Read a Pacific Northwest, liberal perspective on world, national, and local politics. From majestic Redmond, Washington - the Northwest Progressive Institute Advocate.

Monday, October 11, 2010

Debate over I-1098 at UW Tacoma lives up to its billing as "the great income tax debate"

Earlier this evening, University of Washington Tacoma played host to one of the most anticipated events of the season: a no-holds barred debate between Bill Gates, Sr. and former U.S. Senator Slade Gorton over Initiative 1098, which would impose an income tax on high-earners and dedicate the revenue to public schools and healthcare coverage.

The debate was billed as matchup between Gorton and Gates (who are both lawyers), but the two venture capitalists who appeared alongside of each — Matt McIlwain and Nick Hanauer — turned out to be show-stealers.

McIlwain, of Madrona Venture Group, served as Gorton's backup, while Nick Hanauer of Second Avenue Partners fulfilled that role for Gates. At one point, the two got into an informal but sharp back-and-forth argument which likely would have continued for some time if not for the intervention of the moderator. I actually wouldn't have minded seeing that, because it would have been more exciting. The format wasn't bad, but I thought it was implemented poorly.

In particular, I was annoyed that the moderator kept directing one-sided questions to the wrong side. A one-sided question should always go to the "opposing team", so to speak, so that the team that agrees with the questioner speaks last and can present a rebuttal. There did seem to be a fairly even ratio of questions from audience members supporting and opposing I-1098, but the panelists mostly stuck to their scripts when answering questions.

However, as I mentioned, there was that one exchange where Hanauer and McIlwain went at it. They certainly weren't mincing words. Here's the complete transcript of that bit, beginning with the question... fair warning, it's rather long.
MODERATOR: What incentive will wealthy people have to stay in Washington State, rather than move to Florida, where there is no income tax?

McILWAIN: I'm sorry, could you repeat the question again?

MODERATOR: Certainly. What incentive will wealthy people have to stay in Washington State, rather than move to Florida, where there is no income tax?

McILWAIN: Well, it's a good question. I think one of the other taxes we have in our state is the [voter-sanctioned] nineteen percent estate tax, which is the highest in the country. And so... there are a number of people, be they wealthy, or I think more importantly, innovative, that would have the incentive to not stay in this state, if we went to having the fourth-highest tax rate on income tax in the country, and we also have that nineteen percent estate tax. But I think that there are some things that are the bedrock of Washington that are critically important.

And we've talked about a few of them already tonight. We all believe that education is the paramount duty of our state, and of our citizens. And we do have, despite the challenges, and a need for real reform in education, a very, very strong track record of good educational results, and wonderful teachers, and administrators, that help deliver those results. We also have a burgeoning innovation economy, and I'll talk more about that in my closing remarks.

But the way this works, having worked on the ground, helping start build companies from a couple of folks and a PowerPoint presentation and a dog, is that you have this kernel of an idea of a problem that's not being solved well, often because of the work you were doing at your prior company. And it breeds a virtuous cycle of insights in high-potential innovative people that then start something and ultimately lead to successful new products and job creation.

Let's take one example. Microsoft, and from Microsoft, we had RealNetworks. And then a twenty one year old engineer from Maryland moved out to work at RealNetworks, and five years later, he left to start Isilon Systems. Ten years later — and much blood and sweat and tears going into building the company — Isilon employs five hundred people, has two hundred million dollars in revenue, and is one of the most rapidly growing companies in America. That's what we want to perpetuate. And now there's companies like Corensic that are spinning out of Isilon. That's the innovation economy that we're trying to preserve in this state. An income tax will not help.

HANAUER: So, again, the idea that an income tax will chase innovation of the state is just not true. Again, if was true, Silicon Valley would be in Casper, Wyoming. Here's why Silicon Valley is where it is: Stanford. Stanford is why Silicon Valley is where it is. Now, in this state, we have the capacity to build a Stanford. If we had the courage of conviction — and the vision — to invest enough in the University of Washington, the UW could be Stanford. And that's what creates an ecosystem of innovation in a state. Not a low income tax. There's this... implication, in this idea, that rich people, business people, will leave the state if the income tax goes up, that offends me. Because it assumes that people like me are money-grubbing sociopaths...


HANAUER: ... who don't care about anything but what we get to keep in our checkbooks. That we don't care about the public good. That we don't care about investing in our schools. That we don't care about clean water, or clean air. That if you make it slightly more expensive for us, we will run... we will run. And it's not true. And I certainly hope it's not true.

