Archive for October, 2011

“Most states have seen job growth, but they’ve been in the energy technology fields and manufacturing.”

You mean after pulling a DNREC Secretary with specific expertise in “green energy”. After spending tens of millions of dollars in subsidies to Bloom Energy & Fiskers. After spending millions on the Sustainable Energy Utility. Delaware is an “abnormal” State? We’re shrinking (aka negative growth) because we’re not growing green technologies? Or manufacturing?

If the above Delaware State News article isn’t a total condemnation of the Markell Administration, I don’t know what is. Almost 3 years into the Administration, and even the Governor’s own Labor Department calls the State “abnormal”…

The caveat is that by the end of the year, it is forecast that we’ll have positive job growth. But, that is a bit tautological, isn’t it? We’ll see, I guess.


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Jack Markell continues to promote highly questionable “Green Energy” policies and programs that are politically appealing but economically unviable.  This is not in the best interest of the taxpayers of Delaware and will cost them hundreds of millions of wasted dollars and thousands of jobs.

At the sound bite level, helping Fisker buy the abandoned GM plant on Boxwood Road so that Delaware workers can be hired to build electric cars sounds like a no-brainer.  However, when you dig into the business plan for this venture, it quickly becomes apparent that this project is extremely costly to taxpayers and a very long shot at ever succeeding.  More than $650 million dollars of federal and Delaware taxpayer funds has already been spent.  If it is successful, and if 2,400 workers are employed there, the cost to taxpayers per new job will be a staggering $270,000.

But more importantly, Fisker defines the success necessary to hire 2,400 workers as the production of 100,000 cars annually.  If they sell fewer cars, they hire fewer workers.  Keep in mind that Fisker has no brand recognition, no quality reputation, no dealer network, and that it will be fifth to market with the most expensive product.  It will be competing with the Chevrolet Volt.  Chevrolet has brand recognition that ranks with baseball, hot dogs and apple pie, a good quality reputation, over 4,000 dealers and a lower-priced product that was introduced years ahead of the Fisker product. Yet Chevrolet’s first- year forecast is just 10,000 units.  Through September, year-to-date Volt sales were 3,895 cars.  Fisker’s sales forecasts are wildly optimistic and designed to secure government subsidies, not accurately predict future sales or employment levels.

Bloom Energy is another example of Jack Markell grabbing a green energy headline at taxpayer expense.  He bullied the state legislature into classifying the use of natural gas (a fossil fuel!) in a fuel cell as ”renewable energy” and now that the PSC has approved the plan, Delmarva customers will be paying the bill.  Electric rates in Delaware are already 50% higher than the national average.

The critical factor in determining the cost of Bloom Energy boxes is the lifespan of the fuel cell “stack” – the part of the device where the magic of converting fuel into electricity takes place. Useful life of the stack has been the Achilles Heel of fuel cell economic viability.  Replacing the stack if it goes bad is extremely costly and would severely affect the economic usefulness of Bloom’s devices.   Although Bloom claims to have achieved a breakthrough on stack life, we simply do not know how long they will last.  Regardless of the actual useful life of the product, our commitment to pay for them will go on until fulfilled.  Our Governor is willing to bet our tax dollars that Bloom’s claims of fuel cell lifespan will be achieved.  Jack Markell gets the sound bite and the glory; Delaware taxpayers get the risk and the bill.

Jack Markell continues to cling to the Regional Greenhouse Gas Initiative.  RGGI is a mini cap and trade program adopted among a group of northeast states.  It won’t significantly reduce carbon emissions unless all the states participate.  Presently, Pennsylvania is not in the program and New Jersey has announced its intentions to pull out of the program by the end of 2011.

Delaware’s continued participation in the program does little to reduce carbon emissions but costs families and businesses between $15 million and $35 million in inflated electric rates.  This is a strain on families and a job killer for businesses.  Continuing to participate in a program that will have no benefit but which will put Delaware at a competitive disadvantage with neighboring states is irresponsible.

Instead of investing Delaware funds on high risk green projects from out of state companies, Jack Markell should work at improving the environment for all businesses.  He should work toward reducing the cost of doing business in Delaware.   He could start by proposing to eliminate the archaic Gross Receipts tax.  That would benefit all Delaware businesses, not just a hand-picked few.

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According to ABCNews:

“DOE cannot be assured that the projects are on track to deliver the vehicles as agreed,” said the GAO report examining the department’s ATVM program. “It also means that U.S. taxpayers do not know whether they are getting what they paid for through the loans.”…

Between them, Fisker, at $529 million, and Tesla, at $465 million, have secured nearly $1 billion to jump-start production of their cars. Combined, the companies have already drawn down more than $300 million, Federal Financing Bank records show.

