Mark Cuban’s Novel Income Tax Proposal Is The Exact Opposite Of What Most Economists Would Endorse

mark cuban

[credit provider=”Michael Seto”]

Typical economic policy is fairly straightforward: Spend more and cut taxes when the economy is weak. Hike taxes only when we’ve recovered.During a Reddit Ask Me Anything session, billionaire Mark Cuban offered up a very contrarian take on taxes.

First, here was the question that keyed off his claim that taxes should rise on the rich, and that it wouldn’t be that harmful to the economy.

Could you further explain your stance on taxes for businesses? I’ve seen where you said that taxes essentially don’t matter for business. That entrepreneurs will still start a business because they don’t say, “Wow, I have a great idea but the tax rate is too high.” Still, wouldn’t it be helpful to have lower taxes because when those entrepreneurs sell their business, they have more money left to fund other businesses? If I sell my business for $1MM and capital gains is 5% higher than it is now, that’s $50K that I can’t invest in startups. That’s easily 5 less businesses that will have to find capital elsewhere.

And here’s Cuban’s answer (lightly edited for punctuation):

Like everyone else, I want taxes lower. More money = more choices. BUT, I believe in taking responsibility for the circumstances we find ourselves in. As a citizen I voted for a bunch of the idiots in office. When they were doing stupid shit, I stood by quietly. Even when I spoke up, it didn’t impact anything.  So while I believe that lower taxes are good. I recognise that I was part of the problem. And given that we are in the middle of a big problem, what I believe is the optimal way doesn’t matter.  What matters now is fixing the problem. Unfortunately the way to fix the problem is to have those who can pay more to pay more.  I’ve been proactive individually, I’ve written checks to the City of Dallas. I’ve written big checks for disasters where I know that anything not financed privately is going to come from taxpayers. So its my small way of trying to help. I think all these politicians who ignore the current context/realities of where we are, hurt more than help  If it were up to me, I would increase taxes and create metrics that triggered declines. If the unemployment rate falls to 6pct nationally and the Deb/t GDP ratio declines to a specified amount, we lower taxes. If it goes the other way, we increase them further on the wealthy. I could go on for days on ideas, but no one is listening to me. 🙂

This is a very businessy way of looking at taxes, that lower taxes are like a bonus for good times, and that in bad times people should take home less. That does make sense in a business. As a tax policy, it’s pretty much the opposite of what every economist will argue.

That being said, on Twitter Conor Sen makes a good point, which is that this creates an incentive for the rich to actively care about the unemployment rate, and to promote policies which would get there. There may be a way to structure it so that it works out well for everyone.