Venture capitalist and entrepreneur Nick Hanauer has stern words for millionaires -- it's time to pay your fair share of taxes.
The self-made millionaire, who sold his Internet media company aQuantive to Microsoft for $6.4 billion, tells Henry Blodget in the above video that he supports changes to the tax code.
"People in the top 1 percent are paying historically low tax rates," he says. "That's simply an unsustainable way to run a capitalistic society."
Hanauer admits he paid an 11 percent tax rate on an eight-figure income in 2010. He's one of several millionaires speaking out against what he feels is an outdated system that disproportionately benefits the rich at the country's -- and the middle class's -- expense.
An analysis conducted by the nonpartisan Congressional Research Service in October found that nearly a quarter of millionaires (or 94,500 taxpayers) pay a lower tax rate than 10.4 million moderate-income taxpayers. CRS defines "moderate-income" households as those earning below $100,000 annually.
President Obama has urged Congress to pass the so-called "Buffett rule" named after billionaire investor Warren Buffett. In his State of the Union address last month, Obama said "if you make more than $1 million a year, you should not pay less than 30 percent in taxes."
Buffett has been an unequivocal proponent of changing the tax code, widely publicizing that his long-time secretary pays a higher tax rate than he does. Buffett announced that he paid $7 million in taxes in 2010 — or 17.4 percent of his taxable income. According to the Congressional Budget Office, the richest 0.01 percent of Americans paid a combined 17.5 percent in individual income and payroll taxes in 2005. IRS data shows that 1,470 households paid zero federal income tax in 2009 despite reporting an income of more than $1 million. The Urban-Brookings Tax Policy Center projects that the average overall federal tax rate for 2011 will be 18.8%.
Capital gains, dividends and "carried interest" are taxed at a 15 percent rate. Hedge fund managers and private equity titans pay the 15 percent rate because their income comes from investor fees, not salaries. The AP reports federal taxes are at 60-year lows and federal tax receipts will be equal to 14.8 percent of GDP, the lowest level since President Harry Truman was in office. The federal budget deficit could reach a record $1.5 trillion this year because of smaller revenue and increased spending.
Hanauer says keeping taxes low on the country's wealthiest won't boost economic growth or lower the nation's 8.3 percent jobless rate. The economy prospers when the middle class consumes goods, he argues, and businesses will be destroyed if the government cuts programs for the middle class.
"We are systematically destroying our customer base in this country by undercutting the middle class," he says. "If it was true that the rich and business were job creators, we'd be drowning in jobs today."
- Warren Buffett