“Jump start”? But, according to the News Journal:

Fisker Automotive will not begin high-volume production of its second line of hybrids in Delaware until mid-2013,company executives said Wednesday.

This delays production for a year. I don’t know how many more jump starts I can stand… And rumors within the UAW state that there has been fundamentally no hiring.

So, 1/3 of the money gone, a minimum 1 year delay, and no jobs. Our “businessman” Governor has made another great investment. Makes one think back longly to the Minner-Carney days. At least we expected them to be incompetent. But what does this have to do with Bloom Energy?

According to PR Newswire, Kleiner Perkins was a 2nd round investor in Fisker Automotive to the tune of over $100 million. Around the time that the Federal government and Delaware’s State government ponied up over $500 million in loans and cash incentives, Kleiner Perkins put another investment in the 3rd round in financing.

Kleiner Perkins is also a major investor in Bloom Energy. The primary partner in Kleiner Perkins is John Doerr, who donated $1,200 to Governor Markell’s 2006 Treasurer’s re-election. I wonder how many State Treasurer races the most powerful venture capitalist in the Country, who is located in California, donated to???

In Jack Markell’s Blueprint for Change campaign book in 2008, he wrote:

The state should not be in the business of betting on the next great industry…. In no case should [business] investing decisions be made by state employees, elected officials, or anybody other than experienced investors with a strong track record of investing

I guess he wrote that before getting clearance from Kleiner Perkins — earning money the old fashion way — Crony Capitalism.

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The Tax Policy Center, a joint venture between the Left-leaning Urban Institute & Brookings Institutions, has declared that Herman Cain’s 9-9-9 plan will mean a tax increase for wage earners between $30,000 and $40,000. As a static, effective-tax-rate model, that is likely to be true. However, the analysis does not include the effect on the Consumer Price Index.

As most rational people know, corporations do not pay taxes in the sense that they pass that cost along to the purchaser of the goods. In my business, for instance, we are an ‘S’ Corporation. That means that the net income from the business is taxed at the individual rate. For the purposes of the discussion, let’s call that rate 30%. Under the 9-9-9 program, that tax rate drops to 9% — a difference of 21%. The same cost reduction will happen to my competitors.

I wish that I could keep that 21%, but I can’t for one compelling reason: competition. To win business, price is always a factor (not always the primary factor, but always a major factor). So, prices will come down and average margins for my industry will, once again, reach 3-5%. This price competition between market participants means that the prices that consumer will pay will come down by, in my example, 21%. But, even if they only come down ~12%, the consumer will net out ahead by paying the new low price plus the 9% sales tax. (Note: There is a multiplier effect, too. A business who buys printing from me will experience lower print purchase costs. That lower cost will also be passed along to their customers and ultimately down the line to the consumer.).

As Herman Cain said, “Do the math.”

Now, if you want to debate how long the 9% sales tax will stay at 9% (or if a “luxury” sales tax will be added to boats, planes, etc.), that is a worthy discussion. But, please, enough of the trivial analysis of the tax rates themselves. A strong, vibrant economy that is growing jobs and lowering prices is a very real outcome of Mr. Cain’s plan. It is a serious proposal.

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I’m a data guy. I admit it. It’s much easier than being dogmatic. Just review the data, and it will generally tell the story. I’ve had my opinions on the “Occupy Anywhere” folks, assuming that they were leftists. Now comes the data (Oh, I was right)…

Douglas Schoen, a veteran Democratic Party pollster, sent a researcher from his polling firm down to Zuccotti Park last week to conduct a professional survey of the protesters in New York. Now, surveys error margins require two things that many polls today fail to achieve: a random sample and honest answers. I expect that since the researcher was actually in the crowd that he was able to get a random sample of “protesters”. I question the honest answers a bit since answering questions in front of others can lead to responses designed to elicit group approval. But, I’ll give the researcher the benefit of the doubt.

The full results can be found here.

28% are over 40 — aka former hippies or Woodstock wannabes, perhaps?

0% are Republicans — I’m shocked! Shocked!

1/3 are unaffiliated or are Democrats. In other words, fully 66% don’t belong to any organized political party! (See Will Rogers).

74% of those who voted in 2008 voted for the President — Again, I’m shocked.

48% of those planning to vote in 2012 plan to vote for the President — oooh, bad news for the President. A 26% drop. Rick Perry is so happy.

52% have protested in the past. Ahhh, not a new movement, just former hippies & Woodstock wannabes…


——Now let’s get to the goals of the protests — and this is where the whole thing falls apart:

What frustrates you the most about the political process in the United


  • 30% Influence of corporate/moneyed/special interests
  • 21% Partisanship
  • 15% Joblessness
  • 7% Corruption [Charlie’s note: good thing they’re not in Delaware, NPR’s 4th most corrupt state]
  • 6% Income inequality
  • 3% Our democratic/capitalist system
  • 3% Stagnant middle class wages
  • 2% Entrenched bureaucracy
  • 2% Bush tax cuts
  • 2% Obama abandoned left
  • 2% Military spending
  • 2% Federal Reserve
  • 5% Everything

What would you like to see the Occupy Wall Street movement achieve?

  • 35% Influence the Democratic Party the way the Tea Party has influenced the GOP
  • 11% Break the two-party duopoly
  • 9% Engage & mobilize Progressives
  • 9% Promote a national conversation
  • 7% Direct Democracy
  • 5% Overhaul of tax system: replace income tax with flat tax
  • 4% Radical redistribution of wealth
  • 4% Dissolution of our representative democracy/capitalist system
  • 4% Single payer health care
  • 4% Pull out of Afghanistan immediately
  • 8% Not sure
So, the majority are angered about “Influence” peddling & “Partisanship”. To address these problems, their solutions are “Influence the Democratic Party”, mobilize “Progressives” , have “national conversation”, and “break the “duopoly”.
Since the President was the largest recipient, ever, of money from Wall Street firms, there seems to be a sharp disconnect between the protesters voting for the President, the President’s actions, and the protester’s future intentions to support the President & Progressives.
To address “Partisanship”, they want to “mobilize Democrats [and] Progressives” while having a “national conversation” to break the “duopoly”. John Kerry couldn’t have said it better himself.
No wonder half of them are un/underemployed. With critical thinking skills and decision-making capacity like this, there must be a government job waiting for them, somewhere.

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Tea Party Taxes and Government Waste

The above chart shows tax rates by income category. As you can see, except for outliers like Warren Buffett, most high-income individuals pay higher tax rates than low income individuals. You can see that there is a cluster of sub-$100,000 earners who pay higher taxes rates (cluster A) than do “millionaires & billionaires”  that pay around 24% effective rate (cluster B). But, in raw numbers, that is not a lot of folks. The chart excludes the 10% of each category that are outliers (e.g. 90% of the people who make an income of between $250k & $350k pay an effective tax rate of between ~23% & ~34%. 10% of those earners either pay higher or lower tax rates.). Warren Buffett, as mentioned before, is a fairly extreme outlier even in his category’s 10% of outliers.

So, I recommend that for folks like Warren Buffett, who 1) refuse to pay their assistants a decent wage relative to their own; 2) who structure billion dollar deals that guarantee their low tax rate; & 3) who then ask to be taxed more, we should create a higher tax rate for them. We could call it the Buffett tax. The Feds could place a little check box on the 1040 IRS form where this group of outliers can put their mark and pay some reasonably confiscatory rate. 110% comes to mind.

I only make this recommendation because Mr. Buffett has asked to be taxed more despite the fact that he could structure his deals so that he would be subject to higher taxes. Of course, I find it odd that he complains about his tax rates after he has set them through his own actions. For a pretty smart guy, he seems a bit muddled on this point.

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From Bloomberg News:

A bipartisan bill sponsored by leaders of the House Judiciary Committee may strip Delaware of its status as the premier venue for U.S. bankruptcy cases, costing the state’s economy an estimated $100 million a year.

Lamar Smith, the Texas Republican who chairs the Judiciary panel, introduced the bill with Michigan’s John Conyers, its ranking Democrat…

The impact?

… The UCLA database shows that 155 public companies with assets of more than $500 million sought bankruptcy protection in Delaware from 2000 to 2011. That is 38 percent of the U.S. total of 405. New York’s Southern District, which includes Manhattan, was second with 93 cases, or 23 percent.

Basically, the law would mandate “a corporation may file for Chapter 11 reorganization only in the federal district housing its principal place of business or assets,” thereby eliminating Delaware from most bankruptcy cases.

The Bloomberg article estimates an impact of $100 million. However, this grossly understates the impact. Delaware’s Escheat (or abandoned property) revenue stream, itself, is over $400 million — about 12% of the State budget. Delaware’s share of escheat is so high because escheat is payable by a company to the State of its incorporation, and the Smith-Conyers bill would remove the need for many companies to incorporate in Delaware. Our $400 million windfall could drop to under $10 million relatively quickly.

In addition to that direct impact, the State would lose significant amounts of bank franchise taxes & corporate franchise taxes (combined around 24% of the State’s budget).

Some firms might move or shrink if bankruptcies dry up, said Charles M. Elson, director of the University of Delaware’s Center for Corporate Governance. The change would cut the state’s wage and property tax revenue and hurt businesses like restaurants and copying services — “an impact we don’t need,” he said.

So, while the “Occupy Anywhere” folks are protesting against capitalism, Delaware could very quickly find out what it means to not have companies incorporated here.

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