Will Joe the Plumber's tax message resonate in Silicon Valley?
Joe Wurzelbacher, an Ohio plumber considering whether to buy a business, turned into an unlikely media star this week after he confronted Sen. Barack Obama over the Democratic presidential nominee's tax proposal.
(Credit:
CNET News)
Obama maintains that his plan would reduce personal income taxes on 95 percent of the wage earners in the United States. But after an Obama appearance at Holland, Ohio, Wurzelbacher told Obama that his tax plan would take money out of his pocket.
That was the beginning of Wurzelbacher's 15 minutes of fame. His name came up 26 times during Wednesday night's presidential debate between Obama and Sen. John McCain, who argued that a tax hike would slow any economic recovery and hurt job growth. McCain also said the tax plan would unfairly redistribute money earned by small businesses, essentially penalizing them for being successful.
Given their libertarian, government-get-out-of-my-way predilections, technology entrepreneurs would seem to have much in common with being penalized for their success. But the surface similarities only go so far.
For one, if you're making $250,000 a year in Ohio, you're living large. If you're earning that much in Silicon Valley (or other high-priced tech hotbeds like New York and Los Angeles), you're just middle class. And then you've got to worry about paying down that crazy mortgage. It's not as if start-ups are pleading to pay more in taxes. Instead, they have more pressing items on their agendas.
"At this stage in our business, we need to put our money into growth and innovation. We would benefit from the hiring credit we have heard about in Obama's plans. Access to health insurance is also much more important to us than a small change in that tax rate," said Mary Mangan, president of OpenHelix.
"I started going to a lot of entrepreneur events before I went out on my own. At every one of those events people asked me what I was going to do about health insurance. Not a single one of them ever asked me about taxes. In starting up a business you are just not making that much in the early days."
(Credit:
Obama for President Web site)
Most technology start-ups--particularly, those that receive funding--are going to be structured as corporations, which changes the tax structure. Someone in the position of "Joe the Plumber" would likely establish a Limited Liability Company or similar structure which would treat earnings as personal income.
I heard variations on that theme from many start-ups that confessed to being more anxious about how long it's taking to fix the nation's economic woes. What start-ups want to see is an economic policy that helps the economy recover rapidly.
"A quicker economic recovery will more than make up for a several hundred dollar increase in taxes my company will pay under Obama's plan," said Brett Klasko, the founder and CEO of Phinaz Media & Marketing. "As you can imagine, we have to fight a lot harder for each marketing dollar during rough economic times. A recovery will increase our revenue far beyond any potential increase in taxes."
Like most tech start-ups, Phinaz Media & Marketing doesn't provide health insurance to employees. Klasko believes that if Obama or McCain can lower health care premiums and provide a tax cut to small businesses that offer health care to their employees, he may be able to justify the cost of giving employees access to a company health plan.
"This would certainly increase morale and could, in turn, increase productivity," he said.
With the presidential campaign winding down, the speculation is getting ahead of the reality. First, Obama's not guaranteed victory on November 4. And in the event of an Obama presidency, we'd only know whether his tax policy was a success or failure months later.
But if the political scenario does indeed work out in Obama's favor, his team will encounter a different start-up landscape from the one the Democrats remember from the Clinton administration. The lean and nimble Web 2.0 companies that dot the tech constellation can easily move their operations to more tax-friendly venues if they deem the new team in Washington to be antibusiness.
"There other options for companies to set up businesses elsewhere," said Anthony Franco, president of EffectiveUI. "If the plan is to raise taxes on small businesses, there are options to go offshore...As an entrepreneur, it's something you'd take a look at it."
With globalization and broadband proliferation, start-ups are forging international linkages--whether in sales or software development. And as Franco noted, that presents opportunities should push come to shove.
"This is not about patriotism or whether I love this country," Franco said. "It's what makes sense for this business as an entity. It would take a significant amount for us to consider doing anything outside of the U.S. But what is also true is that if it costs you $1 million year in taxes to stay in the U.S. and you can operate (the business outside of the country) for $200,000, there are companies that would consider that."
Former Hewlett-Packard CEO Carly Fiorina's gift of glib gab backfired on her Tuesday when she became too candid for her own political good.
Fiorina, an economic adviser to Sen. John McCain, was asked on KTRS Radio whether she thinks Alaska Gov. Sarah Palin has the experience "to run a major company like Hewlett-Packard."
"No, I don't," Fiorina said. "But you know what? That's not what she's running for."
