Your tax dollars at work as venture capital vs. small businesses at work

If you wonder why Dayton doesn’t have as many police officers as it used to, or firefighters, or recreation centers- it’s because we’ve been so busy doing “economic development” and “job creation” to the effect that fewer people want to live in neighborhoods considered unsafe, and plummeting property values as people move to where they feel safe.

Job creation tax credits and grants and tax breaks are nothing other than corporate welfare. The jobs that are being “wooed” like the ones at the GE Episcenter (which got a 15-year tax break from Dayton Public Schools) aren’t the ones that provide work for the under-educated types that used to be able to find good paying jobs at Generous Motors- they are high-skilled, requiring advanced educational achievement. Guess what- those people that GE is going to hire aren’t going to want to live in Dayton (although they’ll pay taxes in Dayton) – they’ll live in Oakwood with their highly trained safety forces, great schools and well paved streets.

In today’s Dayton Daily News we read about millions of our tax dollars being handed off to big corporations who promise jobs in the future:

The Ohio Tax Credit Authority approved Monday a 75 percent, 15-year Job Creation Tax Credit for Abbott worth an estimated more than $8 million, said Stephanie Mennecke, a spokeswoman for Ohio Department of Development. That’s the largest value tax credit approved Monday, she said.

The second largest was for approximately $4.5 million for a Republic Steel and Republic N&T Railroad Inc. expansion in Lorain, she said. The authority approved 11 total incentive packages Monday.

The Ohio Development Financing Advisory Council also approved Monday a $1.5 million, 10-year, 0 percent interest loan for Abbott’s project.

“There were many factors that lead us to the decision to build a new plant in Tipp City including direct access to a major interstate, quality of available work force, and state and local incentives,” said Abbott spokesman Pete Paradossi in an email Monday. “Other locations were being considered. In the end, Tipp City was the best choice for this plant.”…

The Tipp City plant will create about 240 jobs, according to Abbott.

Tipp City Council members will vote April 2 on a local incentive package for the Illinois-based company, said Brad Vath, Tipp City Assistant City Manager. Vath did not say Monday what the city plans to offer. He said the city is optimistic everything will fall in place and the project will move forward “very, very quickly.”

Pilot Chemical Co., which operates a Butler County facility in Middletown, also received a tax incentive Monday. Pilot received a 50 percent, six-year tax credit worth an estimated $182,006, according to Gov. John Kasich’s office. The Sharonville-based company is planning an expansion at its headquarters, as well as a $42 million expansion project at either its Middletown or Houston, Texas, facilities.

Kasich’s office said Pilot’s project would create an estimated 38 full-time jobs.

via Abbott to begin building $270M plant.

On the flip side of these public fundings of private companies, I’m watching a small start-up try to get out of the blocks. A house painting company that specializes in making new paint stick to old houses- by doing maniacal surface preparation and using high quality paint. He could hire an employee tomorrow to start work, but, he has to pay for licenses, bonding, insurance and purchase capital goods like a scaffold, all out of cash.

Also the minute he hires someone, he has to start paying worker’s comp (which is high for a painting company out of the blocks) payroll taxes- all the things we’re willing to subsidize for the going concern.  And, the person he’s likely to hire- is someone who is also under-employed, needing every dollar earned just to survive.

He has no credit, no tax breaks and zero support. I helped by creating his new identity, printing business cards, door hangers and signs. I set him up with a website and suggested marketing strategies, he’s finishing his first project and about to start his second tomorrow. I also hired him to do some interior painting as he was getting started. He’s having to bid low to prove the value of his product, despite having a few “freelance projects” to show from last year.

When we know that the major engine for job creation is small businesses, why are our tax dollars subsidizing large ones?

When we know that the small business can have an immediate impact- why are the deals being done for jobs that are a year away?

Why do we subsidize any business with our tax dollars? With every subsidy we tilt the playing field to give an unfair advantage to one company over another- not the role for government or a fair use of our tax dollars. Plus, if the big business paid the same taxes as our smaller ones- maybe the burden of starting up wouldn’t be so insurmountable?

Would you like to help a small business get started? Hire one. The Brush and Bucket. (updae 2015, I can no longer vouch for this business)

You want your tax dollars to help a big company by costing you more for security systems, slower emergency crew response, new school tax levies to make up for the giveaway- continue to sit on your thumbs while politicians sell you the BS that tax supported “job creation” is a good investment of your tax dollars.

Because when our tax dollars are used as venture capital- the only ones who win are the private companies who get the tax breaks.

 

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8 Responses

  1. Brian Hayashi April 3, 2012 / 5:18 pm
    I may disagree with your AdAge comments about crowdsourcing but will defend to the death your belief in small business. The country could have avoided the whole Solyndra debacle by learning from the last time government tried to subsidize an entrepreneurial area like alternative energy…no one wants to be the one betting against a Federal mandate. 

    If you like a business, don’t subsidize it with tax dollars — just buy things you like (or get services that you value).  

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  2. David Esrati April 3, 2012 / 5:52 pm

    Thanks for the comment Brian. I’m still not a fan of crowdsourcing for marketing- I’ve seen too many one-hit wonders in the ad business to know great creative comes out of deep understanding formed over long term relationships.

    Apple and Chiat/Day, Nike and Wieden + Kennedy etc.

    Yep- the whole government intervention in business is a disaster. Glad we agree.

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  3. John Williams April 5, 2012 / 4:08 am
    Dear David,

    Great topic and post.

    It’s important to note that a recent 18 year study on quarterly job gross gains conducted by the SBA states small business (companies with less than 500 employees) had 74% of job creation compared to large companies with 26% of job creation.

    Most importantly, businesses with less than 20 employees had overall 30% of job creation in that 18 starter period.

    *Start-ups and entrepreneurs make the world go around.

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  4. Diane April 5, 2012 / 8:07 am
    I would like to take this opportunity to give a hearty shout-out to one TERRIFIC local business owner – Eric Jacobs of The Lawn Mower Man! I read David’s recommendation on this website last fall and called Eric a couple of weeks ago when I noticed a suspicious pool of oil under my lawn tractor. Eric came out to the house, diagnosed the problem, loaded my tractor up on his trailer and took it back to his shop to be repaired. He thoroughly serviced the unit, sharpened the blade, replaced filters, cleaned what needed cleaning and lubed what needed lubing. Returned it to my house three days later looking better than new! The Lawn Mower Man did all of this for extremely reasonable rates, and Eric was courteous to me when circumstances beyond his control required that he cancel and reschedule our first appointment. He and his wife, Heather, are a lovely young couple making their own way in the world! If you are in need of professional small engine service, do not hesitate to contact Eric Jacobs at http://thelawnmowerman.webs.com/

    BTW David, I told Eric you referred me, so remember to ask for your 10% discount next time! Thank you so much!!

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  5. David Esrati April 5, 2012 / 10:57 am

    @John Williams- This has been a recurring theme on this blog- including calls for simplification of government tax collection and reporting. Small business is the engine- but, government has no clue on how to help us- nor do our politicians- because true small business people can’t afford access through huge campaign donations.

    @Diane- I’m not sure I did recommend the lawnmower man- but, I’m glad you had excellent service and you recommend him.I don’t think I remember Eric. I could be wrong…

     

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  6. Diane April 5, 2012 / 11:05 am
    David,

    That’s weird! I have in my notes that I got Eric’s number from your site. Any chance that Eric and Mark may be or have been business partners in the recent past? Is the name of Mark’s business “The Lawnmower Man”? So sorry for the confusion. Feel free to delete my erroneous remarks about your recommendation if you see fit.

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