Re[9]: HOMESTEAD: accounting and time limited investment

[Shann Turnbull <sturnbull@mba1963.hbs.edu>]

I think any revenue cost/benefit analysis would have to be tailored made to
the specific fiscal context.

I do not think that there was any analysis of offsetting revenue when Jeff
Gates wrote the tax laws for Senator Russel Long in the 1970's. I will copy
this message to Jeff to invite him an answer to your questions.

I think the driver for tax concessions, are as always, the votes it can
attract for ambitious politicians to get and maintain political office.

Hence the need to get attractive "sound bites" and slogans as developed in
the ownership discussion group.  A thread on "Shann's sound bites" began on
Friday May 12th, refer to
http://cog.kent.edu/archives/ownership/msg00659.html and continues with
around almost a dozen contributions until May 14th.

Regards

Shann

At 07:12 PM 8/6/2000 , you wrote:
>Is that how it is in Australia?  In the U.S., most, but not all, state
>governments tax income, and I think most tax cap gains as well (although the 
>tax
>rates on each vary significantly from state to state).  But in any case, what
>I'm getting at is this:  have you developed a way to determine the optimum
type
>and size of OTC tax incentive, as well as a way to estimate the revenue
loss in
>order to determine if and what kind of offsetting revenue source might be
>necessary to keep it revenue-neutral?  Or is this something any government
that
>wanted to try it would have to do through trial and error?  When ESOP tax
>incentives were created in the U.S., did this issue come up?  If so, how
was it
>handled?  
>
>
>
>____________________Reply Separator____________________
>Subject:    Re[8]: HOMESTEAD: accounting and time limited investment    
>Author: <EOsubnat@cog.kent.edu>
>Date:       6/8/00 1:22 PM
>
>I assumed that income and capital gains taxes went to the Feds rather than
>to the State?
>
>At 01:11 PM 8/6/2000 , you wrote:
>>Do you think a special tax would be necessary to maintain revenue
neutrality? 
>>It seems possible existing income and cap gains taxes might do the trick.
 But
>>as with any tax incentives, is it possible to measure the resulting tax loss 
>>and
>>gain with enough precision to reassure policy-makers?  
>>
>>____________________Reply Separator____________________
>>Subject:    Re[7]: HOMESTEAD: accounting and time limited investment    
>>Author: <EOsubnat@cog.kent.edu>
>>Date:       6/8/00 12:27 PM
>>
>>Equity Quid Pro Quo for State taxes may well provide sufficient incentive
>>to encourage conversion to an OTC program.  The problem may not be with the
>>ability of the State to provide concessions on land, payroll, sales taxes
>>etc. to initiate such a converson but on obtaining an offset for the loss
>>of State revenues from the ownership transfer.
>>
>>The state may need to introduce a special tax on the income transferred to
>>local citizens by the OTC?
>>
>>Regards
>>
>>Shann
>>
>>At 12:02 PM 8/6/2000 , you wrote:
>>>Basically, I'm trying to figure out if a state government, like Hawaii,
could
>>>put together a tax incentive package on its own (without corresponding
>federal
>>>govt tax breaks) that would be sufficiently lucrative to make a
difference.  
>>>But
>>>I don't think you can tell me that without more info about Hawaii's business
>>>taxes.  
>>>
>>>____________________Reply Separator____________________
>>>Subject:    Re[6]: HOMESTEAD: accounting and time limited investment    
>>>Author: <EOsubnat@cog.kent.edu>
>>>Date:       6/7/00 1:52 PM
>>>
>>>At 01:14 PM 7/6/2000 , you wrote:
>>>>Thanks again for the quick reply.  So based on what you said below and in
>>>>response to Karen May, do you agree with the following statement: 
>>>>
>>>>Even complete tax holidays for firms which choose to become OTCs will not
>>>>guarantee the proliferation of OTCs within the jurisdiction of the
governing
>>>>entity offering the tax holiday if investment opportunities in that 
>>>>jurisdiction
>>>>still are not globally competitive.  AGREED, BUT THIS WOULD ALSO MEAN THAT
