You can find the entire proposal here.
GPR (general purpose revenue) projections for the fiscal year 2012-2013:
Income Tax 51%, Corporate Tax 7%
"Economic Development
With the enactment of the Wisconsin Economic Development Corporation during the recent special session on job creation, the state took a huge step forward in terms of its ability to increase economic development in Wisconsin. As a public-private authority, this entity will be more nimble, creative and most importantly, faster in its response to the needs of the businesses that Wisconsin is trying to retain, grow and attract from other states. To that end, the bill provides $98.8 million in fiscal year 2011-12 and $97.5 million in fiscal year 2012-13 to fund economic development programs and operations. This amount includes ongoing funding for regional economic development organizations.
The corporation will have responsibility for administering tax credit certification and the brownfields grant program. Rather than having every economic development grant and loan program enumerated in statutes, however, the corporation will establish by-laws that will direct the use of grant and loan resources."
Interpretation: Corporations receiving grants and loans will direct the use of these dollars in whatever manner they see fit. While there is some state oversight it seems to be retroactive and mostly consists of the state officials who have promoted these measures in addition to "individuals from the private sector."
"First, the treatment of capital gains that are invested in Wisconsin-based businesses has been modified in two ways to make businesses in this state more attractive to investors. The first of these changes is providing a 100 percent exclusion for capital gains realized on Wisconsin-based capital assets held for five or more years. To qualify, a business must be certified by the Wisconsin Economic Development Corporation to have 50 percent or more of its payroll and property located in Wisconsin during three of the first five years of the period during which the asset is held. The Governor also recommends providing a 100 percent capital gains realization for gains reinvested in Wisconsin-based businesses at the time the investment is made to provide an incentive to investors who are realizing gains to reinvest in Wisconsin."
"Second, the job tax credit, which is aimed at business attraction and expansion and is only available to certified businesses that increase new employment, is modified to delete the upper wage limit, but establish a maximum annual credit of $10,000 per job. As long as the state does not incur any additional cost, there is no reason to discourage companies with high-paying jobs from establishing their businesses in Wisconsin."
Interpretation: Job tax credits are an interesting concept, i believe this is greater than the original maximum job tax credit which amounted to $1/day per new worker. I will amend as I gather more information.
"Third, to encourage private investment in entrepreneurial activities, the bill will allow tax-option corporations that are nonoperating entities to claim angel investments credits for investments in new business ventures. In addition, the holding period will be extended from one to three years for early stage seed or angel investments made after December 31, 2007."
Interpretation: While there is certainly an argument for angel investment tax credits I believe there are also many fallacies in this model. Last I checked Wisconsin had a 25% tax credit with a maximum credit of :
"(a) $4,000,000 in qualified investments for taxable years beginning before January 1, 2011(a) $4,000,000 in qualified investments for taxable years beginning before January 1, 2011."
"(b) $8,000,000 in qualified investments for taxable years beginning after December 31, 2010." source
The clause in this budget proposal includes LLC's and Sub-S corporations as qualifying for these credits, though they are by nature in a lower tax bracket than a regular corporations. Here is a telling definition of an LLC from the irs, "Most states also permit “single member” LLCs, those having only one owner." Yes Wisconsin is a state that allows single owner LLC's. So is Governor Walker opening these tax credits to potential individual investor's? another telling aspect is that he wishes to make this change retroactively to Jan 1, 2008. Who stand to gain from this? Are we now promoting bringing in new business which has potentially been established for three years. That seems a loophole that again benefits only the banker?
These are tax breaks that go directly to venture capitalist firms and from my viewpoint provide leverage for investors to use against state competing for business. There is no benefit directly to the start-up companies seeking venture capitalist funds and only provide incentive for a venture capitalist to dictate where a start-up will locate their business. These start-ups are subject to excessive interest rates from these venture capital firms. The venture capitalist by nature is not as risk averse as a standard lender, which dictates the higher interest rates he may charge. Angel investments by nature are likely a good thing but when used to leverage competing states through tax credits I see it as a banker's tool for further profiting from the taxpayer's. I will follow up on this as I collect more information on the nature and viability of angel investments.
