Who Built That?

“If you have a successful business, you didn’t build that.  Somebody else made that happen.”

                                                                                    President Barack Obama

I’ve refrained from jumping into the dispute about President Obama’s “You didn’t build that” statement until now. Part of my reluctance was frankly self protection. I’m in a regulated business, and I was afraid to raise my public profile without cause.  The other day I read an Op-Ed in the Washington Post from investment manager Jim Roumell, speaking out in support of Obama’s call for higher taxes on successful business folks.  I know Roumell, not well, but well enough to know that he is a smart guy, and someone I like and respect.

Now that another guy in my business has broken the ice, so to speak, I’ve finally decided that the underlying meaning of Obama’s speech continued to trouble me, to the point that it seems to require a response.  (If I don’t comment in my blog about things I can’t stop thinking about, why have a blog?)  So here’s my response to Roumell, and more important, to Obama’s view of business.

First, let me state that I agree that the President misspoke when he said, “You didn’t build that.” In context, it seems plausible that he meant, ‘You didn’t build the infrastructure and government services that facilitated the creation of your successful business.’

But if you listen to Obama’s speech in its entirety, it’s actually even worse. The entire tone is hectoring, patronizing and dismissive. It suggests that successful business owners got lucky, because they sure weren’t any smarter or harder-working than anyone else. It also implies that successful business people got crucial help from government that someone else paid for, help which they themselves have never acknowledged, and which represents an economic debt they have never repaid.

It’s clear listening to Obama’s speech that he believes entrepreneurial businesses are failing in their obligation of gratitude to the government that made their success possible, and also failing to pay their fair share of taxes. (If you don’t believe me, don’t read an op-ed in the Wall Street Journal or the Huffington Post, watch the entire speech yourself.)

It is the implication of ingratitude that most offends me.  Once a quarter, I attend a coaching program in Chicago, which is open only to entrepreneurs. No CEOs of Fortune 500 companies, no public-sector employees, no unionized auto workers. This is an economically successful group.  I probably have the lowest income in the room.  I have never been associated with any group of individuals more consistently, deliberately, and intentionally grateful in my life.

Speaking of gratitude, let me make explicit who I am grateful to for the success of my business. First on the list is my clients. There is not a penny that I have taken home since my business partner and I opened our doors in 1990 that was not provided by my clients. Without them, I have no income to pay my mortgage and put food on the table, no revenue to pay my employees.  Second, I’m grateful to my employees. With a staff of more than 15, a great part of the work that we do to create value for our clients is performed by individuals other than myself.

I am deeply, continuously grateful to the individuals and families in both of these groups, clients and employees.  I know I didn’t “build that” by myself, and clients and staff are the ones who helped make it possible.  In both cases, our relationships are both voluntary and reciprocal.  If either party finds the relationship uncongenial, the tasks performed insufficiently compensated, or the services over-priced, they can go elsewhere without constraint.

I believe that such voluntary relationships between organizations and individuals are at the heart of human progress.

My relationship with government is entirely different.  As Judge Learned Hand wrote, “Taxes are enforced exactions, not voluntary contributions.”  Obama’s assertion that it is government that I should be most grateful to, and his further suggestion that I haven’t paid fair return for the benefits I have received from the state, I find both peculiar and offensive.

I have been a taxpayer since 1975. Over my lifetime I have written checks to the Internal Revenue Service or the United States Treasury, or had taxes withheld from my compensation, well in excess of $2 million. That does not include the hundreds of thousands of dollars my business has paid as our half of our employees’ Social Security taxes.

There is no way in the world that the cumulative services I have received from the federal government are worth any substantial fraction of that amount.

Back in 1990, when we opened our doors, my total earnings from my new business were less than the salary we paid to our sole employee, our office manager. The taxes on my earnings were similarly small.  Today I pay ten to twenty times more in taxes on my earnings than I paid in 1990.

Yet I do not receive twenty times more benefits from the government than I did back in the day.  I drive on the same highways, and there is no special lane for high-bracket taxpayers.  I deal with the same impersonal bureaucracy when I apply for a new passport.  These days, I stand in longer lines at airports, I have access to fewer post offices, and my proportional share of the total Federal debt is a much larger number.  (Never mind what my kids will owe over their lifetimes.)  I’ve paid more than my proportional share of the costs of our various wars, but there is no painted legend on a Predator drone circling silently above Waziristan reading, “Sponsored by the Hemphill family.”  (Thank goodness.)

My personal return for each dollar I pay in tax, in the form of government services, is very low, much lower than it was back in the day when my income was below average.  For me, the Federal government’s goods and services are a $200 pepperoni-anchovy-and-Kraft-miniature-marshmallow pizza, delivered at 2 a.m. – certain things I need and like, combined with other items I don’t value or actively dislike, often delivered in inconvenient ways and always at a truly exorbitant cost.

