One of the signature themes of the Obama administration
is that the American dream is under attack due to "income disparity." The words
divide the country into haves and have-nots, suggesting a national condition
that needs to be corrected—presumably by "progressive" taxation as a mechanism
for income redistribution. The American dream has traditionally been one of
individual success that is rewarded and admired. But we are now urged to become
a zero-sum society in which those achieving the American dream are envied and
even resented.
The American dream is not politically affiliated. The
last time it was alive and well was the period from Ronald Reagan's second term
in office through Bill Clinton's second term in office. In those 16 years, we
enjoyed continuous low taxes, low government spending and economic prosperity.
Since 2000, the economy has staggered under the record
government spending and deficits of two presidents, George W. Bush and Barack Obama. The result of that spending spree has been lower
real wages and higher and more-persistent unemployment. The Federal Reserve has
pushed interest rates to near-zero, and, for the first time ever in the U.S.,
that Depression-era medicine has not worked—a scary situation reminiscent of
Japan's decade-plus economic demise.
According to the latest 2012 IRS income-tax data, the
top 1% of American taxpayers earned 20% of all income and paid 36% of all taxes.
The top 5% earned 36% of all income and paid 58% of all taxes. Will even higher
taxes help the economy? My experience in Silicon Valley tells me that high and
so-called progressive taxes are a major cause of the country's current economic
problems, not the solution.
In Silicon Valley, the rich commonly reinvest their
wealth close to home. For example, I have reinvested most of my net worth in
8.5% of the shares of my own company.
Since its 1982 founding, Cypress Semiconductor has been
a net creator of jobs and wealth. We have returned $2.2 billion more to the
economy through stock buybacks, share dividends and spinouts than we have taken
out in total lifetime investments. That figure doesn't count the $4 billion in
wages the company has paid or the taxes paid on those wages. Currently, my
investment helps maintain 3,479 permanent, high-paying jobs with good
health-care benefits that are now threatened by more taxes.
A couple of years ago, I decided to invest in my
hometown of Oshkosh, Wis., by building a $1.2 million lakefront restaurant. That
restaurant now permanently employs 65 people at an investment of $18,000 per
job, a figure consistent with U.S. small businesses. If progressive taxation in
the name of "fairness" had taken my "extra" $1.2 million and spent it on a
government stimulus program, would 65 jobs have been created?
According to recent Congressional Budget Office
statistics on the Obama administration's 2009 stimulus program, each job created
has cost between $500,000 and $4 million. Thus, my $1.2 million, taxed and
respent on a government project of uncertain duration, would have created about
one job, possibly two, and not the 65 sustainable jobs that my private
investment did.
On the other end of the capital-intensity scale, Cypress
Semiconductor required huge investments to create jobs in its chip-manufacturing
plants. Between 1983 and 2003, those investments totaled $797 million and led to
the creation of 4,033 jobs at an investment of $198,000 per job created. Thus,
my own experience on the cost of job creation ranges from $18,000 to $198,000
per job, compared with $500,000 to $4 million per job created by the Obama
stimulus program.
This data squares with the broad numbers showing that
private investment is more efficient than government spending in creating jobs.
In other words: Every dollar that is taxed away from private investment and
spent by government produces fewer jobs than the jobs destroyed by the loss of
private investment.
Yet the politics of envy, promoted most notably by
President Obama himself, continuously stokes the idea that the wealthy are not
paying their "fair share." This injured sense of unjust rewards was summed up on
a radio show I heard the other day, when a caller said of the rich: "How much
more do they need?"
How much more do I need? How many more jobs do you
want?
Even European socialist democracies are starting to
understand that tax-and-spend policies kill jobs. For example, both Italy and
Spain have repealed their incentive programs for solar energy (along with their
"green jobs") because the countries have calculated that for every job created
by government investment in green energy, somewhere between 4.8 jobs (Italy) and
2.2 jobs (Spain) are lost because of the reciprocal cuts in private investment.
I am aware of these figures because from 2002-11 I was a major investor in and
chairman of SunPower, the world's second-largest solar-energy company, also
based in Silicon Valley.
Silicon Valley is today's brightest example of the
traditional American dream still at work. The investments for most startup
companies must come from individuals who can wait 10 years to get a return on
investment. Only very wealthy Americans can afford that.
Like many Silicon Valley entrepreneurs, I have
reinvested in the next generation of entrepreneurs, in my case via the Sequoia
Fund and Kleiner Perkins Caufield & Byers, two venture-capital firms that
gave me a shot at the American dream. I also serve as a board member of their
portfolio companies.
Does anybody really believe that moving investment
decisions from Silicon Valley to Washington by raising taxes on venture
capitalists and their investors would make Silicon Valley more productive?
Consider the Solyndra debacle: It was obvious to most of us here that the
solar-energy company had zero chance of survival. That's why the company had to
be government-funded near the end; no real investors were willing to step
up.
During the 2012 presidential campaign, President Obama
insulted America's entrepreneurs by telling them: "You didn't build that."
Progressive taxation is just another tool used by government to take over an
ever-larger part of the U.S. economy. The horrible irony is that the government
keeps telling the very people whose jobs it destroys that if we only tax the
rich more, everything will be better
'Already Flown' by Peter Buffett