Details of the Trump-Carrier deal

Donald Trump’s first big coup as president-elect came this week with the announcement of a deal to save 1,000 jobs in Indiana. A Carrier gas furnace plant, along with a United Technologies Electronic Controls plant owned by the same company, had been slated to move to Mexico. The moves, which would cost more than 2,000 jobs, had been a frequent target of Mr. Trump’s during the campaign.

During the presidential campaign, Trump frequently criticized companies who moved from the United States to other countries. Many of the companies that leave the US do so to flee the US corporate tax rate, which is the highest in the free world. Trump had threatened to punish corporations that moved to other countries with a 35 percent tariff on goods that they imported back to the US.

According to the Indy Star, taxes weren’t the only factor in the move to Mexico. The 1,400 Carrier employees are unionized and make as much as $26 per hour. They can earn $70,000 annually with overtime. Mexican workers would earn $3 per hour. The Indiana employees would have been laid off in three waves starting in 2017. Fortune reports that the company would save $65 million annually from the move.

Early news about the deal, which would keep Carrier in Indiana, but not the other United Technologies plant, was sketchy. The number of jobs staying in Indiana has been described as “close to 1,000” and “more than 1,000” at various times according to ABC News. Fox News reported that “the deal spares about 800 union workers,” citing a federal official who had been briefed by the company.

Unverified reports on the deal in Fortune say that Indiana will retain “800 manufacturing jobs at the Indiana plant that had been slated to move to Mexico, as well as another 300 engineering and headquarters jobs.” The report says that “some 1,300 jobs will still go to Mexico, which includes 600 Carrier employees, plus 700 workers from UTEC Controls,” the other Indiana plant. Affected workers will be offered employment and relocation in UTC’s aerospace division or provided funding for reeducation.

“The incentives offered by the state were an important consideration,” a statement by Carrier said, but exactly what Carrier got in return is uncertain at this point. There is widespread speculation that the deal involves favorable tax treatment by the state and local governments. Mike Pence, the vice president-elect, is currently the governor of Indiana and would have had great influence over any deal between the State of Indiana and Carrier. The Fortune source reports that Carrier received roughly $700,000 annually in state tax incentives for an unknown number of years in exchange for staying in Indiana.

United Technologies Corporation, the parent company of the two plants, had reimbursed the state and local governments for tax abatements and grants in advance of the move. According to ABC News, the company repaid $380,000 to the Indiana Economic Development Corporation and $1.2 million in tax abatements to the city of Indianapolis.

Carrier also cited the changing presidential administration as a reason for its decision. “Today’s announcement is possible because the incoming Trump-Pence administration has emphasized to us its commitment to support the business community and create an improved, more competitive U.S. business climate,” the statement said. This may refer to Republican promises to reform the federal tax structure and lower the corporate tax rate.

While Carrier’s non-move may generate goodwill with the Trump Administration and help preserve the company brand, an even larger factor might be the federal funds that directly affect the company’s bottom line. The Indy Star notes that “United Technologies receives about $5.6 billion a year in federal money, constituting about 10 percent of its overall revenue.” Much of this money comes from federal contracts through Pratt and Whitney, a jet engine manufacturer that supplies engines for the new F-35 Lightning II fighter, and Sikorsky, the manufacturer of the military UH-60 Blackhawk helicopter. As parent to both companies, United Technologies is one of the country’s largest defense contractors.

“United Technologies is a huge company, and the Carrier deal is a very, very small part of it,” said John Mutz, a board member of the Indiana Economic Development Corporation, in Politico. “This is a much different set of circumstances if you’re talking about all of the contracting work that United Technologies does for the federal government. That’s a big deal.”

Claude Barfield of the American Enterprise Institute called the approach “crony capitalism” in Politico. “For market-based economists or analysts, this is really a version of crony capitalism, and it’s the kind of thing you really don’t want to get into or have government get into,” Barfield said. “This gets back to who … actually has the ear of the government. So you get the situation where decisions are not made in terms of their economic sense, but in terms of gaming the political system.”

