Saturday, October 14, 2006

You, YouTube and the Estate Tax

This just arrived in an e-mail today from John Tamney who frequently contributes to NRO. I think it's a great case study of how capitalism works at its best to solve problems in the private sector for the benefit of all. And why such problem solvers deserve to reap profits for their creativity and hard work. He also argues for the permanent abolition of the death tax:

The announced acquisition of YouTube is another reminder that access to capital is what enables entrepreneurs to solve problems. The estate tax distorts savings and capital formation in favor of immediate government consumption. The estate tax should be abolished.

October 13, 2006, 2:14 p.m.YouTube, the Forbes 400, and the Estate Tax. The case for capital, entrepreneurs, and the abolition of the inheritance tax.

By John Tamny

During an interview on ABC this past August, YouTube’s Chad Hurley talked about the trouble he and co-founder Steve Chen experienced when they tried to e-mail friends a video of a dinner party they attended in January 2005. Their difficulties led to the creation of YouTube, which allows Internet users to share original videos “worldwide.” As Hurley put it in the interview, “We thought, a lot of people were gonna have the same problem. And so we started working on a solution for this problem right away.”

Hurley’s words deserve special attention given this week’s announcement of YouTube’s $1.65 billion acquisition by Google. Hurley and Chen, like most members of the 2006 Forbes 400, are problem solvers of the first order. While many will decry their windfall, not to mention the fact that the Forbes 400 is now exclusively a billionaires club, rational minds will celebrate.

Indeed, contrary to the class-struggle assertions suggesting an estate tax is necessary so that the rich can “give back,” the success of Hurley, Chen, and the majority of the Forbes 400 makes it clear once again that they’ve given back in spades.

Absent the profit signal, there’s no way of knowing who among entrepreneurs is doing the most to improve how we live. Profits are a way of keeping score, and the greater the profits, the more problems that have been solved. Von Mises referred to this process as the removal of “uneasiness” — which is what members of the Forbes 400 do all the time. Simply, they make our lives better.

As the respective heads of Fidelity Investments and Franklin Resources, Ned Johnson and Gregory Johnson offer investors low-cost access to some of the best money managers in the world. Ameritrade founder J. Joseph Ricketts provides investors with low-commission-cost access to stocks and bonds. According to Lorraine Spurge, author of Portraits of the American Dream, Forbes 400 member Michael Milken was responsible for “nearly all the job growth in the decade of the 1980s.”

For the frequently confused, publisher Patrick McGovern created the “ For Dummies” series, while the frequently lost are no longer adrift thanks to Min Kao and Gary Burrell, designers of increasingly affordable Global Positioning Systems.

Carnival Cruise founder Micky Arison made seafaring affordable to the masses, and it should also be noted that when Hurricane Katrina struck last year, Arison freed up three Carnival ships to provide housing for 7,000 Katrina refugees.

Those who lived in the ‘70s no doubt remember six to eight week waiting periods for items ordered over the phone. Thanks to FedEx founder Fred Smith, acquisitive types can now purchase items for next-day delivery. Thanks to Howard Schultz, coffee drinkers now have 12,000 Starbucks stores to patronize around the world. As opposed to exploiting consumers, Schultz opens five new stores a day so that a daily ritual for many is made even more convenient.

Returning to YouTube, its transformation into a billion dollar company was made possible through funds provided by Sequoia Capital, while its acquirer’s metamorphosis into the world’s most utilized Internet search engine was funded by both Sequoia and Kleiner Perkins. The capital provided by both venture firms came from pension plans funded by the average American, university endowments, and yes, savings offered up by the working and idol rich.

It is through access to capital that the supposed “have nots” become “haves.” On the other hand, inheritance taxes discourage saving while stimulating immediate government consumption of the capital that otherwise would be available to entrepreneurs. To insure the largest capital base for the problem-solvers of the future, the estate tax should be abolished.

— John Tamny is a writer in Washington, D.C. He can be reached at

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