August 20, 2004
Tax Cuts Slash Google IPO Capital Gains Payments to $11 Million
by William Baue
A new report uses the Google initial public offering to illustrate how tax cuts reward individuals
while robbing programs supported by taxes that incubate business success.
Yesterday's Google (ticker: GOOG) initial public offering (IPO)
enhanced the wealth of company founders Sergey Brin and Larry Page by $73 million, on which they
will pay 15 percent ($11 million) in capital gains tax. They would have paid significantly more (20
percent, or $14.6 million) before the 2003 tax cut and even more (28 percent, or $20 million)
before 1997. In other words, these tax cuts diverted $9 million from tax coffers to the founders'
While Mssrs. Brin and Page enjoy this windfall, the system that helped
create the climate necessary for the development of Google will suffer, according to a new report
debunking the "self-made man" myth of wealth creation by exposing its social factors.
report, published by the Responsible
Wealth program of United for a Fair Economy (UFE), points out that capital gains tax cuts rely on the
logic that they minimize penalization of individuals for their innovation and entrepreneurialism.
What this logic elides, however, is the degree to which individual achievement relies on societal
support, according to the report.
For example, the success of Google depended not only
on the creativity of its two founders, but also on taxpayer-funded research in Silicon Valley and
Stanford University, where the technology
was developed. As well, Google's efficient search engines perform their feats on the Internet, an
invention funded by the US government, which the report characterizes as the "world's largest
venture capitalist." What's more, the IPO relies on government regulation of capital markets.
"Google's success shows what kind of public investments are key to wealth creation," said
Scott Klingher, co-director of Responsible Wealth. Mr. Klinger co-authored the report with Mike
Lapham, co-director of Responsible Wealth, and Chuck Collins, associate director of UFE, a
nonprofit that exposes how concentrated wealth undermines economic progress, racial harmony, and
democracy. "It's not tax breaks. It's real investments--from public education to technology
research--that will deliver the Googles of the future."
The report profiles a series of
successful individuals who repudiate the self-made myth necessary to justify capital gains tax
cuts, and instead acknowledge how their success rested on benefits accorded by systems supported by
"I personally think that society is responsible for a very significant percentage
of what I've earned," said Warren Buffett, CEO of Berkshire Hathaway (BRKa).
Commenting in the
1993 Berkshire Hathaway Annual Report on the $390 million in taxes the company paid that year, Mr.
Buffet said, "I have absolutely no complaints about these taxes."
"We work in a
market-based economy that rewards our efforts far more bountifully than it does the efforts of
others whose output is of equal or greater benefit to society," he continued. "Taxation should,
and does, partially redress this inequality."
The report also profiles Amy Domini,
founding CEO of Domini Social Investments, who
discussed the importance of government regulation of markets, and Ben Cohen, co-founder of Ben & Jerry's, who spoke of his commitment to
return profits to the community. Perhaps most compelling is the profile of Martin Rothenberg,
founder of Syracuse Language Systems, a software company he sold in 1998 to form Glottal Enterprises.
"I’m a small business
owner, and my family is in the top two percent of wealthy Americans who would get a windfall if the
estate tax is eliminated," said Mr. Rothenberg. "But I believe the estate tax should be fixed, not
"Here’s why: my wealth is not only a product of my own hard work. It also
resulted from a strong economy and lots of public investment, both in others and in me," he
continued. "I received a good public school education, and used free libraries and museums paid
for by others. I went to college under the GI
Bill. I went to graduate school to study computers and language on a complete government
scholarship, paid for by others."
In contrast, the report also profiles several
individuals whose actions belie how they benefited from social support fueled by taxes. For
example, former US Senator and current vice chair of UBS Investment Bank Phil Gramm (R-TX) grew up on his father's
veteran's disability pension and attended the University of Georgia for free under the War Orphans Act. He
earned his doctorate under a complete fellowship paid for by the National Defense Education Act, and
then taught economics at Texas A&M, a land grant
college founded and sustained on state and federal subsidies.
"His legislative career in
Congress was distinguished by several decades of votes to cut taxes, reduce public investment, and
slash education funding," the report states. "An ardent foe of government spending, he even
attacked the very veterans' benefits, land grant colleges and subsidies that he personally
Ultimately, the report's profiles and its argument against the myth of
the self-made man are not esoteric issues, but rather practical issues that bear in directly on
UFE's mission of creating a more just and equitable society.
"How we think about wealth
creation is important since policies such as large tax cuts for the wealthy often draw on the myth
of the self-made man," said Mr. Collins. "Taxes are portrayed as onerous, unfair redistribution of
privately created wealth--not as reinvestment or giving back to society."
would many wealthy entrepreneurs be today without taxpayer investment in the Internet,
transportation, public education, legal system, the human genome, and so on?" he asks.