Delaney Challenges Tax Policy Rhetoric at JEC Hearing, Speaks on Real Motivations of Entrepreneurs
WASHINGTON – During today’s Joint Economic Committee hearing on entrepreneurship and tax policy Congressman John K. Delaney (MD-6) spoke about the passions that animate entrepreneurs and forcefully challenged the argument from the panelists that measures like repealing the estate tax would encourage entrepreneurship.
Congressman Delaney argued that what is actually most important is creating the right environment where people want to start a business, in part through investing in science and research and getting capital flowing to under-invested areas. Congressman Delaney pointed out that the vast majority of professionally managed venture capital goes to Northern California, New York, and Massachusetts, three of the highest taxed places in the country.
Congressman Delaney founded two companies before being elected to Congress and is a past winner of the Ernst & Young Entrepreneur of the Year Award.
Congressman Delaney: I want to thank the chairman for having this hearing; I want to thank all the witnesses for being here and providing their insight. So this is a topic that is near and dear to my heart. Before coming to Congress I was an entrepreneur. I started my first company in the early nineties, I took it public in 1996. I was the youngest CEO on the New York Stock Exchange at the time, sold it in 1999. Started my second business in 2000, took that public in 2003, and ran it until I decided to run for office. Ernst and Young gave me the Entrepreneur of the Year Award, so I’ve spent a lot of time around entrepreneurship. My second business was a commercial finance company, which meant we lend money to small and midsize businesses and we leant $30 billion to 3,000 small and midsize businesses all over the country.
So when I think about being an entrepreneur, the thing that struck me about this hearing is this notion that tax policy matters to entrepreneurs. Being an entrepreneur is about a dream, it’s about thinking you can change the world, it’s about thinking you have some innovation that can make a disproportionate difference in the lives of your community, your country, your people. It’s about wanting to be independent, chart your own path, to be a pioneer. Those are all the emotions of an entrepreneur. I have never met an entrepreneur who was making a decision to be an entrepreneur based on tax policy. Because in fact most startup companies don’t make money for a while and most entrepreneurs would say “God, I hope to pay taxes one day because that means my business is working.” And to me, what allowed me to start my businesses is I was married to a wonderful woman who had a job. That job gave us healthcare and she was supportive of me doing this, so we could take the risk because we had that security in our own situation.
I started my business in a market here in the DC area, in Chevy Chase, MD, where we had access to really terrific employees. And that allowed me to raise capital, because I had an idea, a plan, I was able to go do it. I was able to get a team and I went around the country and pitched people to give me money, which in the early 90s was hard, now it’s relatively easy. Not for venture capital… but for more professionally managed capital because that’s just a better risk/return for most people than venture capital. So this notion, I guess, Mr. Dearie, you said something earlier about how tax policy matters to entrepreneurs and startups, but right now 80% of the professionally managed venture capital goes to Northern California, New York, and Massachusetts, three of the highest taxed places in the country. How do you explain that if tax policy matters to them – these investors?
John Dearie – Center for American Entrepreneurship: You are absolutely right, Congressman, that very few entrepreneurs think about tax policy as they’re thinking about becoming an entrepreneur; that they’re driven by passion, they’re driven by an idea exactly as you said.
Congressman Delaney: So why does all the money go to the highest taxed places?
John Dearie: Well, in talking about the importance of tax policy, I certainly don’t mean to say – it is the silver bullet issue. It is the most important issue. It is the dispositive issue. It’s relevant. It’s important. How do I –
Congressman Delaney: The most important issue is creating that environment where people actually want to go and start a business. So, I mean, if you had to go and make a choice, and you have to answer the question based on my choice, you could either cut the estate tax or increase investments in research and development, what would you choose to create more entrepreneurs?
John Dearie: I would do the latter.
Congressman Delaney: Invest in research and development. Mr. Hodge if you had a choice, which was to lower the tax rate on wealthy individuals or do something like allow people with unrealized capital gains, to sell those positions and defer paying their capital gains tax for ten years if they invest that money in parts of the country that have very little economic growth. Some of the reaches that Ms. Donohue is advocating for, which would you choose? Those are the only two choices.
Scott Hodge – Tax Foundation: I don’t agree with using the tax code to try to micromanage people’s investment decision.
Congressman Delaney: So you don’t think it’s important to create policies, because really what’s happened in this country is – let me finish my time - you don’t believe in policies that actually help put intellectual capital and real capital in parts of our country that have been hollowed out based on changes in our economy. To create more entrepreneurs like Mr. Arensmeyer, if I’m pronouncing that right because you sound like a great entrepreneur, sir. You don’t think that’s a role of tax policy?
Scott Hodge: We’ve tried thinks like enterprise zones for decades and they’ve had limited effect and I think we ought to reconsider those policies.
Congressman Delaney: Ms. Donohue, do you think it’d be useful to have policies that get capital flowing to parts like Ohio where you’re trying to actually get investment capital?
Falon Donohue - VentureOhio: I do, brilliance is not concentrated in the three states in the United States but the capital is.
Congressman Delaney: Right well we’ve got to do something about that problem. Right? Thank you for your time.