While using defense contracts as leverage to keep Carrier may have worked in this instance, it does nothing to change the underlying problems that American companies face. Carrier may have won state tax breaks and preserved its federal contracts, but it still faces a high federal corporate tax, high labor costs with its unionized workforce, high turnover rates and a dense regulatory environment. It is these issues that the Trump Administration must address for prevent companies from fleeing the United States.

While the underlying problems for businesses remain, Trump’s deal with Carrier was beneficial for the president-elect. Trump used Carrier to buy time and goodwill for the incoming administration. He has also earned political capital for the deal. It will be interesting to see how he uses these assets once he takes office.

Originally published on The Resurgent

Aviation and the election

As the presidential election approaches, most pilots will probably become voters as well. In addition to the other issues to consider this election, aviation oriented voters should consider the aviation issues at stake.

One obvious issue is high fuel prices. According to GlobalAir.com, the average fuel price for both 100LL and jet fuel is more than six dollars per gallon in most of the country. There are many factors in pricing fuel, but, as noted in an Examiner article from March, President Obama’s decisions regarding oil production have contributed to high fuel prices. The president rejected the Keystone XL pipeline that would have transported Canadian oil to U.S. refineries. Under his administration, the approval rate for drilling permits has fallen from 73 to 23 percent. The approval process also takes longer. This means that in the future the United States will have less oil available and prices will trend higher.

Airlines are heavily unionized and labor organizations have traditionally supported Democrats. Although the Air Line Pilot’s Association has supported several pieces of President Obama’s legislation, ALPA has not yet endorsed either candidate for president this year. Nevertheless, an ALPA White Paper, “Leveling the Playing Field for U.S. Airlines and their Employees,” does call for reform of aviation tax policy to increase competitiveness. According to On The Issues, Mitt Romney’s platform calls for lowering tax rates for business and streamlining regulations.

One new regulation that President Obama has proposed is aviation user fees. According to the Aircraft Owners and Pilots Association, the proposal currently exempts piston engine airplanes and certain types of flight operations. Turbine aircraft would be charged $100 per flight in controlled airspace under the plan. In the October issue of “AOPA Pilot” magazine, Mitt Romney says, “Eliminating burdensome regulations and working with the aviation industry to ensure that consumers are receiving the best service possible are equally important to keeping cost down.”

President Obama has also repeatedly attacked general aviation throughout his four years in office. In 2008, Democrats took the CEOs of the Detroit automakers to task for using private jets to fly to congressional hearings. In 2011, President Obama accused Republicans of compromising “kids’ safety so that some corporate jet owner continues to get a tax break” according to Examiner. The Washington Times notes that Obama attacked corporate jet owners again in the first presidential debate in Denver, saying, “If you've got a corporate jet, you can probably afford to pay full freight.”

Finally, aviation obviously rises and falls with the general economy. When the rest of the country is doing well, people fly more, both in airliners and private planes. Under President Obama, the economy has performed poorly by most measures. Unemployment is up. Wages are down. Unfortunately, the president does not see the need to change his economic policies if he is elected for another four years. This means that the economy and aviation will continue to be stagnant and experience only slow growth at best.

Under such scenario, retirements may lead the airlines to start hiring again, but growth and expansion would be unlikely. Jobs in corporate aviation and charter will also be hard to find. As the demand for pilots slows further, so will the demand for flight instructors and aircraft.

One of the jobs that might be lost in second Obama term is mine. My company started furloughing earlier this year after recalling almost all of our furloughees from 2008. At this point, almost half of the pilots on the seniority list have been laid off or left voluntarily to retire or take other jobs. A true economic recovery is needed to generate demand for air travel. That recovery will not happen if President Obama is reelected. With the threat of the fiscal cliff hanging over businesses, it might not happen in a Romney Administration either.

