Hiring, Marginal Tax Rates and the Big Pile of Money
Elevated Third has grown slowly and steadily over the last seven years. From just me in a tiny office at the Bard Center for Entrepreneurship, we have grown to 20 full-time employees at our new office at 18th and Lawrence in Denver. (Did I mention that we’re hiring?) Every time that we have hired a new employee, the conversation afterward has gone something like this: “Wow, we are really busy. We’ve got quite a few proposals out too. What if they all hit? We need to hire again.”
Demand drives our hiring, not taxes or politics. Granted, at the end of 2008, when the sky was falling and reputable news agencies were talking about global banking collapse, hiring at Elevated Third paused for a few months; we were wondering if hiring somebody who had pickaxe skills would be more appropriate for the future than hiring somebody who could write code. But our clients were asking us to do more and we had our share of new opportunities. We had new and exciting things we were working on, and our clients wanted us to keep going. So we kept hiring.
The Marginal Tax Rate
I got my MBA from CU Denver, know a lot of entrepreneurs and have talked to quite a few of our competitors. In those hundreds of conversations, I can’t remember one time that someone said they made a decision based on the marginal tax rate. I don’t think that entrepreneurs think that way. It’s about the idea, market share, delighting customers and creating something that didn't exist before. It’s so baffling to me that an entrepreneur might keep her idea on the back of the napkin because she will have to pay an additional 4.6% on anything she makes over $388,350 per year.
If one of our competitors had a customer ready to pay but decided not to hire additional programmers because their marginal tax rate was too high, we will gladly take market share from them.
Here’s the other thing that really makes no sense: I’ve read business owners quoted as saying that if the highest marginal tax rate increases by 4.6% they would not be able to hire or afford new equipment. It makes no sense because both payroll and capital expenditures are pre-tax. “You just write it off, Jerry!”
The Big Pile of Money
Multiple entrepreneurs have described how lost they feel after selling their company. Brad Feld said the day after he sold his first company, he just looked at his bank account and said something like, “That’s pretty cool but now what do I do?”
Money is nice. It feels good to get out of debt and to provide for my family. But I don’t think I’m alone in saying that a big pile of money is really not the reason that entrepreneurs go to work. Money is the way we keep score, but is not the game at all. The game is building something with other smart people, creating solutions to customer problems, finding a way to be more effective, faster or just generally smarter than the competition. Why else would someone want to go to work?
We Are In This Together
As someone, who at different times, has benefited from the School Lunch Program, Food Stamps, Welfare, Pell Grants and the Student Loan program, if I am ever fortunate enough to make over $388,350 per year, I am happy to pay an extra 4.6% on anything additional and invest in a kid who might start a company one day.
The Bottom Line
We will hire based on the opportunities we see in the marketplace without regard for the marginal tax rate. In our business, and in most businesses, it is about much more than a big pile of money.