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Nobel laureates and Minnesota taxes

Amazingly, three alumni of Far Rockaway High School in Queens won Nobel Prizes over the course of 11 years: Richard Feynman in physics in 1965; Burton Richter, also in physics, in 1976; and Baruch Samuel Blumberg, in medicine, once again in 1976.

Trust me, we’ll get to Minnesota taxes in a moment.

Amazingly, three alumni of Far Rockaway High School in Queens won Nobel Prizes over the course of 11 years: Richard Feynman in physics in 1965; Burton Richter, also in physics, in 1976; and Baruch Samuel Blumberg, in medicine, once again in 1976. There may be another nonselective public high school someplace that has produced as many Nobel laureates, but maybe not. 

But that was all then. Two years ago, after more recent decades of lousy academic results and dangerous hallways, education officials in New York City “reorganized” FRHS into something called the “Far Rockaway Educational Campus,” a collection of four smaller, and, presumably, manageable programs.

In between, interestingly enough, Bernie Madoff also graduated Far Rockaway (as I did, for that matter). There may be a pattern here, but for our purposes, let’s just say that institutional fortunes have a tendency to bounce around, whatever the reason. 

Here’s another intriguing example of how things — in this instance, businesses — can change rather quickly.

The 11 ‘Good to Great’ companies
One of the best-selling business books since its 2001 release has been “Good to Great,” by Jim Collins. Using hard data, he identified 11 firms that had dramatically outperformed both their competitors as well as the market as a whole for about 15 years.  How dramatically?  Cumulative stock returns for the 11 companies were 6.9 times better than those of the general market. 

What were some of the companies?  Three of the better known ones were Wells Fargo, Walgreens and Kimberly-Clark.  But the two enterprises which, almost surely, have garnered the most attention over the last year have been (drum roll and taps, please) Circuit City and Fannie Mae; the former of which sought Chapter 11 bankruptcy protection last November, and the latter of which remains alive only through the compelled generosity of American taxpayers.    

Taking the 11 companies as a whole, economist Steve Levitt last summer wrote that they actually performed less well than the S&P 500 in the eight years after the book’s release. 

Then there’s an old but still important George McGovern op-ed.  Writing in the Wall Street Journal in 1992, the South Dakota Democrat talked about how he had bought an inn in Connecticut four years earlier, but which had gone bankrupt in the interim.  “In retrospect,” he acknowledged, “I wish I had known more about the hazards and difficulties of such a business, especially during a recession of the kind that hit New England just as I was acquiring the inn’s 43-year leasehold.” 

Even more candidly and impressively, he wrote, “I also wish that during the years I was in public office, I had had firsthand experience about the difficulties business people face every day.  That knowledge would have made me a better U.S. senator and more understanding presidential contender.”

The connection between the stories
What’s the main thread in these disparate stories?  It’s the brilliantly acute insight that running an organization — be it commercial or otherwise — is hard.  Remaining afloat is hard.  Making payroll can be extra hard.

Let’s say you own a new business.  Every dollar you have may be tied up in it.  Sure you fantasize about getting rich, but for the time being at least, just about everything in your life is consumed by your dream.  Your employees also rely on your success for their own families to stay fed and sheltered.  Sleepless nights aside, you take satisfaction in contributing to your community in the most tangible ways you can: providing products, services and jobs.  Not incidentally, you also generate a reasonably steady stream of tax revenues.       

But then you fire up your computer one morning and read that DFLers in the Minnesota Legislature — on the off-chance your business has a decent year despite the worst economic downturn in three-quarters of century — expect you to pay one of the highest income tax rates in the country: 9 percent if their House bill prevails; 9.25 percent if their Senate bill does.

I’m not unmindful of how difficult it is to balance a biennial budget that’s almost $5 billion out of whack.  But I’m more mindful and admiring all the time of what it takes to run a successful business and how dependent we are on the men and women who do so here — as opposed to the overwhelming majority of other states with lower tax burdens. (Note: The personal income taxes of many business owners are based on their companies’ revenues.)

So two impertinently pertinent questions:

Do these proposals sound as if they were designed by people who truly know what it takes to conceive, create, and run a business? 

Even more to the point, do these plans sound like promising ways of encouraging entrepreneurial people to set up shop in Minnesota and then stick around? 

Mitch Pearlstein is the founder and president of Center of the American Experiment.