Mark Cuban Solution to Income Inequality

Investment Analysis Clubs Macro Economic Trends and Risks
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between paying higher taxes or giving every member of staff company stock

He told a recent episode of the What It Takes podcast that he awarded 330 employees at his media company, Broadcast.com, stock ahead of Yahoo’s $5.7 billion acquisition of the company in 1999. Three hundred of those employees became millionaires as a result, he said.

Cuban also awarded equity and cash bonuses to employees of his first IT consulting company, MicroSolutions.

If founders and CEOs don’t seek to share the wealth generated by their companies with their employees, they should be forced to give back to society by paying higher corporate taxes.

While Cuban proposes increased taxes as a motivator to get business leaders to share equity more broadly, a criticism of higher taxes (and tariffs, as consumers have learned the hard way) is that increases to company costs are often passed back to customers and ultimately the public. This represents a further stretch on budgets of consumers already dealing with above-target inflation, and without the boon of company stock to fall back on.

But Cuban disagrees, sharing his thinking on the social media platform owned by Tesla CEO Elon Musk: “Each entrepreneur decides what margins, gross or net, they are willing to accept. For competitive or any other reason.”

He continued, “Some of us realize that even though we might not enjoy paying taxes, and know that maybe 40% of the taxes paid actually get to people who need it, that’s still a value for the community, which can help your business. As far as equity: Every founder worth a damn knows that the greatest success, economic and personal, comes from aligning the goals and interests of as many stakeholders as possible. Everyone will benefit more, when everyone benefits more.”

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That’s the polar opposite of what Milton Friedman teaches.

intercst

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Honestly, it is an interesting idea in theory, but I have a hard time seeing it work out the way he imagines. The core problem is that forcing companies to choose between higher taxes and giving away equity just creates a new set of perverse incentives. A lot of founders would probably just take the tax hit and pass the cost onto consumers, which defeats the whole purpose and makes inflation worse for everyone.

Plus, equity is only valuable if the company actually succeeds or gets acquired. For a lot of startups, that stock is just worthless paper for years, so it doesn’t really help the average worker pay their bills today. It feels like a solution that sounds great on a podcast but falls apart when you look at the real-world mechanics.

It’s a bit like trying to prevent SaaS fraud with a single tool. You might catch the obvious bots, but the sophisticated fraudsters will just find a new way around it. You need a multi-layered approach to really make a dent, and even then, you are always playing catch-up.

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By definition, how could it be otherwise?

DB2

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I’ve really only had one employer where company stock was a good deal for me. What really matters is pay and benefits.

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Yes, sharing the wealth when a company succeeds is a good idea. Every company should share with their employees.

Sadly many of us work for “also ran” companies that may survive to pay pensions but their stock will not make you wealthy. But it is your option to find a better job if you are not working for a winner.