believe raising taxes on the wealthy will reduce the rate of technological innovation, still two-thirds think it will have no significant impact.

One can reasonably assume most Americans like technological progress, as it offers cures for diseases, more efficient household and business tools, more productive and fulfilling careers, and an overall enhanced quality of life. Americans also do not believe that increased government revenues through higher taxes will drive the technological growth they desire. Instead, 66 percent of Americans think private sector investment is more important than government investment for technological innovation. In sum, Americans like innovation and the private sector investment that moves it forward. What is missing is their understanding of the link between tax structure and investment.

Americans need to understand that raising taxes reduces the pool of funds available to the private sector for investment in new companies. This is especially true when the increased taxes fall on the wealthy, who tend to save/invest incremental income rather than consume it. Less money available for funding startups invariably means fewer startups. This should deeply trouble anyone concerned about fixing unemployment, since startups have historically been the most important source of job creation.

In sum, this means the kid working out of his garage or living room might not get the funding he needs to launch his tech business, and the computer science student many have a harder time finding a programming job for which she trained. With fewer good ideas getting off the ground, this will necessarily slow the rate of technological innovation and progress.

It is no doubt tempting for the middle class to look to the wealthy to solve the budget deficit—after all, raising taxes on the One Percent doesn’t appear to affect the rest of us. But such thinking is misguided. While hiking the tax bill on the wealthy will not affect the middle class’s tax filings directly, it will prevent entrepreneurs from getting the seed money they need to get their businesses off the ground. And without well-funded entrepreneurs opening their doors for business, the would-be programmers, marketers, accountants, secretaries and janitors will have to keep looking for a job.

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  • Pro Libertate||

    Most Americans are morons. Look at the people they elect to steal from them.

  • Almanian!||

    This

  • KDN||

    This is your daily reminder that we are still doomed.

  • Marshall Gill||

    I call it the 50 mattress economic theory. Billionaires sleep on fifty mattresses filled with cash. If you take away one, or twenty, of Bill Gates cash mattresses, no one will notice. A win-win for everyone!

    /Leftard

  • John||

    According to the latest Reason-Rupe poll, most Americans do not believe raising taxes on the rich will impact investment or the rate of technological progress.

    A hundred years of liberals running the education system will do that.

  • Marshall Gill||

    Indoctrination, not education, John. Just look at Tony.

  • John||

    True. It is funny that three minutes after I post that, Tony jumps in to show just how true it is. He is really a selfless guy in that way.

  • The Sego Sago Kid||

    Alternate headline: Majority of Americans Fail to See Link Between Poor Economy and the Retards They Continuously Vote Into Office

  • Tony||

    Considering scientific and technological breakthroughs happen via government funding more often than not, the thinking seems not to be misguided at all.

    Not everything good in the world is going to make a profit for someone by the end of the next quarter. But the breakthroughs that happen by mostly government-backed basic scientific research and development of technologies can lead to new private enterprises, and it's happened over and over--and I would suggest is the most important economic story of the United States.

  • Night Elf Mohawk||

    Considering scientific and technological breakthroughs happen via government funding more often than not...

    Citation needed.

  • robc||

    He cant cite it because it is blatantly false.

  • Tony||

    If you want to learn something new about the universe, perhaps even something that can eventually be commodified, you need the type of research done in universities often paid for by government grants.

    If you want to figure out how to addict more children to nicotine, you go to a corporate lab.

  • Jordan||

    Citation still needed.

  • Sevo||

    Tony| 2.22.13 @ 11:04AM |#
    ..."often paid for by government grants."

    Citation needed, asshole. Can't you read?
    And, no, I don't mean 'see the gov't paid some money to some school'; I mean direct pay for result.

  • Mr Whipple||

    Why would I want to learn something new about the universe? Will that "create" goods and services that are in demand and people are willing to spend money on, or would it be purely for my own personal satisfaction? Will it help feed the poor and heal the sick, or do you just want new pictures of Quasars to put on your computer desktop?

  • sarcasmic||

    Welfare for physicists.

  • fish_remote||

    No that's where I work!

  • Virginian||

    My favorite game to play with leftists. Name technology invented by government, and I will name one invented by the private sector. And we'll see who runs out first.

  • Almanian!||

    ...aaaaaaand Virginian wins AGAIN! But the lefties keep playing. Weird.