I am also extremely dubious of Governor Walker's plans for debt appropriation and reallocation as well as some of the economic forecasts at the end of his proposal. I am reminded of the California budget crisis and the direct relationship to mismanagement of debt. I would love to hear any insight you may have, more to follow....
I enjoyed reading your post, however I think I see it differently. You seem upset that the government will not be able to control how the companies spend their money. I think it would be just fine for the company to decide how to spend their money. I also believe, with less government monitoring to pay for, there would be more money to have for police and fireman.
ReplyDeleteAlso, you asked why go back to 2008? In the first paragraph, Walker says, "Wisconsin is trying to retain, grow and attract from other states." I believe the 2008 money would be included in the "retain" and also the "grow."
Peace and Anarchy
M
Thanks for your input Matthew, it is great to hear differing viewpoints in order to reach reasonable conclusions regarding issues that we care about. Your point is well taken regarding the case of state loans made to businesses, I am primarily concerned with the grant aspects. An extreme and unlikely case would be state tax dollars used for executive bonuses, just an example and hopefully not a valid one. I will look forward to seeing who receives tax dollars for this proposal and who is appointed by the state to oversee these allocations.
ReplyDeleteI am dubious of this proposal as it is taking tax dollars which primarily come from citizens and allocating it to corporations.
I spent a good deal of time researching angel investments yesterday, and will be posting some of what I found on here shortly. My one point to retroactive tax credits for angel investors is that these tax credits will go to bankers who have already invested in Wisconsin since Jan. 1, 2008. This seems to me a tax credit for jobs that have been in Wisconsin for up to three years, is it generating jobs moving forward?
Thanks again for your input, I would love to hear any and all feedback and am always looking for resources. Evan
I hear you Evan, btw I read your post because my brother shared you on facebook. However I remain un-dubious of a plan that funnels tax dollars from citizens to corporations, and here is why. For starters, a dear friend of mine and his wife have filed paperwork to become a corporation. Currently he works for a law firm and his wise runs the home. They do not have their corporation launched, so they would certainly enjoy some tax relief to pay for their R&D costs. Yet, if we exclude the brand new start up corporation, and look toward the "evil" corporation, Walker has plans for at least 50% of company assets need be in Wisconsin. . . so it is a win-win, if someone like Pepsico decides to take advantage of this tax break, then Wisconsin gets 50% of all their buildings, etc. (this is not possible).
ReplyDeleteI too like to discuss with differing viewpoints. As for the angel investors, I am not too familiar with them, but will read your post.
M
Hey thanks for your interest and your insight Matthew, it is much appreciated. Since my reply to your comment I have been researching the programs that have been in Ohio for almost a decade. Their Third Frontier Program could well be a model for business investment in many states. You can find a link in my most recent post for more information on this.
ReplyDeleteI firmly agree with you that tax dollars are needed to support business development and growth, I am only questioning the methods. Investor tax credits are part of the Ohio program but they have implemented a far more comprehensive approach which provides grant money to developing businesses in the initial and growth phases. I have not yet studied in depth the report by SRI International and Georgia Tech regarding the Ohio program but I am sure that if you check it out you could provide valuable insight into the nuances. Perhaps your state (Pennsylvania?) ought to look into a model such as this. What I have read tells me that this program has greatly helped to transform Ohio's economy from one of manufacturing to attracting more high tech related jobs. They have received just under $10 for every dollar spent in return. 41,300 jobs were created through this program with an average salary of about $58,000 per job. Last year Ohio passed a $700 million bond issue in a public vote with bipartisan support to keep this program moving forward.
Angel investors are a much needed part of this economy as venture capitalists become more risk averse and are trending towards investing in more established businesses. Tax credits for these investors are not bad since the business and most of the time the investor are within the given state's. There needs to be more done to provide developing businesses with funds at the seed stages. Capital gains tax breaks would seem to benefit a more established business.
I would be surprised if your state does not have programs which connect angel investors with developing businesses such as your friend's. I have been saving most links that I find useful and would be happy to share them with you. I also found an article today in The Nation regarding national debt and some misconceptions as seen by the author William Mitchell. Good food for thought, you can find a link to the article at the bottom of my blog. Thanks again for your input, it is always appreciated, peace.