35 or number four

The Tax Foundation has a new study on one of this blog’s favorite subjects, state business climate.

Location Matters: A Comparative Analysis of State Tax Costs on Business compares the states’ business tax structure as they affect two types of companies — “mature firms,” companies 10 years or older, and “new firms,” younger than three years old.

You can probably guess from the headline (my effort to write headlines based on Chicago songs) where Wisconsin ranks — 35th for “mature firms” and fourth for “new firms.” The difference is that, as the study puts it, “Mature firms are typically no longer eligible for any tax incentive programs while the new facility would be eligible for most incentives.”

The study compares the states’ business taxes as of April 1. That date is three months before this state’s 2011–13 state budget became law. The 2011–13 budget included a small number of business tax improvements, but not nearly enough of them.

The Tax Foundation expands on its new vs. old company rankings by ranking the tax climate for mature and new corporate headquarters, R&D facilities and retail stores in metropolitan areas the size of Milwaukee, along with call centers, distribution centers, and capital- and labor-intensive manufacturing firms in metropolitan areas the size of Eau Claire. The study concludes that corporate headquarters, R&D facilities and retail stores are more likely to be found in Milwaukee-size areas, where call centers, distribution centers and manufacturers are more likely to be found in Eau Claire-size communities. (For instance, there is Convergys in Appleton, ShopKo’s distribution center is in De Pere, and Northeast Wisconsin is full of fire truck manufacturers.) Taxes measured include corporate net income taxes, gross receipts and franchise taxes, property taxes, unemployment insurance taxes, and sales taxes on “business equipment, machinery and inputs.”

For mature firms, Wisconsin ranks 38th for corporate headquarters, 16th for R&D facilities, 37th for retail stores, 19th for call centers, 34th for distribution centers, 42nd for capital-intensive manufacturing, and 39th for labor-intensive manufacturing. For new companies, Wisconsin ranks third for corporate headquarters, fourth for R&D facilities, 40th for retail stores, second for call centers, 29th for distribution centers, 14th for capital-intensive manufacturing and sixth for labor-intensive manufacturing.

Explanations for the rankings, from best to worst:

Call centers: “This operation has the lowest income tax costs in the nation due to the state’s generous job and investment tax credits and the sourcing rules that place the operation’s income out of state where the benefits are received. Additionally, the state offers the highest withholding tax rebate in the nation.”

R&D: “The main driver is that this operation has no income tax burden, due to the state’s R&D tax credit and sourcing rules that place much of the operation’s income out of state where the benefits are received. This operation also faces the ninth-lowest sales tax burden in the nation.”

Retail: “The main factor is that this operation faces the ninth-highest property tax burden in the nation, as well as the tenth highest unemployment insurance tax burden.”

Manufacturing: “The main factor is that the income tax burden is seventh-highest in the nation, in part because the state disallows the manufacturing deduction and has a throwback rule on tangible property sales, which exposes all of the operation’s income to in-state tax.”

One of the most surprising revelations is how poorly Wisconsin ranks in manufacturing taxes given how much manufacturing takes place in Wisconsin. The reason may be summed up in three words: “because we can.” State government policy seems to assume that established manufacturers can be heavily taxed because they can’t go anywhere else. People in Janesville, former home of a General Motors plant, and Kenosha, former home of a Chrysler plant, might disagree with that assumption.

The report says this about manufacturing taxes:

The common elements of these 10 highest tax cost states are high corporate income tax burdens and high property tax burdens. All of these states employ a throwback or throwout rule in their apportionment formula and most of them have relatively high corporate income tax rates. …

Many of these states have either high property tax rates on land, buildings, and equipment, or broader property tax bases that include inventories. … There are nine states that tax inventories in addition to land, buildings, and equipment, four of which are represented in this group of uncompetitive states: Arkansas, Mississippi, West Virginia, and Wisconsin.

About Wisconsin’s new-firm rankings, the report says:

Six of the 10 states with the lowest tax burdens for mature firms are also among the 10 states with the lowest tax burdens for new firms. By and large, some of the same factors that lower the tax burdens for mature firms also benefit new firms. These include such things as the lack of an income tax in Wyoming, a low-rate gross receipts tax in Ohio that only taxes in-state sales, or a single-sales factor in Georgia, Louisiana and Nebraska. Indeed, other states such as Wisconsin, Oklahoma, Kentucky, and Arkansas – which were not in the top 10 for mature firms but do rank in the top 10 for new operations – also weight their apportionment factors toward sales.