  • Virginian||

    The funniest is when people say things that I know for a fact to be invented by private sector entities, but they insist it was actually the government.

    I've had leftists tell me that airplanes, communications satellites, even electrical power were all invented by government. Truly, they see the state as god.

  • robc||

    The Wright Bros used roads to get to Kitty Hawk.

  • Killazontherun||

    Roads, in spite of the fact they were invented even before ancient Sumeria rose from its surrounding agrarian civilization, are one of the most complex technologies ever to be discovered. Much too difficult and dangerous to leave in the hands of the private sector which would just exploit the people who need to use them. Besides, no business has enough of an incentive to provide them for customers who want to frequent their shops.

  • Trespassers W||

    Here's a citation to the contrary:

    http://www.amazon.com/The-Econ.....c+research

  • Sevo||

    Tony| 2.22.13 @ 10:54AM |#
    "Not everything good in the world is going to make a profit for someone by the end of the next quarter"

    You're hell on those strawmen, scheisskopf.

  • Virginian||

    Yeah, pharmaceutical companies never spend years getting things tested and approved. They just manufacture pills and throw 'em out there.

  • gryphon333||

    actually the pharma companies DO get a buttload of NIH funding

  • Sam Grove||

    Not everything good in the world is going to make a profit for someone by the end of the next quarter. But the breakthroughs that happen by mostly government-backed basic scientific research and development of technologies can lead to new private enterprises,

    Tony assumes businesses only worry about the next quarter.(whereas politicians only worry about their next election.

    Also, Tony obviously supports government subsidies to business.

    Who knew?

  • Auric Demonocles||

    Majority of Commenters Fail to See Link between Pictures and Alt-text

  • Palin's Buttplug||

    Yet when Clinton raised the top rate in 1993 a flood of unprecedented investment activity ensued until the tech bubble burst in 2000.

  • Spoonman.||

    It's almost like a transformative technology happened to be coming into its own around the same time, overshadowing the effects of minor policy changes.

  • Palin's Buttplug||

    I agree. Thus the folly of assuming that tax rates are solely responsible for capital formation.

  • Virginian||

    But ceteris paribus, lower taxes are better than higher ones. Personally I think the regulatory regime does a lot more to kill growth then the taxes.

    Time is money, and paying the vig is trivial compared to hours and hours of compliance with their stupid little rules.

  • KDN||

    Personally I think the regulatory regime does a lot more to kill growth then the taxes.

    There's definitely a relationship between the two. I'm willing to bet that the inflection point on a country's Laffer curve is highly dependent upon the overall regulatory burden within the country, but I'm not sure if anyone's bothered to research it (or if there's enough data to prove it either way). Might be a good idea for anyone in need of an econ thesis topic.

  • Sudden||

    It would be a difficult effort to quantify. Not all regulations are created equal. Some have relatively small effects and are industry specific while others are economy-wide and have very pronounced effects in terms of time and money spent bringing into compliance.

  • KDN||

    Sure, that's why you focus it on the aggregate regulatory burden. It wouldn't be easy nonetheless, and I think it could be interrelated with how globalized the economy is as well so that's an additional variable to flesh out.

    I kind of wish I went for grad school instead of going into the real world. Studying this seems like a fun way to waste a few years.

  • Sudden||

    I've always felt the same way. I'm also still young enough (30) where I'm considering dropping out of this shitty ass workforce anyway and getting into an econ master's program. I just can't afford it and don't want student loan debt. If I can find a graduate assistant football coach position though, I'll do it in a heartbeat.

  • KDN||

    Sadly it's not something you can have both ways. I'm holding down a real job while getting an MBA / MS-Accounting degree at night (with my employer footing 90% of the bill) and I just can't imagine doing that with something abstract that requires a ton of research and advanced calc classes.

  • ||

    Good thing no one's assuming that. Your next non sequitur please.

  • Mr Whipple||

    Tax rates solely curb future price inflation.

    But, there is no inflation, right, so we don't need to raise taxes.

  • fish_remote||

    CHRISTFAG

  • Killazontherun||

    After ending a two decade ban on commercial 'exploitation' of said technology in case anyone forgot.

  • gryphon333||

    a technology that DID start with the military ... just sayin'

  • Killazontherun||

    ARPANET wasn't the first network. It wasn't even the first publicly funded one.