>>>INVESTMENTS WOULD NOT BE MADE IN CONVENTIONAL COMPANIES WITH THE SAME
>>>BUSINESS ACTIVITY.  WHAT EVER THE BUSINESS ACTIVITY IT WOULD BECOME MORE
>>>GLOBALLY COMPETITIVE WITH OTC TAX CONCESSIONS NOT AVAILABLE IN CONVENTIONAL
>>>LEGAL STRUCTURES.  I DON'T UNDERSTAND THE POINT YOU MAY BE MAKING.
>>>>
>>>>This also links back to the question I asked you earlier this year re:
>>whether
>>>>or not even the most generous tax breaks on the sub-national government
>level
>>>>would be adequate to entice the creation of a substantial number of OTCs
>>>on the
>>>>sub-national level.  
>>>>
>>>>____________________Reply Separator____________________
>>>>Subject:    Re[5]: HOMESTEAD: accounting and time limited investment    
>>>>Author: <homestead@cog.kent.edu>
>>>>Date:       6/7/00 12:53 PM
>>>>
>>>>At 12:23 PM 7/6/2000 , you wrote:
>>>>>Shann,
>>>>>
>>>>>I'm going to repeat this back to you in my own words to see if I now 
>>>>>understand.
>>>>> 
>>>>>
>>>>>OTC offspring would not get preferential treatment in terms of obtaining
>>>>>financing from the parent OTC.  IT IS NOT THE PARENT THAT PROVIDES FUNDS
>>>>TO THE OFFSPRING BUT THE OTHER WAY AROUND AS THE OFFSPRING WILL NEED TO PAY
>>>>FUNDS TO THE PARENT TO ACQUIRE SECTIONS OF ITS BUSINESS.  THE OFFSPRING
>>>>RAISES FUNDS FROM MAKING A RIGHTS ISSUE TO THE SHAREHOLDERS OF THE PARENT.
>>>>The offspring would have to compete for
>>>>>investment capital along with all other investment options, both local and
>>>>>non-local.  But because the parent OTC was BECOMING locally owned,
>>>>all/SOME profits would be
>>>>>captured locally.  This would increase the locally-controlled pool of 
>>>>>investment. YES AND INCREASE THE PROPENSITY OF LOCAL SHAREHOLDERS IN THE
>>>>PARENT TO FINANCE NEW COMPANIES.
>>>>>capital.  
>>>>>
>>>>>In turn, this would increase the likelihood--but would not
>>>guarantee--that OTC
>>>>>offspring would not have to secure non-local investment capital.  YES
>>>>Therefore,
>>>>>proliferation of the OTC model would not be guaranteed, but would
depend on
>>>>>whether or not the local owners of the parent OTC had a preference for
>local
>>>>>investments even if the potential ROI was less than non-local investments
>>>>after
>>>>>factoring in any local tax incentives for investing in OTCs.  NO. 
>>>>
>>>>THE OTC MODEL COULD BE CONTINUED IN ANY OFFSRPING COMPANY.
>>>>IT WOULD NOT MATTER IF THE INITIAL SHAREHOLDERS WERE OUTSIDERS BECAUSE
>>>>LOCAL OWNERHIIP AND CONTROL IS REGAINED OVER TIME.
>>>>ALL OFFSPRING ENTERPRISES WOULD NEED TO OFFER A COMPETIVE ROI OTHERWISE THE
>>>>BUSINESS WOULD AND SHOULD DIE OUT.
>>>>>
>>>>>Is this correct?
>>>>>
>>>>>Thanks for your time and patience.
>>>>>
>>>>>Tom Brandt
>>>>>
>>>>>
>>>>>
>>>>>
>>>>>
>>>>>____________________Reply Separator____________________
>>>>>Subject:    Re[4]: HOMESTEAD: accounting and time limited investment    
>>>>>Author: <homestead@cog.kent.edu>
>>>>>Date:       6/6/00 4:53 PM
>>>>>
>>>>>Thomas
>>>>>
>>>>>No you did not misunderstand.
>>>>>OTCs automatically transfer any alien ownership to stakeholders who have
>>>>>voting rights to eliminate the export of surplus profits to aliens.  In
>>>>>this way they accelerate the rise in local incomes.
>>>>>
>>>>>Regards
>>>>>
>>>>>Shann
>>>>>
>>>>>At 04:39 PM 6/6/2000 , you wrote:
>>>>>>Please forgive my continued confusion, but I could swear in a recent
>>>posting 
>>>>>>you
>>>>>>reiterated what I thought was your belief that decreasing dependency on 
>>>>>>external
>>>>>>financing was a core component of your efforts to find a way to replicate
>>>>>>Mondragon.  Did I misunderstand that, too?  
>>>>>>
>>>>>>____________________Reply Separator____________________
>>>>>>Subject:    Re[3]: HOMESTEAD: accounting and time limited investment   
>>>>>>Author: <homestead@cog.kent.edu>
>>>>>>Date:       6/6/00 2:03 PM
>>>>>>
>>>>>>Thomas
>>>>>>
>>>>>>New Mondragon coop are financed by their banker not by other coops.
>>>>>>You are quire correct that offspring of OTCs will need to compete