President Obama is on the wrong side of a host of issues that affect aviation. The best chance for an economic recovery and growth in the aviation industry is for Americans and pilots to elect Mitt Romney.

Originally published on Examiner.com

http://www.examiner.com/article/aviation-and-the-election

Walker’s Wisconsin win is another bad omen for Democrats

The victory of Scott Walker over recall forces in Wisconsin should serve as a warning to Democrats prior to the November elections. Despite a very high profile campaign by unions and Democrats to recall Gov. Walker, Lt. Gov. Rebecca Kleefisch, and four Republican senators, the recall efforts fell far short of their goal. The recall had its origin in the 2011 changes to Wisconsin law that eliminated collective bargaining for state employee unions. Republicans claimed that generous union contracts were breaking the state’s budget.

In the final result, Gov. Walker defeated the recall forces by almost seven percent of the vote according to Real Clear Politics. Lt. Gov. Kleefisch was also confirmed by voters. According to the Los Angeles Times, the sole bright spot for Democrats was the senate recall election in Racine County where Democrat John Lehman claimed victory over Republican Van Wanggard, the incumbent. At press time, Wanggard had not conceded and, with a difference of less than 1,000 votes, may challenge the results.

If the Racine results stand, it would give Democrats control of the Wisconsin state senate, but the effect would be minimal. The legislature is not scheduled to meet again until after the general election in November. Since Republicans controlled the redistricting process due their 2010 victories and created districts more favorable to the GOP, the Democratic majority might be very short lived.

The Democratic difficulty in Wisconsin is compounded by the improving state economy under Walker. According to an analysis by ABC News, the state ended 2011 with a greater number of employed workers than had started the year. The state’s unemployment rate is 6.7 percent, well below the national 8.2 percent rate. Wisconsin’s unemployment rate has declined one percent since Walker took office. The report also notes that Wisconsin’s average income rose faster than the national average in 2011, 4.8 to 4.3 percent.

Walker’s biggest economic achievement was to turn the state’s $143 million deficit into a $154 million budget surplus according to the La Crosse Tribune. ABC notes that Walker accomplished the feat without raising taxes, although it notes that Walker’s reforms require state workers to make larger contributions to their health insurance and retirement plans.

The failure of the recalls does not bode well for President Obama. The rejection of the union-backed Democratic candidates in the recall after record-setting spending by both sides cannot be construed as a good sign for the administration. Republicans from across the country, including the Georgia GOP, rallied to support Walker in what was seen as a bellwether race. Likewise, Democrats and union members poured money into the state to support the recall. In what is perhaps a sign that national Democrats sensed the inevitability of defeat, President Obama distanced himself from the effort as Election Day grew near.

According to 270towin.com, Wisconsin has not voted for a Republican president since 1984. Nevertheless, Real Clear Politics polls in Wisconsin show President Obama’s lead over Mitt Romney deteriorating. The current average of polls puts Obama ahead by less than five percent, near the margin of error for most polls.

The failing recall and alarming presidential trend led Obama campaign manager Jim Messina to move Wisconsin, a traditional blue state, into the tossup category for the general election. On the day before the recall, Messina released a video (posted on Politico) to supporters that attempts to reassure supporters in the face of Obama’s falling poll numbers.

The video points to the Messina’s belief that Romney trails Obama by 191-243 in electoral votes, but fails to note that many of the 104 undecided electoral votes are in states where public opinion is trending toward Romney. The Republicans made large gains in 2010 in Florida, Ohio, Iowa, Colorado, Indiana, Nevada, North Carolina, Virginia, and, of course, Wisconsin, states now considered tossups in the presidential election. Republican victories in most of these states, particularly Florida, Ohio, North Carolina, and Virginia, would put Romney very close to the 270 electoral votes needed to win the presidency. An additional victory in Wisconsin or another small state would make the difference.

The Wisconsin election is one more sign that this year is not favorable to President Obama and the Democrats. The trend toward Romney and the recognition that Wisconsin is now a tossup means that the Obama campaign will need to spend money, time and effort to defend a state that was previously considered safe for Democrats, taking away resources from other swing states.

