The Rich Uncle Argument

Back at the beginning of the month, I recounted an odd incident from a Kaufman Foundation conference that I’d attended:

I heard someone say that the reason it’s important to cut taxes on rich people is that economic growth comes from people starting new businesses and most new businesses are financed by borrowing money from family — a rich uncle, for example. Therefore, the richer our rich uncles get, the better off the rest of us will be. After all, we can hit them up for loans!

Crazy. I didn’t think this would go anywhere. But today I read my Ed Kilgore:

Up until today, I figured that in the course of a pretty long career in politics and government, I had heard every conceivable conservative argument against progressive taxes, and for high-end tax cuts. But in the midst of a workmanlike article claiming (dubiously) that Americans are upset about government oppressing oppression of small businesses, we get this interesting twist from Carl Schramm and Doug Schoen at RealClearPolitics:

Hikes in marginal tax rates will discourage investment in new ventures. Those who dismiss concerns about “tax hikes on the rich” who can presumably afford to pay more should understand that among those “rich” people are well-to-do older relatives and friends of aspiring entrepreneurs, the first source of investment for most new businesses that would otherwise have trouble securing capital — especially in the midst of a credit crunch.

This suggestion comes immediately for before a rejection of a cap and trade system for carbon emissions, on grounds that it would unduly burden businesses.

As Ed says, the argument is that “we can’t have progressives taxes because somebody’s rich uncle might not have the wherewithal to subsidize somebody’s business start-up.”

I’m not going to dignify this with a response. I’ll just note that Schramm is president and CEO of the Kauffman Foundation and I believe he was in the room when I first heard the “rich uncle” argument, so I may have been present at the creation of this particular talking point. Meanwhile, the crippling long-term budget deficits that will result from refusing to raise new revenues are not going to be doing any wonders for entrepreneurs. And perhaps more directly to the point, the lack of a guarantee of affordable health coverage is a major impediment to entrepreneurship in the United States. The status quo systematically discourages talented, skilled people form leaving jobs at existing firms in order to strike out on their own, and this is one of the things the administration is trying to address in its budget proposals.