There are two very distinct ways that have been touted to spur economic and job growth: Republicans like to insist job creation comes from tax cuts while Democrats like to insist this economic and job growth comes from consumer’s ability to buy goods. The thing is, Americans have experimented with both recipes for job creation, and we have seen very different results.
One aptly titled organization of business leaders, the Job Creators Network, has just launched their fall Job Creator’s Tour. One of the co-founders of JCN is Bernie Marcus, the founder and president of Home Depot. What he and the JCN are touting during this tour is that tax cuts are the secret to job creation. Less government and less taxes means more businesses can flourish and more people get jobs. That’s their recipe for success.
Here’s a little secret though: Marcus used a much different recipe for creating one of the nation’s leading home improvement stores, and more importantly, for creating jobs for over 400,000 Americans. He used a recipe he’d rather keep hidden during this tour.
Marcus and his partners founded Home Depot in 1978. They started the business in Atlanta, but quickly expanded down the Gold Coast: Miami and Hollywood, Florida. Did they expand due to a low tax rate? One such as the 25 percent top tax rate the JCN reports is necessary for job growth in their materials? Turns out: no.
In fact, the federal income tax rate for anyone making six figures was 70 percent back then. That meant that spending more money hiring and training was encouraged, because for each dollar they reduced their profits that year, the money they got to keep only went down by 30 cents. The founders are now billionaires in part because they were highly incentivized to invest for the long term, instead of taking profits out of their business in the short term.
In addition to the higher tax rate, Marcus and his partners strategically chose to expand into high-income areas. Home Depot expanded into the area where consumers had the most money to spend on projects such as home improvement. This allowed for a profitable business, and for further expansion and job creation.
Tax rates did not stop the founders of Home Depot from starting their business anymore than lower tax rates spurred Mark Zuckerberg to start Facebook or Steve Jobs to start Apple. And it was the income, or wages of the people in the areas where they first expanded that allowed further growth and job expansion. The ingredients were all there, and the recipe was a wild success.
Now, having long retired and owning billions of dollars worth of stock – Marcus is trying to tell us that lowering tax rates for the rich is the way to create jobs. He knows though, from his own history that lowering taxes has nothing to do with “job creation.” In our economy that is 70 percent consumer driven, it is the consumers who drive growth. What encourages job creation is people who have enough money to pay for stuff. Marcus knows that, he lived that. But now that he is a billionaire who can take advantage of a lucrative upside down tax system, and one who no longer needs to focus on job creation or growth of his company, he has forgotten how he got there.
We need to encourage entrepreneurs to learn from what Marcus did, not from what he or his JCN says.
Morris Pearl is the chairman of the Patriotic Millionaires, a group of hundreds of high-net-worth Americans who are committed to making all Americans better off by building a more prosperous, stable and inclusive nation. Previously, he was a managing director at BlackRock, one of the largest investment firms in the world.