  • fish_remote||

    Yet when Clinton raised the top rate in 1993 a flood of unprecedented investment activity ensued until the tech bubble burst in 2000.<?i

    BUSHPIG~

  • Calidissident||

    The unprecedented investment activity happened mostly in the late 90s (after the tax cut of 97, though that was probably only partially responsible) - the 90s boom was unusual in that the initial recovery wasn't all that strong, but was followed by a major expansion near the end

  • wareagle||

    majority of Americans are self-absorbed pricks. If it's not happening five feet in front of them and affecting them directly and demonstrably, it's not happening. The same folks who think investments are solely for the rich are the ones who ignore that a host of pension funds are tied into those same investments.

  • From the Tundra||

    This. The only way things like neverending unemployment benefits/Obamacare/minimum wage and other proggy foolishness can survive is this ignorance. If every one of these morons had to start/run a small company, I guarantee you the attitudes would change quickly.

  • sloopyinca||

    Nice poll, Emily. But if it were up to me, I would have added an option on the "As you may know, taxes were just raised on high earners" question.

    a. Will reduce the amount they work and invest.
    b. Will increase the amount they work and invest.
    c. Will not change the amount they work and invest.
    d. Don't know.

    I think it would give a better representation and at least acknowledge many on the left that say raising taxes will cause the rich to work even harder to make their money.

    Just my two cents.

  • Brandon||

    Of course, I have also been told by some HuffPo commenters that the working rich will just work harder to make up for the lost income from higher taxes. The unspoken conclusion there, of course, is "So we can leech off of them as much as we want." And I see that is actually an option in this poll. Not sure I would even want to know the kind of sadist who thinks like that.

  • Brandon||

    And speaking of which, I just had the following conversation with an idiot on HuffPo yesterday:


    l3randon We already raised taxes.
    posted Feb 21, 2013 at 18:32:09
    Reply | Link

    BDAD Only those who watch Fox believe that to be true.
    posted Feb 21, 2013 at 19:02:40
    Reply | Link

    Yeah, he actually said that.

  • Virginian||

    He probably doesn't pay taxes.

  • lap83||

    Why can't wealthy people just invest with the massive gold-filled vaults they only use to swim in or occasionally ski on with their nephews.

  • NeonCat||

    Considering there are more rich people now than ever, don't these liberals worry about the union construction workers who will be unemployed if giant vault construction is severely curtailed?

  • Brandon||

    Dude, the government will just construct its own giant vaults to make up the shortfall. The People's Vaults, they will call them. Even though the People will not be allowed to use, enter, benefit from, or look upon them, they will have the satisfaction of knowing that their Glorious Leaders are making the greatest possible use of them on the People's behalf in ways that are beyond the common man's comprehension.

  • sarcasmic||

    There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

    --Bastiat

    Opportunity cost is in the realm of the unseen.

    http://www.econlib.org/library.....sEss1.html

  • Brandon||

    Opportunity cost is not always in the realm of the unseen. There is an entire subsection of accounting devoted to measuring and reporting opportunity costs. For businesses. The government, of course, tells these people to fuck off.

  • Longtorso||

    What I've always like to ask the "ROADZ!!!!" crowd - if you think the Internet was created by govt, it was created by DARPA, the military. Should all pacifists get the hell off the Internet then?

  • Longtorso||

    And it would be the US govt, should all foreigners get off and shut up about US govt activities on an Internet it (supposedly) created?

  • T||

    Y'all can stop running polls proving most people are stupid and/or economically illiterate any time now. We get the point. Really, we do.

  • 16th amendment||

    There is at least one more reason for most American's understanding of this. It is the idea that raising taxes encourages investment and actually helps the economy. In the recent presidential election Clinton held many rallies for Obama where he said that they raised taxes in the early 1990's, republicans predicted doom and gloom, and the boom happened.

    My response is that the boom was going to happen anyway. Even if you accept the idea that increased investment in schools and such would lead to growth, it would take a decade or more to materialize. Yet the boom happened right away. And it's only because of the boom that Clinton could get away with raising taxes.

    If we don't have the next big thing, I'm pretty sure all the tax increases will hurt the economy.

  • AlmightyJB||

    They also don't see how every tax increase on the wealthy gets passes on to them one way or another.

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