with all
>>>>>>other investment options.
>>>>>>This is a contributing reason of why efficiency is improved.
>>>>>>There is no guarantee for perpetuation of any business.
>>>>>>This is why I call it eclogical ownership as in nature all things must
>die.
>>>>>>
>>>>>>Regards
>>>>>>
>>>>>>Shann
>>>>>>
>>>>>>At 12:48 PM 6/6/2000 , you wrote:
>>>>>>>Thanks for the quick response.  But I'm still confused.  I thought
>>>Mondragon
>>>>>>>created new coops by requiring that some portion of the earnings of the
>>>>>parent
>>>>>>>coop be used as start-up capital for the offspring.  What you are
>>>describing
>>>>>>>below seems different in that it sounds like the offspring will have to
>>>>>>compete
>>>>>>>(with all other investment options) for the investment capital generated
>>>>>>by the
>>>>>>>profits of the parent coop.  If so, how would this guarantee the 
>>>>>>>perpetuation of
>>>>>>>OTCs? 
>>>>>>>
>>>>>>>____________________Reply Separator____________________
>>>>>>>Subject:    Re[2]: HOMESTEAD: accounting and time limited investment  
>>>>>>>Author: <homestead@cog.kent.edu>
>>>>>>>Date:       6/6/00 12:36 PM
>>>>>>>
>>>>>>>Thomas
>>>>>>>
>>>>>>>Offspring companies would be financed by re-investment of the dividends
>>>>>>>from their parent companies.
>>>>>>>
>>>>>>>Parent OTCs will have a much higher dividend payout as they could be
>>paying
>>>>>>>out all their earnings and even some of their non-cash costs such as
>>>>>>>depreciation and depletion allowances.  Shareholders will need to
>>>>>>>continually re-invest their returns.  Shareholders have the choice of
>>>>>>>re-investing in many other situations be it real estate, bonds, regular
>>>>>>>corporations or OTCs.  Corporate re-investment decisions will largely be
>>>>>>>transferred from management to shareholders to improve the efficiency of
>>>>>>>allocating investable funds.  Management will need to continuously
>compete
>>>>>>>for new funds.  This will reduce investments by managers who may be
>>>>>>>motivated by the self-indulgences of management.
>>>>>>>
>>>>>>>Investments in OTCs will be continually self-liquidating.  This is why
>>>>>>>shareholders will continually need to find new investments.  The need to
>>>>>>>create "offspring" corporations to finance expansion will complement
this
>>>>>>>situation by continually creating new investment opportunities.  A much
>>>>>>>more dynamic and competitive capital market is created.  This is why
>I got
>>>>>>>my very early articles published by the Australian Stock Exchange
Journal
>>>>>>>as it provided a way to make stockbrokers a "Growth Industry"!
Something
>>>>>>>they might now be even more interested in as the internet displaces
them.
>>>>>>>
>>>>>>>Hope this clears up the matter.
>>>>>>>
>>>>>>>Regards
>>>>>>>
>>>>>>>Shann
>>>>>>>
>>>>>>>
>>>>>>>At 12:07 PM 6/6/2000 , you wrote:
>>>>>>>>Shann,
>>>>>>>>
>>>>>>>>You probably explain this in many of your writings, some of which I've
>>>>>read. 
>>>>>>>>But I confess that I have forgotten how your offspring financing idea
>>>would
>>>>>>>>work.  If the formation of offspring companies will be necessary to
>>>>>>>finance the
>>>>>>>>growth of OTCs, it is not clear to me from the excerpt below how the
>>>>>>>offsprings
>>>>>>>>will be financed.  From some combo of conventional debt or equity
>>>>>financing? 
>>>>>>>>This is how I interpret the excerpt below, but I know that can't be
>right
>>>>>>>>because you are trying to replicate Mondragon's independence from
>>external
>>>>>>>>financing.  Could you please clear this up for me? 
>>>>>>>>
>>>>>>>>I've also separated out the following sentence because it is
>particularly
>>>>>>>>confusing to me.
>>>>>>>>
>>>>>>>>Aloha!
>>>>>>>>
>>>>>>>>"Investors obtain continuity of investment by taking up new share
>>>issues to
>>>>>>>>create a much more efficient capital market."
>>>>>>>>
>>>>>>>>However, many businesses will want to grow and this will require new
>>>>>>>>investment.  Investors in OTCs will demand full payout of earnings so
>>>>growth