Why do these states rank well overall for new operations? The other common trait that binds these states is that they tend to be very aggressive with tax incentives for new operations. … Wyoming stands out from the pack because it achieved a top 10 ranking without offering targeted tax incentives. Of course, it could be argued that Wyoming’s greatest “incentive” policy is simply not levying an income tax. …

Arkansas, Kentucky, Oklahoma, and Wisconsin all went from ranking in the middle of the pack for mature firms to ranking in the top 10 states for new firms because of the extent of their tax incentive programs. In each of the seven firm types, Wisconsin and Arkansas in particular are consistently among the most generous states in offering a complete array of tax incentives, from property tax abatements to job credits.

Put the measures together, and one can conclude that this state’s tax structure is good for new firms, but not good for existing firms — sort of a carrot-then-stick approach, or a bait-and-switch approach, as if state government policy is to dangle incentives to get firms here, then tax them to the eyeballs assuming they’d never leave or scale back their Wisconsin operations. The former are able to use such tax incentives as new-job-creation tax credits (which “must generally be considered ‘qualified’ by state officials and only be available to certain types of industries”) and payroll tax rebates, investment tax credits, R&D tax credits, and property tax abatements.

Is that a good approach? The study notes:

While many state officials view tax incentives as a necessary tool in their state’s ability to be competitive, others are beginning to question the cost-benefit of incentives and whether they are fair to mature firms that are paying full freight. Indeed, there is growing animosity among many business owners and executives to the generous tax incentives enjoyed by some of their direct competitors.

Put another way, established businesses are paying for the incentive programs used by new businesses, which could be their potential competitors for customers and employees. It could be seen as the Social Security system in reverse if such programs were financially self-contained. (Communities’ revolving business loan funds operate similarly.) This is related to tax-incentive programs for favored industries, such as “green” energy, and we’ve seen how well that’s worked out the past couple of years. If it’s dangerous to use the tax laws to favor certain industries and not others, it’s also dangerous to use the tax laws to favor certain-age businesses and not others.

A state that has a corporate income tax (a tax on profits) instead of a gross receipts or business activity tax (a tax on business revenue, whether profitable or not) obviously will tax new businesses less than established businesses, because it takes time for new businesses to become profitable. Given that no enterprise survives long if it sends out more money than it takes in, a business that’s been in business more than a decade is probably making money, while a business that’s less than three years old may not be yet, depending on the financial contributions of the owners.

Economists will tell you that employment growth is more often found in new businesses. That makes logical sense; for a business that didn’t exist a year ago, its employment from then until now is infinite if it hires one employee, and employment growth doubles if it hires one more employee the next year. A mature business has probably figured out how many employees it needs to do  business, and without growth, it has little reason to substantially grow its employment. So new business incentive  programs do have a rationale that makes sense behind them.

On the other hand, go to any community, and the largest private-sector employers are among that community’s oldest private-sector employers. Those are the companies that can afford more employee benefits and that make bigger contributions to their communities, whether that means large-scale United Way involvement or their own favorite local causes. So why should tax policy favor new businesses over established businesses?

There is also this reality the study notes:

For the purposes of this study it is assumed that the business bears the entire burden of the tax, which is why the owners are so sensitive to the costs and why states compete to offer tax incentives. Economists, however, typically look at business taxes in terms of who bears the actual economic burden of the tax, not just the legal burden. That is because corporations are simply legal entities, not people per se. In economic terms, the real burden (or incidence) of business taxes is borne by customers through higher prices, workers through lower wages, or owners and shareholders through lower returns on their investment.

Any one of those groups — business customers, workers, and business owners and shareholders — can use the money government siphons off better than government can.

This study’s results are ironic as well given that the same Tax Foundation ranks Wisconsin 43rd in its 2012 State Business Tax Climate Index — 32nd in corporate taxes, 45th in personal income taxes, 16th in sales taxes, 21st in unemployment insurance taxes, and 32nd in property taxes. Location Matters measures only taxes (as well as tax incentives) on business. The State Business Tax Climate Index includes personal income taxes (where Wisconsin ranks worst) and counts them most, in keeping with the large number of sole proprietors, partnerships, subchapter-S corporations and similar corporate entities in which profits and losses flow through to the shareholders. Sales taxes rank second, since sales taxes certainly affect how much product or service someone can buy.

The ultimate measure of business climate is the state’s economy. And Wisconsin ranks poorly in such business-vitality measures as start-ups and incorporations, in-state corporate headquarters, and abysmally in venture capital spending. The state’s residents, which include business owners as well as their employees, have trailed the nation in per capita personal income growth since “Star Wars” and “Saturday Night Fever” were premiering in a movie theater near you. Gov. Scott Walker and the state Legislature have a lot more work to do.


The Weekly Newspaper of the Year

This week’s Ripon Commonwealth Press has most impressive news:

Commonwealth judged best weekly paper in Wisconsin

After a 10-year hiatus, the Ripon Commonwealth Press once again has been named the best weekly newspaper in Wisconsin.

