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I'm a big Cuban fan, but I was surprised and a bit disappointed when he made this statement (and I'm also surprised to see Matt defending it). I agree that man

by mhartl 18y ago

I'm a big Cuban fan, but I was surprised and a bit disappointed when he made this statement (and I'm also surprised to see Matt defending it). I agree that many entrepreneurs don't consider tax rates when starting up (at least not consciously), but for any given rate there is a marginal entrepreneur who is just over the threshold for starting a company. Mark is so far over that threshold for current rates that he reaches the erroneous conclusion that taxes don't matter in general. I guarantee that there is a rate---whether 90% or 99%---at which even Cuban would throw in the towel, by quitting the game or (more likely) fleeing the country. Taxes hurt entrepreneurship; higher taxes hurt it more. Denying this just increases the likelihood of more taxes.

comatose_kid 18y ago
I think the term you used 'marginal entrepreneur' is appropriate if the tax rate is a significant factor in going forward with a business. As you said, if the tax rate was in some ridiculous extreme, of course that would be a factor. But then I'd wonder what kind of country/economy would raise taxes to such a high altitude.
- Prrometheus 18y ago
  In my old line of work, we whipped up a spreadsheet model to show a new company's potential return on investment before we took the idea to investors. For any given company, there is a tax rate high enough that would have made it non-worthwhile. Of course, we weren't in the web business, so numbers mattered to our investors.
- mhb 18y ago
  That's the definition of the word "marginal" here. It is axiomatic that the tax rate is the deciding factor for the marginal entrepreneur. If you think it has some meaning dependent on the tax rate, then you're not understanding what marginal means.
netcan 18y ago
Depends also what you see as an entrepreneur. What A lot of people see as entrepreneurship is a largely binary exercise: success/failure. Since tax rates do not really effect the venture in this way, they shouldn't effect the decisions of an entrepreneur. A 'marginal entrepreneur' would need to be very marginal. Even if you consider complex effects (the effect of your uncle making $1m in the 80s vs $.75m on inspiring you). Cuban's talking about the 'within reason' limits based on practical choice a government is likely to make. What might be affected by the tax situation is the flow of investment capital. Since Cuban is disregarding that as a factor, that has no effect.
- neilc 18y ago
  In addition to the supply of capital (which is quite significant!), tax rates also affect the likelihood that the startup is successful. The higher the tax rate, the higher the company's burn rate, and the less time the company has to gain traction / positive cashflow.
  - netcan 18y ago
    I wasn't saying tax rates do not have an impact on investment. I was saying that is irrelevant to Cuban's argument "You dont need to raise money. You need to be smart and be focused." If you are not raising money, then tax rates do not affect you via investors.
    - neilc 18y ago
      The idea that the economy can be saved by entrepreneurs that never need to raise money is sheer lunacy. I can believe that the funding climate might not be someone's primary consideration when deciding whether to start a company; I can also believe that it might not have much influence on the very early stage growth of the company. However, outside investment still plays a fundamental role in the growth and success of most companies of non-trivial size.
      - netcan 18y ago

by mhartl 18y ago

comatose_kid 18y ago

I think the term you used 'marginal entrepreneur' is appropriate if the tax rate is a significant factor in going forward with a business. As you said, if the tax rate was in some ridiculous extreme, of course that would be a factor. But then I'd wonder what kind of country/economy would raise taxes to such a high altitude.

Prrometheus 18y ago
In my old line of work, we whipped up a spreadsheet model to show a new company's potential return on investment before we took the idea to investors. For any given company, there is a tax rate high enough that would have made it non-worthwhile. Of course, we weren't in the web business, so numbers mattered to our investors.
mhb 18y ago
That's the definition of the word "marginal" here. It is axiomatic that the tax rate is the deciding factor for the marginal entrepreneur. If you think it has some meaning dependent on the tax rate, then you're not understanding what marginal means.

netcan 18y ago

Depends also what you see as an entrepreneur. What A lot of people see as entrepreneurship is a largely binary exercise: success/failure. Since tax rates do not really effect the venture in this way, they shouldn't effect the decisions of an entrepreneur. A 'marginal entrepreneur' would need to be very marginal. Even if you consider complex effects (the effect of your uncle making $1m in the 80s vs $.75m on inspiring you). Cuban's talking about the 'within reason' limits based on practical choice a government is likely to make. What might be affected by the tax situation is the flow of investment capital. Since Cuban is disregarding that as a factor, that has no effect.

neilc 18y ago
In addition to the supply of capital (which is quite significant!), tax rates also affect the likelihood that the startup is successful. The higher the tax rate, the higher the company's burn rate, and the less time the company has to gain traction / positive cashflow.
- netcan 18y ago
  I wasn't saying tax rates do not have an impact on investment. I was saying that is irrelevant to Cuban's argument "You dont need to raise money. You need to be smart and be focused." If you are not raising money, then tax rates do not affect you via investors.
  - neilc 18y ago
    The idea that the economy can be saved by entrepreneurs that never need to raise money is sheer lunacy. I can believe that the funding climate might not be someone's primary consideration when deciding whether to start a company; I can also believe that it might not have much influence on the very early stage growth of the company. However, outside investment still plays a fundamental role in the growth and success of most companies of non-trivial size.
    - netcan 18y ago