 

Read this article on Examiner.com:

http://www.examiner.com/article/walker-win-wisconsin-is-bad-news-for-obama

Obama’s green war on jobs and energy

In spite of acknowledging the need to wean the United States off of Middle Eastern oil, the Obama Administration, prompted by core supporters in the environmental lobby, is waging a job-killing war against two projects that would help the economy, produce jobs for Americans, and, perhaps most importantly, reduce our dependence on oil imported from unfriendly foreign countries.

The first issue is the EPA’s proposed regulation of fracking. “Fracking” is a slang term for hydraulic fracturing, the process of injecting fluids, primarily water, into rocks to create larger fissures. The larger fissures allow more oil or natural gas to flow into the well. The process makes it possible to tap into previously unreachable oil and natural gas reserves. The debate on fracking centers on the Marcellus Shale formation in Pennsylvania and Ohio and the Dakota oil and gas fields. Fracking has also been used safely in Texas since the 1950s.

Opponents of fracking are concerned about the impact on air and water quality. Opponents will likely be heartened by the recent release of an EPA report that suggests that fracking may contaminate groundwater. The Wall Street Journal notes that the report, which has not been peer reviewed, admits that chemicals detected in the water in Pavilion, Wy., where the tests were done, are within acceptable limits. Further, the problematic chemical detected is not used in fracking at all, but is a common fire retardant used in plastic components for drinking water wells. This leads many to believe that the contamination is not from fracking at all.

The decision on whether to allow fracking in the Marcellus Shale is important because of the size of the field. It contains an estimated 500 trillion cubic feet of natural gas. The amount recoverable, estimated at about ten percent of the total, is almost equal to two years of natural gas production for the entire rest of the country. As technology advances, more oil and gas that was previously unreachable can be recovered.

Allowing fracking would not only create jobs in the natural gas and oil industries, it would be a boon to the rest of the economy in the form of cheaper energy costs as well. When energy costs go down, manufacturing costs decrease as well. This makes American products more competitive and helps American businesses grow.

The second project that President Obama’s administration is intentionally delaying is the Keystone oil pipeline. The Keystone pipeline would run from Canada’s Athabasca oil sands in Alberta to American refineries in Texas.

The benefits of the pipeline are easy to see. Most obviously, it would relieve U.S. dependency on Middle Eastern and Venezuelan oil and contribute to national energy security. The additional supplies of oil should also help drive down energy costs. Further, TransCanada, the pipeline’s owner, estimates that construction of the pipeline would create 20,000 construction and manufacturing jobs in the U.S. Other jobs would be created in other industries, such as restaurants and hotels, as well. The effect of lower energy prices would create positive effects across the economy. Total value to the U.S. economy is expected to exceed $20 billion.

The pipeline was proposed in 2008 and approved by Canada’s National Energy Board on March 11, 2010. Since then, the proposal has been winding its way through a labyrinth of state and federal bureaucracies. Almost two years later, no final decision has been made at the federal level.

President Obama had previously announced his intention to delay making a decision on the pipeline until 2013, but a provision in the payroll tax extension bill forces him to make a decision in 60 days, moving up the deadline to late February. Given the enormous economic benefit in a time of economic crisis, why is President Obama delaying the approval of the pipeline?

The answer lies in the makeup of President Obama’s base. Environmental groups that are key supporters of President Obama oppose the pipeline over concerns about global warming, possible groundwater contamination in the event of an oil spill, and basic opposition to any development of the oil sands.

There are problems with this position. One is that if the Keystone pipeline is canceled, the oil sands are still likely to be developed. If the United States does not gain access to this Canadian oil, it will, in all likelihood, go to the Chinese. If the Chinese buy Canadian oil, it will be transported via tankers to China, which is a far less safe mode of transportation than a pipeline.