McILWAIN: So, just a quick rebuttal on this one, because this is important, folks. This income tax is not about "the wealthy". It's about the future of Washington State, and the opportunities. I couldn't agree with more with Nick on the importance of the University of Washington and its centrality to that. But let's take a look at Oren Etzioni, who is a professor that moved here to be a professor of computer science. Our firm helped start a company with him called Farecast, that many of you have used. It's now Bing Travel. And we recruited from, another state, a very talented CEO... and none of these people were wealthy. And most of them still aren't, but they're better off today because they built a truly great company. Madrona, our firm, has invested over two hundred million dollars in over ten startups out of the University of Washington. And we're working hard to not only make money for us, but some of our investors, and guess who one of them is? The University of Washington! That's the virtuous cycle of economic growth and innovation that we're trying to perpetuate.

HANAUER: So, Matt... are you gonna stop investing?

MODERATOR: Mr. Hanauer, did you want to take a minute to rebut that?

HANAUER: Are you guys going to fold up shop and go away? I don't think so. Why are rates of company creation in Silicon Valley and California so much higher than they are here — with their income tax? It's because... it's because ninety five percent of a lot is still a lot. [It's] because California creates an ecosystem within which great wealth can be created. And even if you don't get to keep every cent — as Sergey and Larry [of Google] will tell you — okay, maybe they could have had sixteen billion, but fifteen billion is still pretty good! It's pretty good!

McILWAIN: I think, other than the weather, we're not trying to perpetuate the California system.

HANAUER: California has lots of problems... California has lots of problems. But the rate of company creation is not one of them.
I found McIlwain's perspective on startups interesting, but as you can see from reading above, he offered no evidence that an income tax on high-earners would stifle the kind of "innovation economy" that he says he is so focused on preserving. And that's because, as Nick so adeptly put it, it wouldn't.

Taxes are like membership dues in our country. This is something McIlwain — who apparently plays soccer, according to TechFlash — should be able to understand. A soccer association can't exist for free. It costs money to rent and/or maintain fields, pay referees, purchase insurance, and so on. Membership dues are collected to pay for these expenses. Similarly, we collect taxes to pay for vital public services that we want and need, that our families and businesses cannot do without.

By paying taxes, we're really just pooling our resources into a common wealth, so we can do for ourselves what we cannot do in our separate and individual capacities, as Abraham Lincoln put it. The public services we all pay for are the foundation that our economy is built upon. They're the key to prosperity.

Here's Nick Hanauer, again:
In my experience, entrepreneurs aren't that shortsighted. They tend to be much more visionary, and care much more broadly about the situation they're in, than what the tax rate is on the income that they might possibly make in the future. What they care about is, Am I in a context that allows me to create great wealth? And that has everything to do with the kind of community we build, together.

If it was true, what they say about taxes, then the best opportunities would be in the places with the least taxes... like Somalia. But it's not true, is it? Is it? It's not true. The best opportunities to create great wealth, in this country — and in the world — are in high-tax places.
Laughter and applause broke out after Hanauer humorously delivered his punch line, Like Somalia. He did an absolutely spectacular job of reframing the debate. Rarely have I heard anyone so clearly and credibly articulate what progressivism is all about, in any setting. The trip to Tacoma was worth it just to hear Hanauer completely deconstruct the right wing's view of taxes.

And he had a great closing, too:
Every industrialized democracy... every single one... is a high-tax, high-regulation, high-government society. And that is because these two things are inextricably intertwined. I am not here because I am a do-gooder. I don't want to pay more tax for fun. I want to pay more tax because it will create more prosperity for you and me.
That's reframing. "Do-gooder" is a phrase that right wingers like to attach to progressives. The phrase suggests that we want to give handouts to people who really don't deserve them, because we naively believe that handouts will help.

Actually, as Nick implied, progressives believe in giving folks who need help a hand-up, not a handout. That's because we know it's impossible to "pull yourself up by your own bootstraps" if you don't have any boots to begin with.

Without opportunity, there is no prosperity. People are not truly free if they have no opportunities to pursue their dreams. A strong common wealth is a prerequisite for creating opportunities and economic growth. That's why it is so important that we vote YES on Initiative 1098 this autumn.


Blogger Bill R. said...

Please note the new and final Elway poll is out and has Patti Murray with a big lead.

October 12, 2010 7:17 PM  

Post a Comment

<< Home