A powerful display of self-interest, enlightened and otherwise

Lt. Gov. Phil Scott And Friends held their little Vermont Economy Pitch thingy last night. I couldn’t attend, more’s the pity. Scanning the available news sources, I see only two reports: one from VPR’s Steve Zind, and one from WCAX’s Eva McKend.

The event’s purpose was to solicit input from the business community on how to improve Vermont’s economy. (And, thinking cynically, position Scott as the business community’s leading advocate in Montpelier.)

Because, as we all know, no one in Montpelier ever listens to the business community. Truly, they are the voiceless among us. Cough, choke.

From what I read, the event failed to produce anything like a consensus. Quite the opposite: it seemingly delivered a parade of self-interest. Speaker after speaker suggested ideas aimed at helping his or her own sector.

Zind has a businessman from Stowe calling for more promotion of tourism. There’s a shocker.

On the other hand, representatives of manufacturing and technology called for the state to market itself less as a rural throwback and more as a great place to live and run a business.

Enough with the covered bridges already! Let’s fill our tourism brochures with pictures of factories, subdivisions, and strip malls!

Here’s my favorite:

Frank Cioffi of the Lake Champlain Chamber of Commerce suggested that up to 10 businesses in each county be designated strategic employers and the state should focus on helping them.

How about that. The number-one cheerleader for IBM says we should focus on the state’s biggest businesses. Seems short-sighted to me; for one thing, big employers often make siting decisions without regard to Vermont policy. Including IBM itself, of course. For another, it’s reactive instead of proactive: we’d be helping the already established, instead of encouraging the up-and-comers who are actually creating new jobs. But what else would you expect from Frank Cioffi?

And here’s a tidbit from WCAX:

Matthew Dodds of Brandthropology says the state has a branding problem…

Gee, the head of a firm that helps clients “steward brands intelligently” thinks Vermont needs better stewardship of its brand.

Next we have an educator who says the biggest problem is, you guessed it, education.

Vermont Technical College President Dan Smith… said employers are eager for the college’s graduates, but financial woes caused by the low level of state funding are preventing VTC from meeting the demand for skilled workers.

One more, and I hate to do this because he’s a good guy. But Cairn Cross of Fresh Tracks Capital, believes the problem is inadequate access to capital. (I do give him credit for spotlighting a single statute, the Licensed Lender Law, as a roadblock. Far better than the usual “cut regulations, lower taxes, permit reform” blah-blah-blah.)

I’m sure there’s some wisdom in all these suggestions, but it adds up to a “Blind Men and the Elephant” scenario, with speakers interpreting the situation in light of their own viewpoints.

VPR’s Zind does report that there were some “recurring themes,” including job training, making housing more affordable, and (yes) access to capital.

But there’s not much new there. And the business community isn’t helping its cause in Montpelier if they’re all preaching from their own separate Scriptures.

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3 thoughts on “A powerful display of self-interest, enlightened and otherwise

  1. Robert Maynard

    “Frank Cioffi of the Lake Champlain Chamber of Commerce suggested that up to 10 businesses in each county be designated strategic employers and the state should focus on helping them.”

    I think that both conservatives/libertarians and progressives can agree that this is not a good idea. From a conservative/libertarian perspective, this is the kind of thing that happens when we have an activist government. Everyone wants it to “help” them. This is exactly what attracts excess money into politics. The more you centralize money and power in the hands of the state, the more you will have monied special interests lobbying to get favors and avoid penalties from the state. To avoid the inevitable corruption, it is better to keep the role of government limited.

    Reply
  2. chuck gregory

    John, here’s something Phil Scott and the legislature ought to consider
    CAPITALISM PEVERTED—
    WHEN THE PURSUIT OF PROFIT DESTROYS THE CREATION OF WEALTH

    Summary
    The capital base of Springfield, Vermont, was devastated in the name of profit-seeking. Had the purchase of its machine tool industries by mechanically and commercially illiterate financiers been properly regulated and taxed by the state of Vermont, it is likely that “Precision Valley” would still be in existence and the town on a sound financial footing.