After being judged against the 190 other weekly publications across the state, the Wisconsin Newspaper Association named it the Weekly Newspaper of the Year Friday night.

The Commonwealth Press won 13 first-place awards, 11 second-place awards and nine third-place awards in competition against other weekly newspapers in the state.

Publisher Tim Lyke told his fellow newspaper publishers that “We are fortunate in Ripon to have readers and advertisers who expect and deserve a newspaper that strives every week to live up to the excellence of the community we serve.”

As one of his readers (and an occasional advertiser through our church) who doubles as an ink-stained wretch who used to do the sort of things the Commonwealth Press editorial staff does and still sends them news releases, I have to publicly congratulate the Commonwealth Press for its superior journalism in an increasingly difficult journalistic and business environment for superior journalism.

Editor Ian Stepleton credits the Commonwealth Press’ readers:

I have a different perspective on this “victory,” largely because I know why we won.
As I’ve discovered over the almost 18 years I’ve lived here, Ripon is one special, unique place.
… And that is why we won Newspaper of the Year.
… Where else, all in one spot, can you find:
* People so engaged — for the past 150-plus years — that they not only have changed their community, but the nation (and arguably the world as well)
* A top-notch college that is so closely tied to its community
* Such technological innovation from which local names have become household brands
* Residents so motivated that nothing can hold them back, such as the late Jeanne Bice (the ultimate Quacker herself), Trent Baalke (49ers general manager), Harrison Ford (actor), Al Jarreau (jazz musician), etc.
As has sometimes been said, all roads lead to Ripon — even in a metaphorical sense, it seems.
It just goes to show this community has many, many reasons to be proud.
We at the Commonwealth are just lucky enough to be here to chronicle them.

Having exited the weekly newspaper world nearly two decades ago (while still getting occasional urges to go back — the first sign of  recovery from addiction is admitting your addiction, right?), I’m a bit envious of the Commonwealth Press. I won two WNA first-place awards for sports writing, and the newspaper we co-owned, the Tri-County Press in Cuba City, won a Most Improved Newspaper award. We did really good work at the Grant County Herald Independent in Lancaster (including for the murder trial I covered), but we won neither a General Excellence award nor a Newspaper of the Year award in my three years in Lancaster.

Of course, the purpose of journalism is not to win awards for yourself or your media outlet. The purpose of journalism is to report what’s going on so that your readers, listeners and viewers are better informed. If you want to know what’s happening in Ripon, you have to read the Commonwealth Press. (Not everything, of course, because one obligation of journalists is to report the provable truth.)

Perhaps the most impressive thing is the number of first- and second-place awards for the Commonwealth Press’ coverage of the Ripon area’s interesting (as in the Chinese curse “May you live in interesting times”) news year. That includes the recall election of state Sen. Luther Olsen (R–Ripon), the problems with the Boca Grande downtown redevelopment project, the controversy over the Rosendale Dairy megafarm and its effect on area groundwater, and the often-dysfunctional relationships in Green Lake city government.

This is despite the fact that the Commonwealth Press doesn’t really have news media competition. That is not a comment about the staff at the local radio station, which at least does some local news coverage. That is a comment about the owner of said local radio station, who needs to devote his own resources (some of which come from our church, which is why I get to write this paragraph) to local news coverage, such as having his staff attend city council and school board meetings to report thereupon. One of the Commonwealth Press’ supposed daily newspaper competition is well known (to which I can personally attest) for being unable to be bothered to cover events that occur weekdays after 5 p.m. or on weekends.

As an opinionmonger (who also blogs on the Commonwealth Press’ website), I particularly applaud the first-place award for the Commonwealth Press’ opinion pages. A lot of newspapers think printing letters to the editor suffices as an opinion section. It doesn’t. A lot of newspapers think printing controversial opinions will make advertisers angry enough to stop advertising, and readers angry enough to cancel their subscriptions. They might. Neither is an insignificant concern,  given that readers’ eyeballs are what compel advertisers to advertise, and given the diminishing small-town newspaper advertising base.

Economic pressures are making weekly journalism difficult. Print journalism is still trying to figure out how to use the Internet to get people to pay for their product instead of putting it online for free. The traditional advertiser base for small-town newspapers, local retail businesses, is being eroded by the growth of big-box and online retailers. If your two biggest revenue sources are readers’ subscriptions and advertising, and both are eroding for demographic and economic reasons, well, you can see the challenge.

One solution is for a company to purchase and operate several newspapers. (When I started in Grant County in 1988, my employer owned two newspapers and one shopper. By the time I left in 1994, he was up to five newspapers and two shoppers. He was then bought out by a company that now owns nine southwest Wisconsin newspapers, including most of our former print competitors. Another former employer owns not just the state’s largest newspaper, but many weekly newspapers as well. The nation’s largest newspaper owner, Gannett, owns 10 Wisconsin daily newspapers.