Even though the United States still imports almost half of the oil that it consumes according to the Energy Information Administration, in 2011 the U.S. became a net exporter of fuel. With additional Canadian oil flowing to U.S. refineries combined with a weakening dollar, U.S. export numbers should continue to improve.

Ironically, Obama’s base is becoming split over the pipeline issue. While environmentalists oppose the project, unions have voiced their support for the pipeline on the grounds that it will create jobs and help the economy. If he decides against the pipeline, President Obama risks losing support to a pro-growth candidate. On the other hand, if he approves the pipeline, environmental activists may support a third party candidate, such as a Green, or stay home.

The interference of President Obama’s EPA with fracking and the president’s long delay in approving the Keystone pipeline are two examples of how President Obama’s commitment to a future green energy system and his environmentalist supporters are hurting the United States today. High energy costs could be somewhat reduced by more oil supplies and more jobs could be created if the president approves these projects.

Read this article on Examiner.com:

http://www.examiner.com/conservative-in-atlanta/obama-s-energy-policies-cost-jobs

Wisconsin-esque protests are unlikely in Georgia

Wikimedia Commons/Justin Ormont

As the country watches the protests unfolding in Wisconsin over Gov. Scott Walker’s plan to remove the right of government employee unions to bargain collectively, many Georgians are probably wondering whether the Peach State might see a similar revolt by teachers over attempts to cut pay and benefits.  Many states share Wisconsin’s problem of deficit spending due to the recession and falling tax revenues, as well as expensive contracts with state government employees. 

While Georgia has shared Wisconsin’s budget problems over the past few years, it does not have Wisconsin’s problem of out of control public employee unions.  In Wisconsin, all teachers are required to be members of the teacher’s union.  The government deducts union dues from each teacher’s paycheck and funnels the money directly to the union.  In return, the union funnels a portion of the money back to politicians, usually Democrats, as campaign contributions.  These politicians then negotiate sweetheart deals for the union members when it is time to renegotiate their contracts, often neglecting to fund promised items such as pensions.  In the current crisis, fourteen state senators, all Democrats, have fled the state to avoid giving Gov. Walker the needed number of votes to pass the law.  Essentially, the senators are thwarting democracy to keep the system alive.

Not surprisingly, the Wisconsin system has led to growth in government salaries and benefits.  Not only do government workers in most states make significantly more than their private sector counterparts, they have more generous benefits for which they pay a smaller share.  Wisconsin teachers reportedly have two state-funded pension plans at a time when many private employees do not have one at all.  Ironically, these generous benefits and paychecks are funded by taxpayers, who often have to pay larger portions of their own health and retirement benefits from a paycheck that is, on average, smaller than that of government employees.  It is a wealth transfer that benefits the wealthier government employees. 

It is also not surprising that this has led to an explosion in union membership among government workers.  According to the Bureau of Labor Statistics, the rate of union membership among government workers (36.2%) is more than five times higher than that of private workers (6.9%).

The Wisconsin system is a relic of the days when tax revenues seemed inexhaustible.  If funds ran short, the government would simply raise taxes.  Today it is unworkable.  In an economy ravaged by the Great Recession, it is impossible to continually raise taxes to pay for expensive government programs (or expensive government workers) without doing further damage to the private citizens and businesses that provide the real engine for economic growth in the state.  The 2010 census revealed that people and businesses are fleeing high tax states for those that are friendlier to business.

In contrast, Georgia is a right to work state where workers cannot be forced to join or contribute to a union.  According to USA Today, government workers in Georgia already earn almost $3,900 less than private workers on average.  Georgia state employees also do not have collective bargaining rights with the state.  This means that the state can enact pay cuts and layoffs without going through lengthy negotiations with the union.  This means that Georgia’s governor can act quickly to trim the budget in times of fiscal distress.   Georgia teachers have already faced pay cuts, furloughs, and layoffs over the past few years. 