The obvious exception to the lousy-value-for-money rule is folks who make their payments direct to politicians, like the Solyndra investors who paid Obama’s 2008 campaign $100,000, spent $1.8 million lobbying, and received $527 million in loan guarantees for a company that quickly went belly-up.  Their investment in government was quite a bargain, for them if not for the rest of us taxpayers.  (Not that campaign contributions in return for government favors go only to one party.  Far from it.)

I am not complaining about my taxes.  They are what they are.  In fact, I expect they will go up, when we finally get around to dealing with our fiscal crisis.  And I don’t want special privileges in return for paying higher taxes.  I am passionately grateful to live in a country where, along with a penniless legal immigrant from Somalia or a billionaire hedge fund manager, I stand equal before God and the law.

But I am offended by the idea that I haven’t yet paid my fair share for the benefits I’ve received from government, particularly when the comments come from a man who has never signed a paycheck in his life.

If we are ever going to get the U. S. economy moving again, I am certain that small businesses will be a key component of the recovery.  It would be nice to have the sense that our nation’s leadership had a clue about how businesses like mine actually work.

4 thoughts on “Who Built That?

  1. Its a shame to see your blog departing from an intellectual stance to just another Foxublican echo chamber in the election. I’d like to unsubscribe in protest and resubscribe after the election is over, but that kind of gesture is of a piece with your “interpretation” of Obama’s words, and of a piece with the democrat’s “interpretations” of Romney’s saying corporations are people too. I’ll stay subscribed because we are friends and I’m interested in what you craft. I just hope you veer back away from stuff that would be right at home on Fox “news.”

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    • As you may know, I watch little TV. I made a partial exception this week for the Republican convention, which I watched on the Lehrer NewsHour. (Whatever it is called today.)

      I’m not echoing anyone, because I don’t know what anyone on Fox said. My reaction, delivered after a period of reflection, was pretty much exactly what I felt, as a business owner, the day I first watched Obama’s comment.

      Part of the problem with hyper-partisanship is the idea that there are no actual issues and no actual people with their own opinions, only “echo chambers”. I can absolutely assure you that there are many, many business owners who feel precisely as I do, with similar energy, and it is not because anybody told them what to think.

      Nobody tells me what to think or say.

      If this post seems a departure, consider the possibility that Obama’s words were what I believe them to be — a step over the line.

      Of course corporations are people, in a legal sense that is essential to our current and prospective future prosperity. That’s another debate we need to have as well. I’m reading a great book touching on this now, Ferguson’s Ascent of Money.

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  2. Thank you Mr. Hemphill for your well written commentary on what has become a major theme of the Romney-Ryan campaign, namely the President’s alleged antipathy for the entrepreneur. If it were not for your communication I would have never sought out the complete 40 minute 30 second speech during which the offending words were spoken. The words were uttered at the 30 minute mark. In those 30 minutes I heard nothing that supported your claim that the President said that the successful were ungrateful and a debtor to the society in which they had success. What he did say that was relevant to your argument was that we need to continue to invest in the society because ” we are in this together” ( rather mindful of Franklin’s argument).

    I can’t know whether you are a debtor or a creditor to the U.S. society. But I would venture to say that if you lived in any of the other dozen or so countries with a sufficiently stable legal and banking system , relatively free of corruption, that allowed you to be successful in the business you chose you would have paid considerably more in taxes than you have paid in this country. Despite that bargain I , and I hope in the future you, can enjoy a retirement free of the fear of poverty from the inevitable ravages of age enabled by a government that until the beginning of this century had in total achieved a reasonable balance between revenues and expenses. I look forward to achieving that balance again and I will cast my ballot on Nov. 6 with that goal in mind.

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    • I’m onboard with a balance of revenues and expenses, as documented in my recent White Paper, “They Came for the Greeks.”

      What I find missing in our current debate is the understanding that our existing system of entitlements is essentially bankrupt, and can’t be continued status quo without massive increases in taxes on everyone at all levels of society. Realistically, not even then.

      I’m 55. When I retire, my Social Security is going to be means-tested. Ditto, in some form, my Medicare. Both changes will hugely disadvantage me versus the current structure, but I can do the math and know things must change.

      For the record, as I’ve said before, I think the bipartisan Erskine-Bowles plan is in certain ways preferable to the Ryan plan.

      My ballot this year, and I suspect for years to come, will be cast on the following question: Who will give my three children the best chance to grow up without the costs of government destroying their future?

      Right now I see only one party with any serious answer to that question. Erskine-Bowles, and the experience of Germany and Canada (both of whom reformed entitlements under center-Left governments), suggest there can and should be two parties competing for my vote. So far, not.

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