Los Altos resident Doug Edwards asked President Obama something that many Americans would consider unthinkable: “Would you please raise my taxes?”
Edwards, 53, can afford it. Retired after being amply compensated for being employee No. 59 at Google, he's part of a Bay Area-birthed organization called Patriotic Millionaires for Fiscal Strength.
While Edwards' question and the 200-millionaire-member group he belongs to drew wide notice during Obama's Bay Area visit last week, they drive at one of the most contentious issues in Washington: Would raising taxes on the wealthiest Americans stall investment in the economy?
The Patriotic Millionaires contend that Americans with incomes over $1 million should shoulder a larger share of the tax burden to pay for Pell Grants, road improvements and training programs “that made it possible for me to get to where I am,” as Edwards told Obama during the president's appearance last week at the Mountain View social networking company LinkedIn.
Polls say most respondents agree that rich folks should pony up, as the effective tax rates for the wealthiest Americans – what people actually pay after deductions and exemptions – are at their lowest levels since 1960. And the income gap between the wealthiest and poorest Americans is at its widest mark since the Great Depression.
But conservatives, particularly Republicans who control the House, prefer to refer to wealthy individuals as “job creators” who will be less likely to invest in the economy should their taxes rise.
Besides, if wealthy people like Edwards really want to pay more to the federal government, House Budget Committee Chairman Rep. Paul Ryan, R-Wis., said “he can send it in to the Treasury.”
“The reason we tax cigarettes in this country is to get people to stop smoking,” Ryan said. “If you tax capital more, you get less capital. If you tax job creators more, you get fewer jobs.
“That's the seed corn for the economy, which gets invested in entrepreneurs and startups and small businesses,” Ryan said. Raising taxes would cut that supply off at a critical time when banks aren't loaning to small businesses as freely.
But Ask.com founder and Oakland venture capitalist Garrett Gruener said that changes in the marginal tax rates make “zero difference” about where he is going to invest.
“The kind of investing I've done for the last 25 years isn't based on how a few points of the income tax rates change,” said Gruener, a Democrat and member of the Patriotic Millionaires. But “somehow, the Republicans have managed to convince 98 percent of the people that they are affected by how 2 percent of the population is taxed.”
House Whip Kevin McCarthy, R-Bakersfield, grew up in a family of middle-class Democrats, but his views changed when he opened his own small deli in the Central Valley as a young man and found himself burdened by government regulations and taxation.
Small businesses key
“Small businesses are the greatest creators of jobs,” McCarthy said. Between 2001 and 2007, he said, “If you had a company of 500 people or fewer, you added 7 million jobs. If you had 500 or more, you lost a million. The way that small businesses are run, (those kind of tax increases) punishes them.”
But Keith Greggor, the president and CEO of Anchor Brewing in San Francisco, didn't see a connection between raising tax rates and hiring. Since August 2010, Anchor has added 26 full-time and 10 part-time employees, he said.
“I'm not sure of what the connection is,” Greggor said. Not a lot of “small-business owners I know are millionaires.”
Kate Sofis, executive director of SF Made, an organization that represents 230 San Francisco manufacturers with 100 or fewer employees, said if there is a connection between raising taxes and inhibiting small-business investment, “we haven't seen it.”
“People invest in small businesses because they're good values,” Sofis said.
Some say much of this battle is rooted less in economics and more in politics.
Last week in San Francisco, House Minority Leader Nancy Pelosi said House Republicans “are committed to protecting every hair on the head of every person who makes over a million dollars a year.”
Plucking a strand of hair on her head, Pelosi said raising taxes on millionaires “affects this many people” and only “a fraction of a percentage of small businesses.”
Last year, Obama did not live up to his campaign promise to rescind the Bush-era tax cuts on upper-income Americans, frustrating many in his political base.
But his tax-the-rich rhetoric has sharpened in the past few weeks. He proposed paying for his $447 million jobs program in part by eliminating some tax deductions for Americans making more than $200,000.
The Patriotic Millionaires formed last fall, in part as a way to encourage Congress to rescind the Bush-era tax cuts. One of the earliest organizers was Guy Saperstein, a Piedmont civil rights attorney and major Democratic donor.
While at least half of the Patriotic Millionaires would identify themselves as progressive Democrats – including several from the Bay Area – many of the rest are independents.
Some are like David Watson, a 34-year-old former Google engineer, who was employee No. 83 at the search-engine behemoth. The Oakland resident is registered as a decline-to-state voter and has cast ballots for Republicans and Democrats. Raising taxes on wealthier individuals “seems like it's a common-sense thing.”
“I don't even see the point of why this discussion is going on,” said Watson, who is now a music producer. “There should be some adults in this conversation.”