>>>>>>>>will need to be financed by establishing what I refer to as "offspring"
>>>>>>>>enterprises.  I call them offspring because they do not become
>>>>>>subsidiaries of
>>>>>>>>their parent company who gave birth to them.  
>>>>>>>>
>>>>>>>>Offspring companies could be new OTCs formed by a new share issue
to the
>>>>>>>>investors of the parent OTC and any others new investors who took up
>>>shares
>>>>>>>>not first taken up by the parent company shareholders.  The parent
>>company
>>>>>>>>would play the role of the Mondragon "Godfather" who are used to
>>guide the
>>>>>>>>development of new ventures.
>>>>>>>
>>>>>>>Shann Turnbull
>>>>>>>P.O. Box 266 Woollahra, Sydney, Australia, 1350
>>>>>>>Phone: 02 9328 7466 office; 02 9327 8487 home
>>>>>>>Fax: 02 9327 1497 home & office.  Mobile 0418 222 378
>>>>>>>Outside Australia, replace first "0" with "61" after international
access
>>>>>code
>>>>>>>Life long E-mail: sturnbull@mba1963.hbs.edu
>>>>>>>Alternate:sturnbull@optusnet.com.au
>>>>>>>http://members.optusnet.com.au/~sturnbull/index.html
>>>>>>>
>>>>>>>
>>>>>>> 
>>>>>>>
>>>>>>>
>>>>>>
>>>>>>Shann Turnbull
>>>>>>P.O. Box 266 Woollahra, Sydney, Australia, 1350
>>>>>>Phone: 02 9328 7466 office; 02 9327 8487 home
>>>>>>Fax: 02 9327 1497 home & office.  Mobile 0418 222 378
>>>>>>Outside Australia, replace first "0" with "61" after international access
>>>>code
>>>>>>Life long E-mail: sturnbull@mba1963.hbs.edu
>>>>>>Alternate:sturnbull@optusnet.com.au
>>>>>>http://members.optusnet.com.au/~sturnbull/index.html
>>>>>>
>>>>>>
>>>>>> 
>>>>>>
>>>>>>
>>>>>
>>>>>Shann Turnbull
>>>>>P.O. Box 266 Woollahra, Sydney, Australia, 1350
>>>>>Phone: 02 9328 7466 office; 02 9327 8487 home
>>>>>Fax: 02 9327 1497 home & office.  Mobile 0418 222 378
>>>>>Outside Australia, replace first "0" with "61" after international access
>>>code
>>>>>Life long E-mail: sturnbull@mba1963.hbs.edu
>>>>>Alternate:sturnbull@optusnet.com.au
>>>>>http://members.optusnet.com.au/~sturnbull/index.html
>>>>>
>>>>>
>>>>> 
>>>>>
>>>>>
>>>>
>>>>Shann Turnbull
>>>>P.O. Box 266 Woollahra, Sydney, Australia, 1350
>>>>Phone: 02 9328 7466 office; 02 9327 8487 home
>>>>Fax: 02 9327 1497 home & office.  Mobile 0418 222 378
>>>>Outside Australia, replace first "0" with "61" after international access
>>code
>>>>Life long E-mail: sturnbull@mba1963.hbs.edu
>>>>Alternate:sturnbull@optusnet.com.au
>>>>http://members.optusnet.com.au/~sturnbull/index.html
>>>>
>>>>
>>>> 
>>>>
>>>>
>>>
>>>Shann Turnbull
>>>P.O. Box 266 Woollahra, Sydney, Australia, 1350
>>>Phone: 02 9328 7466 office; 02 9327 8487 home
>>>Fax: 02 9327 1497 home & office.  Mobile 0418 222 378
>>>Outside Australia, replace first "0" with "61" after international access
>code
>>>Life long E-mail: sturnbull@mba1963.hbs.edu
>>>Alternate:sturnbull@optusnet.com.au
>>>http://members.optusnet.com.au/~sturnbull/index.html
>>>
>>>
>>> 
>>>
>>>
>>
>>Shann Turnbull
>>P.O. Box 266 Woollahra, Sydney, Australia, 1350
>>Phone: 02 9328 7466 office; 02 9327 8487 home
>>Fax: 02 9327 1497 home & office.  Mobile 0418 222 378
>>Outside Australia, replace first "0" with "61" after international access
code
>>Life long E-mail: sturnbull@mba1963.hbs.edu
>>Alternate:sturnbull@optusnet.com.au
>>http://members.optusnet.com.au/~sturnbull/index.html
>>
>>
>> 
>>
>>
>
>Shann Turnbull
>P.O. Box 266 Woollahra, Sydney, Australia, 1350
>Phone: 02 9328 7466 office; 02 9327 8487 home
>Fax: 02 9327 1497 home & office.  Mobile 0418 222 378
>Outside Australia, replace first "0" with "61" after international access code
>Life long E-mail: sturnbull@mba1963.hbs.edu
>Alternate:sturnbull@optusnet.com.au
>http://members.optusnet.com.au/~sturnbull/index.html
>
>
> 
>
>

Shann Turnbull
P.O. Box 266 Woollahra, Sydney, Australia, 1350
Phone: 02 9328 7466 office; 02 9327 8487 home
Fax: 02 9327 1497 home & office.  Mobile 0418 222 378
Outside Australia, replace first "0" with "61" after international access code
Life long E-mail: sturnbull@mba1963.hbs.edu
Alternate:sturnbull@optusnet.com.au
http://members.optusnet.com.au/~sturnbull/index.html