Re: HOMESTEAD: accounting and time limited investment

To: EOsubnat@cog.kent.edu
Subject: Re: HOMESTEAD: accounting and time limited investment
From: Karen May <kmay@igc.org>
Date: Fri, 09 Jun 2000 11:37:29 -0500
Organization: The Council for Hometown Jobs and Growth
References: <0006089605.AA960517416@mail.dbedt>
Reply-to: EOsubnat@cog.kent.edu
Sender: owner-eosubnat@cog.kent.edu

A good resource for tax-subsidy and job/revenue impact reports (federal
and state-by-state comparisons) can be found at www.goodjobsfirst.org . 
The premise of the site is that the "expert" projections vastly
overestimate actual impacts; the group calls for greater
accountability.  
Karen

Thomas Brandt wrote:
> 
> Shann,
> 
> That's what I thought would be the case.  But is it not possible to argue--at
> least theoretically-- that OTC tax incentives could be revenue neutral without
> adding an offsetting revenue source because more profits will be captured
> locally (and therefore subject to local taxation) while also potentially
> increasing productivity and generating all the other benefits we hope more 
>local
> ownership will generate?  I would think this argument could be made at least 
>as
> rigorously as those who think unconditional tax cuts will be revenue-neutral
> without adding an offsetting revenue source because they think such cuts will
> result in more growth which will expand the tax base.
> 
> As far as I know, no one can prove conclusively that a tax cut of any given 
>size
> will result in specific quantifiable increase in jobs, consumer spending, or
> investment.  For example, when Hawaii enacted an across-the-board tax cut a
> couple of years ago, various "experts" were trotted out to estimate the number
> of jobs that would be created as a result.  There were huge differences in 
>these
> "expert" estimates.   As a result, the tax cut that was actually adopted was
> based simply on what the state govt thought it could afford, and how much it
> would improve Hawaii's ranking relative to other US states.
> 
> ____________________Reply Separator____________________
> Subject:    Re[9]: HOMESTEAD: accounting and time limited investment
> Author: <EOsubnat@cog.kent.edu>
> Date:       6/8/00 11:01 PM
> 
> 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
> 
> 
> 
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>    RFC822.TXT    Type: Plain Text (text/plain)
>              Encoding: 7bit

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References:
- Re[10]: HOMESTEAD: accounting and time limited investment
  - From: "Thomas Brandt" <tbrandt@dbedt.hawaii.gov>

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