Growth & Justice Blog

Will low-tax Colorado drive away drill-baby-drillers?

I spend parts of the year in western Colorado, where the oil and gas boom is causing the local economy to behave in ways that don't always track the rest of the nation's. For example, the housing boom is only starting to tail off here, and local businesses have a hard time finding employees because the oil patch pays much higher salaries for minimally skilled positions.

But in one respect, Colorado is like everywhere else: It has businesses complaining that higher taxes will drive them to other states. And no one cries louder than... the high-paying energy industry!

Now, even in this "drill, baby, drill" age, it should be apparent that oil and gas producers are not going to pull up stakes and head for New Hampshire or Indiana. If they want to drill, they have to go where the resources are.

For now, those untapped oil and gas deposits are in Colorado, Wyoming, New Mexico, Utah and Montana. And guess what? Colorado has the lowest effective tax rates on energy production among those states.

According to a study by Montana-based Headwaters Economics, an independent nonprofit research group, as of 2006, the rates ranged from 6.2 percent in Colorado to 15.9 percent in Wyoming.

So in effect, the companies that have been flocking to Colorado to bid for new oil leases are saying, don't raise our taxes or we'll leave — for states with the same or higher tax rates. (The industry says wells in high-tax Wyoming are more efficient and productive, so they can still better afford to operate there.)

It remains to be seen whether the companies will pull their rigs if their taxes go up. But the impact is clear when states pursue low-tax policies to attract more energy development. It has been... well, it's been lower taxes and lower state revenues — not more drilling.

According to a news report on the Headwaters Economics study:

Wyoming considered reducing its production tax rate to attract more industry investment, but decided against it. Yet the state is experiencing an energy boom, and reaping the benefits of keeping its taxes higher, [Headwaters staff member Mark] Haggerty said.

Montana, in contrast, cut its energy taxes, but there’s no evidence that increased energy production resulted, and it gave up about half a billion dollars in tax revenues in the process, he said.

Meanwhile, the states pay higher costs — for schools, road maintenance, environmental impacts and law enforcement driven by the influx of energy development.

No state should discount the potential impact of taxes on economic development, but as the energy boom shows, taxes are only one factor in determining where businesses locate.

— Charlie Quimby

Moving toward more sustainable, efficient and affordable transportation

Next year Congress is slated to take critical action on federal legislation that will shape most of the nation’s transportation system for years to come — action that could steer our nation toward more sustainable, efficient and affordable transportation. 

Congressional reauthorization of this surface transportation legislation presents an excellent opportunity for smart thinking about how best to invest public sector dollars in ways that spur growth and expand economic prosperity for all Americans, right in keeping with the Growth & Justice philosophy. 

A national coalition called Transportation for America (T4America) issued an ambitious call this month for a federal transportation package that deals with transportation challenges and policies in a broader context of important national policy issues, including economic opportunity, climate change, energy security, health, housing and community development.

T4America’s brief, five-point platform [download pdf] points out the national economy depends upon our network of roads, rails, transit lines and pathways but notes, too, that the transportation network is in disrepair and offers too few affordable, efficient and convenient options to too few Americans.

The five points from T4America are sensible enough: Modernize and expand the nation’s transit and rail network to reduce our dependence on oil and to better connect metro regions.

• Modernize and expand the nation’s transit and rail network to reduce our dependence on oil and to better connect metro regions.
• Invest in cleaner, greener modes of transportation, including transit, bikeways and walkways.
• Invest in and restore existing highways, bridges and transit systems before building new roads that will require more public dollars for maintenance and repair.
• Stop wasteful spending on federally funded projects that offer little in the way of economic return and on projects that increase our dependence on oil.
• Offer more affordable and efficient transportation options to help Americans avoid traffic congestion and high gas costs, and promote housing options that match well with new possibilities offered by the evolving transportation system.
  

T4America says these policy pathways will benefit the nation by reducing the transportation costs for American families, creating jobs, reducing our dependence on oil, helping communities cope with traffic congestion, reducing the carbon emissions that contribute to climate change, and restoring neighborhoods that retain their value as places because of their transportation networks and their access to job sites.

Congress would be wise to consider the T4America platform as it begins work on the federal transportation package that will lay out specifics for the next six years of investments, policies and choices regarding highways, bridges, transit, safety, and bike and pedestrian routes. 

The ideas in the platform undoubtedly will get fair airing from Minnesota Congressman Jim Oberstar as he leads the federal reauthorization effort from his position as chair of the U.S. House’s Committee on Transportation and Infrastructure.  Good thing.

— Matt Kane

Joe the Plumber: Stopped by taxes?

Joe wants to buy the business that he has been in for all of these years, worked 10, 12 hours a day. And he wanted to buy the business but he looked at your tax plan and he saw that he was going to pay much higher taxes.

You were going to put him in a higher tax bracket which was going to increase his taxes, which was going to cause him not to be able to employ people, which Joe was trying to realize the American dream.
— John McCain during the last presidential debate

As a former small business owner hearing Joe Wurzelbacher’s story during the last presidential debate, I was immediately skeptical. The snippets about his business aspirations didn’t add up, and when I dug into the story, it was clear none of the parties — including Joe — really understood his situation.

