As Debates Get Underway, an Ultrawealthy VC Argues for Higher Taxes

With the first presidential debate in Denver fast approaching, Mitt Romney told a crowd of campaign supporters this week: “There’s going to be all this scoring of winning and losing, but in my view, it’s not so much about winning and losing or even the people themselves, the President and myself. It’s about something bigger than that.”

That “thing” is the “very nature of economics,” says one very vocal – and some might find surprising — critic of the Romney campaign, Nick Hanauer, a Seattle-based venture capitalist who was among the first investors in; who in 1996 founded the Internet media company aQuantive, which sold to Microsoft in 2007 for $6.4 billion; and who serves as the chairman of Pacific Coast Feather Company, a privately held family business that produces down pillows and bedding for clients such as Sealy and Eddie Bauer.

No doubt Hanauer would benefit from many of policies of Romney, who wants to extend the Bush-era tax cuts, and who said of maintaining a low capital gains rate during a recent “60 Minutes” episode that it’s the “right way to encourage economic growth, to get people to invest, to start businesses, to put people to work.’’

Instead, Hanauer, who says that he is worth “many hundreds of millions of dollars” (as opposed to billions), thinks the Republican party’s enduring embrace of trickle-down economics is putting his fortune, and his future as a businessman, in jeopardy.

Indeed, as he sees it, the presidential debates will — or, at least, should — “pivot on an argument between trickle-down economics on the right, and ‘middle-out’ economics, meaning built from the middle out and not the top down.” And he’s rooting, increasingly loudly, for the middle-out argument.

The overriding problem with trickle-down economics, believes Hanauer, 53, is the belief that the “only thing that matters in the economy is [those individuals at] the top, people – job creators — like me and Mitt Romney, the idea being that if you pour money into us in the form of tax breaks, jobs and prosperity will squirt out. And if you accept that rich people are job creators and no one else is, you [also accept that] cutting services to the middle class and the poor doesn’t matter, that the only reason to help them is for charity, because you feel sorry for them.”

Hanauer — who has recently written a book about the economics of taxation, as well as gave a related TED talk earlier this year — calls such thinking “idiotic,” saying that “the most pro business thing you can do is to turn a poor family into a middle class family, and to help the middle class to thrive. When you do that, you’re creating customers and a virtuous cycle for everybody.”

Using his family’s business to make his point, he notes that “even though Mitt Romney makes a thousand times the medium wage, he doesn’t buy a thousand pillows. I don’t either. And my business won’t run if only one percent of the country can buy a pillow. I need everyone to buy a pillow.”

Strengthening the middle class will also translate into higher employment numbers, argues Hanauer, who expounds on the thought in a recent Atlantic opinion piece, writing: “We all are better off — businesspeople and consumers, rich and poor — if the burden of taxes is placed at the top and not the middle, enabling middle class citizens to consume, and starting the positive feedback loop of job creation again…The healthiest ecosystem or economy is one with the most diverse, able competitors, not one overrun with one or two dominant species.”

I ask Hanauer, if the evidence is so plain, why so many capitalists disagree with him. Even Chris Anderson, the curator of TED,  opted not to include Hanauer’s talk on TED’s home page, saying at the time it was because Hanauer’s talk “framed the [tax] issue in a way that was explicitly partisan. And it included a number of arguments that were unconvincing, even to those of us who supported his overall stance.”

Do you think you were misunderstood, I ask?

Hanauer tells me he was not, but rather that the talk “just flies in the face of the dominant economic orthodoxy that Chris’s biggest donors subscribe to.”

The “simple truth,” Hanauer says, is “that if you’re rich like me, trickle-down economics feels great. It feels awesome to tell yourself that you’re a job creator and that you deserve the lowest tax rate and that you’re the center of the economic universe.” Arguing otherwise is a “existential threat to the ultrawealthy, who want to be believe” they make the world turn.

“But just because the rich get richer doesn’t mean everybody is better off,” Hanauer says. And if enough voters — including his wealthy business peers — don’t awaken to the fact that this “trickle-down nonsense benefits capitalists in the near term but will destroy capitalism in the long term,” we’re all, he adds, in deep trouble.

Photo: Courtesy of TED.