Whether chain ownership is a good thing or not depends on who the owner is. Chain ownership allows such production functions as printing, accounting and circulation to be done centrally, which, in the case of good owners, allows more resources to be devoted to the editorial product. On the other hand, Gannett owns the aforementioned 9-to-5 newspaper.

The Commonwealth Press is a throwback in that the Commonwealth Press is Ripon Community Printers’ only newspaper. (I’ve suggested to the publisher more than once, in fact, that their brand of journalism could serve other communities too.) Ripon Community Printers is one of the state’s largest printing companies and one of Ripon’s largest employers, with a worldwide customer base. (Including, of all things, Polish-language Chicago phone books.)

The Commonwealth Press is not perfect. (I used to repeat the old saw that if I ever published a mistake-free issue, that would be my last day in print journalism.) My four years on the Ripon Plan Commission included two run-ins with the Commonwealth Press where the newspaper mischaracterized things I said during Plan Commission meetings. (Part of that was my forgetting or ignoring the indisputable fact that anything you say at a public meeting can and may be used by the news media present.) In one instance the Commonwealth Press commented negatively on something I said at a meeting that no one from the Commonwealth Press attended. The following week’s Commonwealth Press included a pointed letter from the wrongly criticized Plan Commission member, which they printed.

Some claim the Commonwealth Press is excessively deferential to the powers-that-be in Ripon. (That’s a common complaint of weekly newspapers, and sometimes valid, sometimes not.) The Commonwealth Press’ sports coverage well covers the local teams, but has a strange habit of not mentioning their opponents by player names. (It’s the print equivalent of the late Ripon sports announcer Jack Arnold, who sounded as if he was calling a game featuring an Asian team, given that every opponent’s name was “He.”) And one of the newspapers’ readers is known in the office for sending emails when he sees prominent typographical errors. (The Commonwealth Press has a habit of dropping the second E from the word “eyeing.”)

These past two paragraphs are an example of the life of a weekly newspaper. Every Wednesday afternoon the newspaper gets delivered to the front door. Every Wednesday evening my wife and I read it. Fifty-two issues a year are 52 opportunities to mess up something, inaccurately or incompletely report something, or make someone angry at you. In my year and a half as an editor and co-publisher, I often felt as though the power structure of our home  community was against me, until I learned after we left that I had become a comparative paragon of weekly journalism. My former boss and business partner used to say that our subscribers liked to hate the newspaper, and if “hated” meant nitpicking beyond reason and attributing motives and agendas where none existed, he was right.

If you do anything for public consumption 52 times a year, you’re going to be criticized for something. Whether they get it right in every instance (and no journalist ever does), the Commonwealth Press is a must-read for those who care about what’s happening in Ripon. That’s more important than getting a Newspaper of the Year award, as I suspect the Commonwealth Press staff would tell you. Nevertheless, the Commonwealth Press deserves congratulations for publishing a newspaper worthy of Ripon.

Presty the DJ for March 1

Today in 1961, Elvis Presley signed a five-year movie deal with producer Hal Wallis.

Today in 1966, Gene Clark announced he was leaving the Byrds because of his fear of flying.

Today in 1969, Jim Morrison of the Doors was arrested on charges of lewd and lascivious behavior during a concert at the Dinner Key Auditorium in Miami.

Morrison was found guilty and sentenced to eight months hard labor.

He was appealing the charges when he died in 1971.

Florida Gov. Charlie Crist gave Morrison a posthumous pardon in 2010.

Today in 1975, the Grammy Awards handed out Grammys for a Paul McCartney single and the Stevie Wonder album “Fulfillingness First Finale”:

The number one British single today in 1980:

Today in 1986, Mr. Mister had the number one album, “Welcome to the Real World,” and single:

Today in 1990, Janet Jackson began her Rhythm Nation 1814 tour in Miami with a live panther.

Jackson fired the panther later in the spring over crowd safety concerns and the fact the panther kept urinating on the stage.

The winner of three Grammys today in 1995

Today in 1997, a New Jersey judge dismissed a lawsuit filed by a Motley Crue concert-goer who claimed his hearing had been irreparably damaged.

The judge said the man, who had sat in front of the stage, knew the risk he was taking.

Birthdays begin with Harry Belafonte:

Jerry Fisher sang for Blood Sweat and Tears:

Mike d’Abo sang for Manfred Mann:

Roger Daltrey of the Who:

Nik Kershaw:

One death of note today in 2005: Chris Curtis, drummer for the Searchers: