Dean Barber

The Big Business Story to Come

In Corporate Site Selection and Economic Development on December 4, 2016 at 8:34 am

A few months ago, I was sitting with a group of musician friends when incredibly the subject of corporate taxes came up. I am not sure how or why, but it did.

Most of those gathered at the Appalachian String Band Festival in West Virginia, were of the far left persuasion, and one, a very nice guy and talented fiddle player, got it into his head that big bad corporations in this country should pay more taxes.

I mentioned, rather demurely, that the United States already has one of the highest corporate tax rates in the world, to which another fiddle player, whom I consider a friend, answered with “BS.” (Except he didn’t use the abbreviated version.)

I let it go. Why argue over something extraneous as tax rates, when we were there to play music.

Life is too short. I’m not going to let politics, much less facts, become a demarcation line or a prerequisite for friendship. I am quite comfortable “hanging” with people who do not share my views, no matter how deluded they might be.

Carrier News Dominated

Last week, much of the news was dominated by President-elect Donald Trump brokering a deal with Carrier to keep a portion of its workforce in Indianapolis rather than a total plant shutdown with work shipped to Monterrey, Mexico.

Curiously, many pundits decried the move as something precedent setting and bad, when it was neither.

The truth is this thing happens not all too infrequently, albeit it is usually governors and high-ranking state economic developers who are making the telephone calls, dangling tax abatements as an incentive to keep companies from moving operations out of their state.

Taxes Matter

Indeed, much of the basis for industrial recruiting by economic developers in states vying for industrial investment is rooted in tax incentives.

In short, taxes matter and in tandem with a regulatory environment, infrastructure and sometimes labor costs form the basis for what many companies see as the business climate of a place.

(Sometimes companies, particularly tech companies, will ignore a not-so-good overall business climate in favor of a plentiful talent pool, witness biotech and Silicon Valley in California. Another blog for another time.)

Something Else

While Carrier said tax incentives were important in keeping operations in Indianapolis, I don’t buy it. The $700,000 a year in tax abatements for 10 years from Indiana is a smidgen in comparison to the $65 million a year Carrier would have saved in labor and other costs by shifting production to Mexico.

No, something else was at work here. Two things come to mind. One, Carrier ‘s parent company, United Technologies, is a major defense contractor that wants to stay in the good graces of an incoming administration, which will likely increase defense spending.

Two, and granted this is mushier, Trump has vowed to work with the business community to reduce corporate taxes and regulations.

The Real Story

More interesting to me than the news on Carrier — which puts faces to a story (The New York Post quoted the Facebook post of an employee named Paul Roell: “Thank you, Donald Trump, for saving my job.”) — is that Trump’s proposed nominee for U.S. Treasury secretary, Steve Mnunchin, said last week that the administration was targeting a reduction in the corporate tax rate from 35 percent to 15 percent.

That is a real big story, overlooked by many. If that were to happen, it would be “yuge,” and redefine the business climate in this country.

This may come as a shock, but back in 2012, President Obama actually proposed lowering the nation’s corporate tax rate to 28 percent. At the same time, he wanted to boost overall revenue from corporate taxation by banning numerous deductions and loopholes that save companies tens of billions of dollars a year on their tax bills.

2012 was an election year and a Republican congress wasn’t about to play ball. (Mitt Romney, by the way, had proposed lowering the rate to 25 percent.)

Not BS at All

Despite what my fiddle-playing friends might believe, the United States, with a combined top marginal tax rate of 38.9 percent (consisting of the federal tax rate of 35 percent plus the average tax rate among the states), has the third highest corporate income tax rate in the world. It is exceeded only by the United Arab Emirates and Puerto Rico, according to the nonpartisan Tax Foundation.

The U.S. has the highest corporate income tax rate among the 35 industrialized nations of the Organization for Economic Co-operation and Development (OECD).

“The U.S. tax rate is 16.4 percentage points higher than the worldwide average of 22.5 percent and a little more than 9 percentage points higher than the worldwide GDP-weighted average of 29.5 percent. Over the past ten years, the average worldwide tax rate has been declining, pushing the United States farther from the norm,” according to a Tax Foundation report in August.

You don’t have to be a Washington insider or an accountant to know that the federal tax code is very complicated. Because of the abundance of loopholes and deductions, most corporations don’t pay 35 percent, but an effective tax rate closer to 29 percent. The weighted average tax rate for the S&P 500 overall was 26.7 percent in the second quarter of this year, according to Howard Silverblatt of S&P Dow Jones Indices.

Still, our effective rates are significantly higher than the worldwide average corporate tax rate, which has declined since 2003 from 30 percent to 22.5 percent.

Also, keep in mind that companies do not need to pay U.S. taxes on the profits earned by overseas operations until the earnings are brought back to the U.S., which means many keep trillions in profits parked offshore.

I have to believe that a lower corporate tax rate would bring much of that money home and sharply reduce companies’ incentives to take a foreign address, a practice called inversions.

A Challenging Environment

Now if you were to ask me if I believed that some companies pay their executives really obscene amounts of money and that wealth disparity in this country is a real and growing problem, I would say absolutely true.

Do I believe that special interests have been successful in carving out loopholes and deductions making a tax system far too complicated tax code and unfair. Yes, I do. But those are separate issues.

The issue of this blog, which directly impacts job creation, is that we have a very challenging environment for business investment in the U.S. in large part due to our disproportionately high corporate tax rate in comparison to the rest of the world.

Many Unknowns

There remains a lot of unknowns to what may or may not happen. So if the effective rate goes to 15 or 20 percent, will this be done in conjunction with the closing of loopholes?  No one yet knows. We still don’t have a lot of meat on the bone, but the impact to corporate profits and investment in this country could be significant.

So this is the big story that I am watching. I’m not so much concerned with whether Trump is making phone calls to CEOs in an attempt stop individual plants from closing and moving offshore. It’s not necessarily a bad thing, I just think it is small potatoes when compared to what happens with corporate taxes and the overall business climate of this country.

Staunch the Bleeding?

The latest jobs numbers from Bureau of Labor Statistics show that jobs in the manufacturing sector fell for the third straight month, declining by 9,000—losing 62,000 workers year-to-date.

We’ve been bleeding manufacturing jobs, going from 20 million jobs back in 2000 to 12.3 million today. Will Trump, the economic nationalist, find a way to effectively staunch the bleeding through tax and regulatory reform?

I don’t know. How about that, a business consultant who says he doesn’t know. I am watching and waiting just like you.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. He can be reached at dbarber@barberadvisors.com or at 972-890-3733. Mr. Barber is available as a keynote speaker.

Confessions from Red Country

In Economic Development, Places on November 12, 2016 at 12:56 pm

Last week, I sat down with a group of economic developers from different parts of the country. The presidential election of Donald Trump was fresh on their minds and they wondered aloud how the country would fare.

Several confided to me, sometimes rather sheepishly when we were alone, that they had voted for Trump.

They said they didn’t particularly like Trump, indeed found much of what he said during the campaign offensive, but they voted for him because they could not bring themselves to do the same for Hillary Clinton.

“It’s Ok,” I said, as if taking my cue in a confessional. “You’re not a bad person.” (I did not direct anyone to say 10 Hail Marys, take three aspirin and call me in the morning.)

Consultant Connect, a very good organization that brings economic developers and site selection consultants together, had their road show to Dallas last week, which is why I spoke to the assembled economic developers in a panel discussion and then met with them individually.

Pertaining to the election, we now know that Hillary Clinton won almost 90 percent of urban cores, while Trump won between 75 and 90 percent of suburbs, small cities and rural areas.

As I believe our political views are more often than not shaped by where we live and the company that we keep, I couldn’t help but that think most of the economic developers were mirroring the majority in their communities. And they all came from red states.

Memorable Moments

I was sitting in a restaurant in a small town in southwest Virginia in late July. A waitress, a middle aged woman, told me with chin slightly raised that she was for Trump because “he’s one of us.” I looked around the café, and knew immediately that I was the only outsider there.

A few weeks later, I was on the pilot deck of a barge on the Ohio River. The pilot, a native of Kentucky, told me he was voting for Trump because “my family are coal people.” I nodded as if I fully understood, not wanting to get thrown overboard.

A month later, I am out in the middle of nowhere, somewhere near the border of western Nebraska and Colorado, and I see this Trump sign that is the size of a school bus. Somebody was sending a message.

Of course, I knew I was in red country in all these places, and I knew that stark political divisions in our country existed long before this latest president campaign. Some of these schisms date back to the Civil War.

Most noticeable is between New England, where I spent two weeks on vacation last month, and the South, where I have spent most of my life, often in rural settings. This divide is also evident between the coasts and the interior.

Red, Blue and Gray

The divisions are today exemplified by red and blue, whereas in the past, it was the blue and the gray. Back then, they were killing each other with a fury that they would leave such lasting marks that they still remain today.

In William Faulkner’s native Mississippi, “The past is never dead. It’s not even past.” The Mississippi flag is the only U.S. state flag to include the Confederate battle flag’s saltire.

Red America today is overwhelmingly rural America, comprised mostly of white working-class people of limited financial means but not poor. Listening to them, as I have always made a point to do as I, too, grew up in small towns in “flyover country,”it is clear that their anger and bitterness is directed at a Washington that has not listened to their concerns.

And so they chose to ignore Mr. Trump’s transgressions, believing that he would be best suited to go to Washington to figuratively “drain the swamp.” And so they turned out to the polls in droves for him.

The Big Sort

In 2004, journalist Bill Bishop wrote a series of articles showing how Americans have been sorting themselves into alarmingly homogeneous communities — not by region or by state, but by city and even neighborhood. He would later write a book called, “The Big Sort: Why the Clustering of Like-Minded America is Tearing Us Apart.”

Bishop’s premise, which I agree with, is that people are choosing where they live, and what news programs they watch, based on their particular beliefs and values. And because they seek out like-minded people, they become more closed to other ways of thinking. In short, they become self- radicalized.

I am trying my best to avoid Facebook these days, where there is a chorus of hysteria coming from many of my friends, most of whom are musicians, who contend that anyone who voted for Trump is a racist or at the very least guilty of aiding and abetting.

Progressive on issues of discrimination against the obvious victims of racism and sexism, they are blind to their own class privilege and intolerant of others who may hold opposing viewpoints.

Mind you, I am very concerned about Mr. Trump’s apparent lack of understanding of the basic underpinnings of our Constitution, such as free expression, racial and religious equality, and limited presidential power.

But I accept that he won an election. My advice: Stay calm and let democracy work. The Republic will survive.

No Clean Hands

In an opinion piece for The New York Times, Rabbi Michael Lerner of Beyt Tikkun Synagogue in Berkeley, Calif., writes that neither the left or the right has clean hands when it comes to the deep divisions that have afflicted this country.

Lerner says the right has been all too successful at scapegoating others to explain the pain of working class white people, be they African-Americans, immigrants, Muslims, Jews, liberals, progressives, whoever.

But the left only furthers fans the flames by blaming “white people as a whole for slavery, genocide of the Native Americans and a host of other sins, as though whiteness itself was something about which people ought to be ashamed. The rage many white working-class people feel in response is rooted in the sense that once again, as has happened to them throughout their lives, they are being misunderstood.”

Trump, ever the provocateur, sensationalist, opportunist and marketer, plays to this feeling of alienation, waged a campaign speaking to “the forgotten man and the forgotten women.” And there is a kernel of truth there, even if my liberal friends refuse to recognize it.

“The left needs to stop ignoring people’s inner pain and fear. The racism, sexism and xenophobia used by Mr. Trump to advance his candidacy does not reveal an inherent malice in the majority of Americans,” Lerner wrote.

“If the left could abandon all this shaming, it could rebuild its political base by helping Americans see that much of people’s suffering is rooted in the hidden injuries of class and in the spiritual crisis that the global competitive marketplace generates.”

What Will Trump Do?

As this blog has been and will continue to be a business blog, concerned with affairs of commerce and economic development, I will take a stab at making some predictions about a Trump presidency.

First, I don’t believe this man is an ideologue. (Keep in mind that he was a self-described Democrat until about two years ago.} His convictions are all self-centered, about winning on his terms.

And he will seek out others accomplish that, meaning he will be ever watchful for deal-making opportunities.

Second, this man is a builder, a developer at heart, and build, baby, build is what he knows best and what he wants to do. Forget the wall, that won’t happen, but it is noteworthy that Sen. Chuck Schumer, D-NY, the Senate minority leader, and House Minority Leader Nancy Pelosi, two Democrats that he knows, have already sent word to Trump that they are all too willing to work with him in crafting massive and far-reaching infrastructure spending bills.

I can picture Trump and certain key Democrats having late night meetings at the While House. He will offer a carrot — you don’t fight me in repealing and replacing Obamacare (he is already saying the pre-existing conditions will be protected), and I’ll help you with spending on roads, bridges, airports in your district, creating thousands of new construction jobs for years to come.

The key is that Trump will want the credit. It is what he yearns for. If there is to be a fight, it will be with deficit hawks from his own party.

Of course, I’m no insider to the workings of Washington, but it would not surprise me if Trump sets the gears of the federal government into motion, through his willingness to make deals to make things happen. He wants to make big things happen, and again he wants the credit.

With Malice Toward None

As much of his past rhetoric has been hateful and alarming, I can only hope that the weight and responsibility of the office of the presidency will bring a certain reflective calm and soberness to Mr. Trump. Our country, coming off the most bitter presidential campaign that I have ever seen, does not need a divider in chief.

He may want to read the parting words of President Abraham Lincoln’s second inaugural address.

“With malice toward none, with charity for all, with firmness in the right as God gives us to see the right, let us strive on to finish the work we are in, to bind up the nation’s wounds, to care for him who shall have borne the battle and for his widow and his orphan, to do all which may achieve and cherish a just and lasting peace among ourselves and with all nations.”

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. He can be reached at dbarber@barberadvisors.com or at 972-890-3733. Mr. Barber is available as a keynote speaker.

The Missing Men

In Corporate Site Selection and Economic Development on November 6, 2016 at 8:14 am

Judging from the headlines, things don’t look so bad. The job market continues to strengthen, with the economy adding 161,000 jobs last month.

Annual wage growth has surged to levels not seen since the Great Recession (though it is still below its pre-2008 strength), while the unemployment rate dipped to 4.9 percent in October from 5 percent the previous month.

Democratic candidate Hillary Clinton and Republican candidate Donald Trump naturally put their spin on the state of the economy.

The Clinton camp argues that we are seeing the longest streak of overall job growth on record, while the Trump camp points to the economy’s sub-3-percent growth during President Obama’s term in office.

In my last blog, What This Country Needs, I lamented how new business startups have been slowing in this country for the past three decades, dropping sharply over the last 10 years.

Millions of Dropouts

That’s not good, as I view entrepreneurship as a strong indicator to the health of a local economy. But what could be even worse is that millions of men in their prime working years have dropped out of the workforce — meaning they aren’t working or even looking for a job.

While it is true that “unemployment” is down, the work rate for men in this country has been spiraling downward for the past 60 years, according to a June 2016 report by President Obama’s Council of Economic Advisers. Appropriately, it is entitled “The Long-Term Decline in Prime-Age Male Labor Force Participation.”

The report said 83 percent of men in the prime working ages of 25-54 who were not in the labor force had not worked in the previous year. So, essentially, 10 million men are missing from action, not counted among the jobless, because they are not seeking work.

America’s Invisible Crisis

“One in six prime-age guys has no job; it’s kind of worse than it was in the depression in 1940,” said Nicholas Eberstadt, an economic and demographic researcher at American Enterprise Institute, in an interview with National Public Radio on Sept. 6, 2016.

Eberstadt has written a book on the subject, book, Men Without Work: America’s Invisible Crisis.

Historically, working-age American men fell into two basic categories: those holding a paid job or those unemployed.