    A taxation program that levels the playing field for interested bidders will go far to stabilize the economic base of a municipality if it does the following

    It encourages workers to own the business they work for, thus greatly reducing the likelihood that it will ever be moved out of the town.
    It provides proven local entrepreneurs the ability to compete against the overwhelming advantage of Wall Street money in buying a local business.
    It provides innovative sales-based tax revenues.
    It provides financial backing for proven entrepreneurs to expand.

    The PURCHASER’S TAX meets these criteria.

    Examples of past practice

    Springfield, Vermont, was for a century “Precision Valley,” a town of 10,000 people supplying one-third of all the machine tools used in America until the advent of World War II. When the Springfield machine tool industries were taken over by the Textron and the Goldman Industrial Group (GIG), they were removed from town and so poorly managed that GIG declared bankruptcy. GIG produced profits for its management, but it destroyed the businesses it purchased and the economic vitality of the town of Springfield, which, thirty years later, still struggles to recover. (In addition, one of the businesses that they destroyed was the optical comparator division. The optical comparator, invented by James Hartness (later Vermont governor), was the machine that made it possible for a part made in India to match exactly a part that was made in Detroit or Liverpool. It was the invention crucial to mass production of standardized parts. It is illustrative of Wall Street’s power to destroy that it destroyed that particular business.)

    Another Springfield example is that of the town dump owner and operator, Harry K. Shepard, who told of how he became a millionaire. After operating the dump for decades, he was approached in the Seventies by a Texas firm which offered to buy the operation for a million dollars and leave him in charge of it. He took the offer. “The next year,” he said, “they told me I was to make another $28,000.” He felt that simply raising prices was unfair and unwarranted, but as he put it, “Suddenly, it was five guys in a room in Texas” that were making the decisions. He didn’t last very long after that discussion, and Springfield residents are now hostage to yet more economic decisions made independently of the community’s needs.

    One statewide example, also with an impact on Springfield, was the sale of Ben and Jerry’s. Management attempted to purchase the company from the stockholders, but a stockholder’s suit compelled them to sell it to Unilever, which was offering $2 million more. (Had the buyout group raised the ante, Unilever [sales that year, $4.5 billion] would have continued to outmatch them with ease. The buyers’ group never stood a chance.) Unilever continued to operate the Ben and Jerry’s plant in Springfield for a while, then decided it was unprofitable and pulled its piece off the checkerboard and shut the plant down. In addition to the loss of jobs, the “municipal bribe” money that Springfield had expended in wooing the plant and altering its sewerage to accommodate the facility had been wasted.

    The Purchaser’s Tax

    Vermont can damp the destructive firestorm of Wall Street cannibalism in this state through a purchaser’s tax based not on the value of the asset sold, but on the sales price relative to worth of the competing bidders.

    To use Ben and Jerry’s as an example: The local team attempting to buy raised $260 million. Unilever’s net sales that year were $4.5 billion. This graph illustrates the relative power of the local buyers and Unilever:

    (sorry, didn’t paste)

    Unilever made an offer the local team couldn’t top. Like the heirs of the Springfield machine tool industries, the investors blithely sold, and the employees and Springfield again suffered.

    The question is: How to structure taxes so that local entrepreneurs and a community at least have a chance?

    The answer is: Have a “purchaser’s tax” based not solely on the value of the property, but also on the relative worth of the purchasers.

    In the case of Ben and Jerry’s, the worth of the investors’ group was, in effect, comparable to the price they offered. Unilever, however, had $4.5 billion in sales (this figure is used for illustrative purposes), which gave it overwhelming preponderance in dealing; instead of being on a par with the investors’ group, Unilever had the heft of a killer asteroid.

    A tax imposed on Unilever could have made it possible for local control to be maintained.

    As an illustration, consider this hypothetical instance of a local enterprise, a funeral home, which is sought by purchasers of various worths.

    Ma and Pa Benton have run it for 40 years, and now the Florida winters have sung their siren song. The Bentons decide to retire. Their price is $450,000. Seven parties express an interest. Here is a chart comparing the net worths of the bidders:

    Let us imagine who the would-be purchasers might be:
    Buyer 1, a couple whose dream it has been to have their own business. Poor as church mice, they pledge their home and sell a kidney each just to get a loan sufficient to meet their desire.