Georgia is tied with Arkansas for the second lowest rate of union membership in the country, but what really differentiates Georgia from Wisconsin is that Georgia’s union members do not have the ability to negotiate with bureaucrats for pay and benefit increases while bypassing the taxpayers who, in reality, must foot the bill.  This means that, while Georgia state employees may be impacted by further budget cuts, their salaries are already much closer to market rates in the current economy than those of states where collective bargaining has established artificially high wages.

Georgia is also in much better shape with respect to pension liabilities.  States like Wisconsin and California have massive unfunded pension liabilities that threaten to sink the entire state economies.  These states did not set aside money to pay pension benefits for their employees, instead gambling that the money could be raised through higher taxes or economic growth.  Wisconsin’s unfunded pension liability is a staggering $77 billion.  In contrast, Georgia’s state employee pensions are almost totally funded.

It is also unlikely that all or most of Georgia’s Democratic legislators would flee the state to prevent a vote on legislation.  In the General Assembly, a majority of members is required to transact business.  The Georgia Senate is made of 56 senators, of which 20 are currently Democrats.  The House of Representatives has 180 members.  Sixty-three representatives are currently Democrats.  Therefore, even if all Democrats left the state, there would be enough Republicans left to conduct business.  Wisconsin is one of only a few states to require a supermajority to pass legislation, and then only in budgetary matters.  

http://www.examiner.com/conservative-in-atlanta/wisconsin-style-protests-unlikely-georgia#ixzz1FOsNLJwB"> 

Election myth: Does the GOP want to ship jobs overseas?

The third common myth being spread by Democrats this election season is that Republicans want to send American jobs to other countries. This is an obvious exaggeration. No politician of either party would want to send his or her constituents’ jobs out of their district and to another country. You don’t get re-elected that way and, above all else, most politicians want to get re-elected.

The question then becomes how best to preserve American jobs. President Obama and the Democrats believe that companies who move jobs to other countries should be punished through higher taxes or the elimination of tax breaks. A bill currently stalled in the senate purports to do just that.

However, it isn’t only Republicans that oppose this bill. At this point, Republicans don’t have the numbers to prevent passage of legislation by themselves. Some Democrats, including Max Baucus, chairman of the Senate Finance Committee, have joined the Republicans and business groups in opposing the bill on the grounds that it will make US companies less competitive.

On the other hand, conservatives believe that American companies will create jobs in the US if the government makes it cost effective for them to do so. There are many reasons that companies outsource jobs, but one of the biggest is labor costs. American workers are highly compensated, especially when non-salary benefits such as health insurance are considered. Workers in less developed nations are willing to do the same work for much less money.

Regulation is also a factor. The US has a dizzying array of complex regulations governing everything from environmental concerns to zoning. Some of these regulations are needed and some are not. Good or not, the cost of complying with government regulations can be significant. Other countries may have a regulatory environment that is easier to navigate.

Obamacare provides a good example of both employment costs and regulation. First, the mandates for increased coverage in the health care law are increasing the cost of health insurance coverage for companies. There will also be penalties if employers do not provide coverage for their employees. Second, there are new regulatory requirements in the health care law as well. One of the most well known is a requirement that companies issue 1099s to any company or individual with which they do more than $600 of business. The massive new costs associated with hiring and providing insurance for American workers may prove to be a powerful incentive for companies to move operations to other countries.

Add to this that the United States has one of the highest corporate tax rates in the world, even before state and local taxes are considered. When all these factors are considered, the US appears to have a somewhat unfriendly business climate.

The news is not all bad though. The stability of the United States and its status as a large consumer nation do help to attract foreign businesses to our shores. The Kia factory in West Point, Georgia is one example of the “insourcing” of foreign businesses to our state.

There are answers to many of these problems. A true reform of health care with an eye toward lowering costs would be a major step forward. Easing the grip of unions so that wages can be determined by the market would also help. Lowering taxes would give companies much needed capital to grow their businesses. Finally, streamlining bureaucracy and eliminating the regulations that don’t make sense would also help.