“There was no ‘third way’ for able-bodied males. Today there is one: neither working nor seeking work—that is, men who are outside the labor force altogether,” wrote Eberstadt in an article called The Idle Army: America’s Unworking Men in the Wall Street Journal on Sept. 1.

“Unlike in the past, the U.S. is now evidently rich enough to carry them, after a fashion. The no-work life hardly consigns these men to destitution.”

Startling Statistics

At current trends, one in five – or 20 percent of working-age males — will be out of the labor force in less than a generation. African-American men are twice as likely to be in this condition as either whites or Latinos

Consider that more than a fifth of American men — about 20 million people — between 20 and 65 had no paid work last year.

Also, there are 20 million men with felony records who are not in jail, with dim prospects of employment, and more of these are African-American men.

Finally, men now account for only 42 percent of college graduates, meaning that men in the current generation will be enormously underrepresented in the well-paying professions that require a college degree.

Former Treasury Secretary Lawrence H. Summers, now professor of economics at Harvard, estimates that a third of men between 24 and 54 without college educations could be out of work by midcentury.

Now you don’t have to be an economist or a professor to know that there have been big changes in the U.S. economy, including millions of manufacturing jobs lost.  Good-paying jobs that do not demand more education and training after high school have been shrinking for decades.

Who are They and What are They Doing?

Not a whole lot is known about these missing men. But there are factors that make men less likely to be in the labor force — lack of college degree, being single, or being black.

So what are they doing? Not much, according to Eberstadt.

“About a tenth are students trying to improve their circumstances. But the overwhelming majority are what the British call NEET: “neither employed nor in education or training.”

“Surveys indicate they are almost entirely idle—helping out around the house less than unemployed men; caring for others less than employed women; volunteering and engaging in religious activities less than working men and women or unemployed men,” Eberstadt wrote.

Wayward Sons

Certainly falling work rates among men portends to slower economic growth and widening gaps in income and wealth. Indeed, many of these nonworking men have little or no work skills at all, and support themselves by government disability benefits.

I shudder to think of a future in which a large segment of a generation of men have only a tenuous connection to the discipline and rewards of work. The impact on future generations of young men is beyond frightening.

And it’s not just Eberstadt saying that men are in danger of becoming a hidden underclass. Again, the Council of Economic Advisers has reached the same conclusion, as has other academics.

“Over the last three decades the labor-market trajectory of males in the U.S. has turned downward along four dimensions: skills acquisition, employment rates, occupational stature and real wage levels,” wrote MIT economists David Autor and Melanie Wasserman in “Wayward Sons: The Emerging Gender Gap in Labor and Education.”

In short, in every important category men are losing ground.

A Business Solutions Center

I opened my remarks to my audience by saying that it was “good to be back in the cradle of Western Civilization,” admittedly a lame attempt at humor. But I was in Dayton, Ohio, home of the Wright Brothers and so many inventions that it would make your head spin.

And as a dutiful guest speaker at the grand opening of Montgomery County’s aptly named Business Solutions Center, I rattled off many of those inventions, which touch our lives today.

In my role as a consultant, I have toured many incubators, accelerators and makerspaces, all of which I applaud as worthwhile attempts by a community to grow its own business sector.

But the Business Solutions Center is a different sort of animal, fitting in no category that I have ever run across. This is a connecting place to essentially get help, be it with training, informational courses, meeting places for local businesses.

In short, it was apparent to me that this Business Solutions Center is truly the next level of business retention and expansion (BR&E). This truly is the walk and not just the talk.

No doubt, the Center will evolve over the years, but its purpose will fundamentally remain the same, to assist local business.

Now some people might think that local government should not take such an active role in helping its business community, but I disagree. Most job growth comes from existing businesses, and assisting in the process of business growth can only bode well for a community.

I believe that economic development organizations from all over this country will eventually be beating a path to Montgomery County, Ohio to see how it is done at the Business Solutions Center. And then they can further explain it to me.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. He can be reached at dbarber@barberadvisors.com or at 972-890-3733. Mr. Barber is available as a keynote speaker.