    Buyer 2 is the establishment’s employees, who pool their personal resources to in hopes of keeping their jobs and keeping the business integrated into the community.

    Buyer 3, a smallholding landlord who detects a chance to increase his holdings.

    Buyer 4, the owner of a funeral home in another town.

    Buyer 5, a family that owns a prospering local business.

    Buyer 6, a Vermont corporation owning half a dozen establishments throughout the state.

    Buyer 7, “Mourners ‘R Us,” a man in Texas who owns 11% of all the funeral homes in America. (Not to be confused with Service Corporation International, a man in Texas who owns 11% of all the funeral homes in America.)

    The disparity of the net worth of buyers suggests that taxation can be used not only to discourage corporate bullying and piracy, but also to encourage (when coupled with a transition tax credit— see below) local entrepreneurship, employee ownership and continuation of local control of business enterprises, very worthwhile goals for the preservation of the economic base in Vermont.

    A “purchaser tax,” based on the sale price of the business and the relative worth of bidders would prevent loss of local control, protect and encourage the efforts of entrepreneurs and reap huge revenues from those conglomerates which succeed in destroying yet another bit of Main Street.

    Whether the smallest or greatest bidder financially, the winning party would pay a “purchase tax” based on its net worth relative to that of the smallest of the competing buyers.

    The formula would be: R x V( B/L), where:
    R= the established “purchaser tax” rate. Let us use 15%.
    V= The sale price of the business. Let’s use $450,000
    B= The net worth of the winning contender among the buyers.
    L= The lowest net worth among the contenders, in this case, the young couple who bring $150,000 to the table. “B/L” is the Net Worth Ratio (NWR, used below in computing the Transition Tax Credit)

    For each purchaser, the tax paid would be different:

    For Mourners ‘R Us, valued at $4,550,000, competing against the young hopeful couple, buying the establishment would create this tax liability:

    15% x $450,000 x (4,550,000/150,000)
    or,
    15% x $450,000 x 30.333= $2,047,500

    What if the Bensons sell to the young couple? The math would be:

    .15 x $450,000 x (150,000/1)= $67,500

    In between those two extremes lie greater or lesser revenues, according to the net worth of the bidder. The tax incurred by an employee buyout would be:
    .15 x $450,000 x (175,000/125,000)= $94,500.

    The tax is shaped to discourage corporate voraciousness. If Mourners ‘R Us wants to corner the funeral home market in Vermont, it can offer more than the asking price— but it will pay an even greater Purchaser’s Tax for the victory.

    Help for the up-and-coming entrepreneur: Transition Tax Credit

    In keeping with Vermont’s tradition of bias toward small-scale entrepreneurs, they would be assisted with mitigation of their tax by a Transition Tax Credit.

    The credit is based on the Net Worth Ratios. If the net worth ratio of the winning bidder is less than five times that of the least net worth, the transition credit equals 100% of the tax. Above that ratio, the transition credit is the inverse of the Net Worth Ratio times the amount of tax due.

    If the lowest net worth bidder wins, the tax credit is 100%, so there is no tax to be paid. Any bidder with a net worth less than 500% of the lowest bidder’s receives a proportionally decreased credit. Any winning bidder with a net worth greater than 500% receives no credit.

    Here’s what the tax revenue would be for all possible sales scenarios in the given example:

    (again, sorry, it didn’t paste)

    Conclusion

    In January of 2015, a cursory examination indicated there were 92 businesses of all sorts for sale in Vermont, with an aggregate asking price of $162,000,000. Given that the top 400 households in America average $343.4 million per year, every business for sale in Vermont that month could be purchased by just one person. The present cowboy capitalism style ensures the destruction of Vermont’s uniqueness, just as it threatens America’s security: There was an uproar nationally when it was revealed that China stood ready to buy our major seaports, but it is perfectly legal under the “money rules all” market system.

    Without protecting and enhancing the right of the small businesswoman or -man to prosper, Vermont will see all of its profitable businesses sucked up by a rentier class dismissive of the social, cultural and behavioral responsibilities incumbent upon those to whom much has been given.

    Reply
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