So she doesn't have the chops to run a company but can handle the role of president of the United States? I wonder what Palin's handlers think about that one.
Back in the day, when Fiorina was running HP, her PR meisters would have blanched at some such unscripted response. I've interviewed Fiorina several times over the years and found her to be on message all of the time--sometimes unnervingly so.
But now that she's on a different stage, Fiorina finds herself the object of intense media scrutiny over her inability to stop flapping her gums. Asked to clarify her remarks later, during an appearance with MSNBC's Andrea Mitchell, Fiorina had this to say:
"Well, I don't think John McCain could run a major corporation. I don't think Barack Obama could run a major corporation. I don't think that Joe Biden could run a major corporation. But on the other hand, a major corporation is not the same as being the president or the vice president of the United States. It is a fallacy to suggest that the country is like a company."
She would know," quipped MSNBC's Keith Olbermann. "She got fired for running that company."
Bada boom!
If you reside in Washington for any length of time, it's not long before you believe that the world revolves around the Beltway. The same can be said about Silicon Valley, where a similar fishbowl effect often fosters an exaggerated image of the high-technology industry's impact on the larger culture and society.
Even more so when it comes to gauging the political influence of the technology business on the fall presidential campaigns. You might think the Democrats and Republicans are eager to raise the banner on behalf of their friends in Silicon Valley. The assumption is that the two major parties will cater accordingly. After all, the industry has so much money to spend and all those political action committees, and they naturally want to get their rightful share. Right?
Not so fast.
Sure, the Democrats and Republicans are eager to court deep-pocketed donors. But the power broker image exists more in the minds of the people living between San Jose and San Francisco than it does with the movers and shakers guiding the Obama and McCain campaigns.
With the candidates hitting the road after the wrap-up of the political conventions, this much is certain: The resolution of policy issues like Net neutrality may be near and dear to folks from the likes of Cisco and Google. But neither Barack Obama nor John McCain plans to give impassioned speeches urging passage or rejection of this, or other pieces of, tech-related legislation over the next couple of months.
Earlier Monday, I spoke with my colleague Declan McCullagh on the CNET News Daily Debrief about where the tech agenda fits in with the two campaigns. Declan's back from covering the Democratic and Republican conventions for us where he had an extended opportunity to chat about technology policy with regulars from both parties. You can check out our conversation by clicking on the video link below.
So, what's a start-up again?
(Credit: Declan McCullagh/CNET News.com)Hillary Clinton is on to something but she's not thinking big enough.
On Wednesday, the Democratic presidential nominee wannabe issued another one of those insufferably boring candidate white papers on how she would improve the country as its 43rd president. The main news? Clinton wants to spend $7 billion to promote what she terms an "insourcing" agenda, offering a package of tax incentives and investments to companies that create jobs in America.
OK, nothing wrong with a little pork barrel action this time of the campaign season. And some of the ideas are not half-bad: So, for example, she favors:
• At least 15 new "Innovation and Research Clusters" across the country
• New "Insourcing Markets Tax Credit" to spur business investment communities facing global competition
• $500 million annual investments to encourage the creation of high-wage jobs in clean energy manufacturing technologies
• An increase in the existing R&D credit by 50% and the creation of a new 40% R&D credit for basic research
On the flip side, Clinton would end tax incentives that allow companies to ship jobs and capital overseas. She also wants to end the practice that lets companies defer paying U.S. taxes on income earned by their foreign subsidiaries. But the reforms offered by Clinton, Obama, and McCain are primarily focused on big companies. It's a page out of the Willie Sutton handbook of political nose-counting: you suck up to the places where the most votes are.
Apart from the big companies, however, the start-ups and entrepreneurs that provide the tech industry with its lifeblood must wonder why they don't get included in the conversation. It's not as if they can't use the help. With the VCs spooked by an increasingly gruesome economy, the days of easy money are over.
• More venture capitalists are taking a magnifying glass to deals they previously would have funded. You want a new round of cash? Assume the position.
• In the first three months of 2008, the number of VC-backed mergers and acquisitions f ell to an all-time quarterly low for the decade
• The pace of VC investment in Web 2.0 companies has begun to decline. Might 2008 be the make-or-break year for many advertising-based start-ups?
I don't buy the end-of-the-world scenario that another mega-bust is on the horizon. Still, these are turbulent times and start-ups will get knocked around a bit before things calm down. Instead of being forced into ridiculous choices between political camps, they have more issues to attend to. Such as how to survive when times get tough. And they could use friends in high places--that is, assuming the folks in Washington will pay attention.
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