After I sat down that night to write Joe a letter, more details have come out. As I suspected, he makes a very modest income, and the business is much smaller than early media reports indicated. Joe also lacks the plumbing license that would be required for him to actually operate the company, and  he's fallen behind on his property taxes.

The real Joe doesn't quite fit the symbolic image of a working man on the verge of prosperity. But the fundamental points in my message to him still hold…

Dear Joe the Plumber:

It seems like your heart is in the right place, and you've worked hard at an honorable job. Now you have some hope of buying the other half of your two-man shop. Ownership and its rewards are a big part of your personal American Dream.

Good for you.

Now, thanks to the latest presidential debate, you've become a temporary national figure. The exposure could be worth more than a full-page ad in the Yellow Pages and a top level Google ad, so I guess you could say you have tax cutters to thank for boosting your company's growth.

Or at least you would have, if you'd remembered to mention the name of the business during all the media attention.

If I were your boss, first thing in the morning, I'd change the company's name to Joe the Plumber, get a new phone listing and throw up a web page.

Or not.

The interest in your political thinking will be good for less than a week, but people will always have clogged drains and faulty water heaters. And the real issues you face as a future business owner aren't about national policy, including any plan to tax high earners.

In fact, I'm concerned that your thinking about owning a business may be clouded by all the political rhetoric. Here's what I, as a former small business owner, think you should be concerned about.

Know what you're buying. According to reports, you want to buy the two-man plumbing shop you work for and plan to pay for it over a number of years. What, exactly, are you buying? A name and phone number, two used trucks, tools and inventory, maybe some relationships with customers or contractors that you've had a role in building. And the opportunity to pay for it over time, out of the cash flow from the business.

This may be a good plan, depending on how much you're paying for good will — which shouldn't be very much for this small business. Otherwise, this decision will cost you far more than any income tax plans being proposed.

Don't feel bad. Most Americans don't know what they've been buying.

Separate your American Dream from Small Business Reality. Sorry, but considering that your ambitions call for only one or two employees, the chances of you generating enough sales to pay off your purchase and still earn $250,000 a year are very remote. That makes me wonder whether you quite grasp the financial side of running a business.

Instead of worrying about paying higher taxes some day, look at the realities facing you now. That is, most small businesses fail or fail to grow, and almost all of them earn less than $250,000 in taxable income for their owners.

The reasons have nothing to do with their income taxes — unless they fail to pay them.

I applaud your hard work and desire to control your own destiny. That's where you should focus. If you do, you'll discover that paying a slightly higher marginal tax rate some day is probably the smallest problem you've had to overcome.

Decide how much you need and invest the rest. If you do surpass the $250,000 threshold, you'd only pay 3 percent more on the dollars you earn above that amount. If you pay yourself $300,000, that means $1,500 in additional taxes.

I'm guessing right now, if I offered you $50,000 but said you'd have to pay $1,500 more in taxes, you'd take it in a heartbeat. Well, that $50,000 is an even better deal when you're wealthier, because it wouldn't be subject to the FICA you pay on all your earnings today. And it would come on top of having your basic needs in life pretty well covered.

If you don't like that deal, you'd have another choice. You could put those extra dollars into healthcare for your employees, send them to training, buy a new truck, beef up your advertising, get some help to do the paper work or even hire another plumber who could produce more revenue.

And then write your income back down to $249,999.

Your business will grow and your life will probably get better because you can spend more time doing what you like — whether it's thawing pipes, selling or just helping people in a jam.

The anti-tax zealots want you to believe the scary stories that your future business prospects will be hamstrung by taxes you haven't even started to pay yet. That's not really how it works, and if you don't understand that, stop listening to the small government advocates and start talking to a real small business advocate.

Oh, and get that plumbing license, too.

Good luck,

Charlie Quimby, a guy who reached the American Dream, taxes and all

[Note: This piece appeared today in the print edition of Finance and Commerce.]

Two Big Losses

We lost a couple of dear friends over the weekend, good men whose lives made a difference and left their world a better place. 

Gene Lourey, a businessman and longtime activist for various progressive causes in Minnesota, husband of former state Sen. Becky Lourey, father-in-law of Growth & Justice board member Marlana Lourey, died unexpectedly in his home Satuday night, after spending a quiet day with Becky.   Friends of Sen. Lourey will remember that she always talked about how Gene was the strong, silent type and her rock, the secret to her political success.   Watch the obits in the next few days for details on a fascinating life.   

Former state Senate President Allan Spear, whose many contributions to social justice in Minnesota were documented Monday in the Star Tribune, died from complications following surgery.  Spear had that rare gift of being both brilliant and kind.  He recently was selected as one of the 150 most influential Minnesotans in the state's 150 years of statehood, and was one of the first openly gay state legislators in the nation, coming out in the 1970s.   He was a beloved history teacher at the University of Minnesota, and legislators in both parties and all ideologies respected him for his fairness in presiding over the Senate for many years.

--Dane Smith