New sales tax: Transfer of wealth through coercion

SOURCE: Fond du Lac Reporter
By Michael Fredrich

We were scammed.

Now that all of the key players have posed for their holy pictures and the backslapping has subsided, it is time to take an unemotional look at two questions that should have been — but were not — addressed before 16 people on the Fond du Lac County Board voted to encumber the county with a new tax:

æ 1. Was Mercury Marine really going to move production to Stillwater?

æ 2. Should taxpayers be forced to subsidize a private sector business?

The answer to both of these questions is an unqualified “no.”

Mercury is owned by Brunswick Corp. — a publicly traded company. Financial statements are easily accessible.

Brunswick’s earnings have deteriorated the last three years. In 2008 it lost $788 million. Through the first six months of 2009, Brunswick lost an additional $347 million. That is more than $1 billion in losses in 18 months.

The company has been scrambling to raise cash and refinance its debt. On Aug. 11, the company completed an offering of $350 million on 11.25 percent senior secured notes due in 2016. The money will be used to repay notes that are coming due in 2011 and 2013.

On July 4, 2009, Brunswick had cash on hand of $461 million. That seems like a lot of cash, but the company has been losing cash at the rate of nearly $50 million per month for the last 18 months. An amount of $461 million does not last long at that rate.

I can only imagine being a fly on the wall when Brunswick was meeting with its banks and its other lenders. Brunswick undoubtedly was told that it needed to reduce its labor costs and approach the communities in which it operates for below-market loans or grants.

Closing the Fond du Lac facility was never a credible option for one simple reason: The company could not afford it. Its financial position is so poor that it could never raise the capital to fund such a move.

Fond du Lac and Stillwater were bidding against each other, but Fond du Lac was always going to win. Why do you think the machinists union was allowed to vote twice?

If I had the option of operating a union plant in Wisconsin or a non-union plant in Oklahoma, it would take a nanosecond to make a decision.

The second question of using taxpayer money to fund a private sector business is more esoteric, but the answer is always no. The political class and people directly affected always provide plenty of creditable arguments for the transfer of money.

On the surface it may look good, but there are two sides to every transfer of wealth. The great 19th century French economist Fredrick Bastiat said it best in his book “Essays on Political Economy.” He proffered that every transaction should be viewed through the prism of “that which is seen, and that which is not seen.”

What is seen in the Mercury sales tax is the money raised, at least part of it, will be used to save an important business and related jobs. What is not seen is the taking of $6 million (the estimated annual revenue from the county sales tax) from the citizens of Fond du Lac County. This is nothing more than the transfer of wealth through government coercion.

Before the vote was taken, I pleaded with my representatives to delay the vote so there could be public hearings. I also thought a decision such as this should be decided by a referendum.

You know the result. To the two supervisors who voted “no” — thank you. To the 16 who voted “yes”— shame on you.

Michael J. Fredrich of Fond du Lac serves as president of MCM Composites in Manitowoc. He points out that he spent 15 years in commercial banking in Milwaukee and five years as chief financial officer of Star Cablevision.