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Time To Eliminate Your Wall Street Tax?

Wall Street is thrivingAs we get older, and hopefully wiser, we generally start to become more discerning on how we view the world and the problems we face. Many of us who seek to make the world a better place try to look at the problems, analyze them, and do what we can to correct them. However, because there are so many different problems facing us, this approach often overwhelms us and can instill a sense of hopelessness in our ability to create positive change.

Looking more deeply into this situation, we discover that many of these difficulties are SYMPTOMS of much deeper problems, and that attempts to address these SYMPTOMS are not an effective or efficient way to bring about the changes we desire. One can compare this to having abdominal pains and visiting a doctor who offers you pain killers without investigating the underlying cause of the pains being experienced. If the pain is the result of a cancer or an ulcer, then the pain is only a SYMPTOM, not a ROOT CAUSE. Treating the SYMPTOM in this case is not an effective or efficient way to address the problem. It may bring about temporary relief, but ignores the ROOT CAUSE.

A similar situation exists when we look at the wide range of issues we face as a society. Some of the issues include homelessness, lack of medical care, unemployment, high debt loads, widening wealth gap, declining schools, infrastructure neglect, fraying safety net, increasing government fees and tolls, etc. Trying to address each one of these issues individually becomes an overwhelming task. These issues are not ROOT CAUSES, but SYMPTOMS.

If we take time to ponder and analyze each of these issues looking for a common thread, one can determine that they are all the result of money, more specifically the lack of money. This process starts getting us closer to the ROOT CAUSES.

So how is it that as a society we can work so hard and still experience this lack of money?

Consider this…. If you have a given amount of money in your possession or control, all of that money is available to you to spend. Once you give some of that money to someone else, it is no longer available to you and is now available to others. While this concept may seem to be quite elementary, this is the basis of where much of the problem lies. If one applies the same principle to a larger group such as a family, a community, a county, state and even nation, the result is still the same. Once money leaves the group, it is no longer available to that group. Understanding this brings us another step closer to the ROOT CAUSES.

Most homeowners can relate to this. Let’s suppose that you have taken out a mortgage for $100,000. By the time you have completed paying off your mortgage, it will probably have cost you well over $200,000. The cost of the interest payments exceeds the original cost of the home. These interest payments are money that you and your family no longer have to spend on your needs.

The same principle applies when a school district, municipality, county or other entity wishes to do a repair, a capital improvement or infrastructure project. The costs of these projects can easily double or even triple due to the interest charges. It almost seems insane, but we pay more to the financiers of these projects than to those who provided the materials and labor for the project. This does not even include the fees imposed by the bank on the borrowers. Now we are approaching the ROOT CAUSES.

In California, the long awaited new Bay Bridge span was recently completed at a cost of $6.4 billion, which was 4 times over the initial projected costs. What most Californians don’t realize is that the total cost of the bridge will eclipse $13 billion when interest payments are considered over the life of the loans or bonds. So when we talk of projects costs doubling or tripling, it is not hyperbole.

So exactly where does all this interest and fee money go when it leaves the community?

It flows to the big Wall Street banks, enriching them, while impoverishing the community. This is the “Wall Street Tax” that effectively doubles or triples the cost of every project across every community in the nation. It is YOU, the taxpayer who pays this tax. Once the money leaves the community, it can no longer circulate locally and is no longer available to the community, exactly as described in an earlier paragraph. This is a ROOT CAUSE of why so many communities are struggling. To add insult to injury, these big Wall Street financiers are not even using their own money, they use other people’s money so they can skim the interest payments to line their own pockets. We have all seen how Wall Street has prospered since the 2008 crisis, while Main Street has been left to languish.

So why do school districts, municipalities, counties and states (we’ll just refer to them as “communities” from this point on) use these big Wall Street financiers to fund their projects? It is because the costs of these projects usually exceed the ability of small local community banks to finance them. Additionally, because of capital requirements, the deposits of these communities can not be handled by the smaller local banks leaving only the big banks capable of handling such large deposits and transactions.

This means that even the deposits of these communities which can include tax revenues, payrolls, and pension funds, are deposited with the large banks and therefore also shipped out the community,. These funds are then “invested” by Wall Street anywhere in the world where they can obtain the highest return. These funds are not being used to invest in local needs. This is another ROOT CAUSE for why Main Street has been struggling, while Wall Street has been thriving.

With the current banking system we have witnessed the largest concentration of wealth in human history, while the vast majority of people have experienced stagnant wages, declining wealth, and recurring recessions.

Maybe it is time to engage in some “out of the box” creative thinking? Wouldn’t it be wiser for communities to be able to obtain local funding at reduced interest rates where any interest payments would remain in the community and get recycled? Any good businessman would tell you that it is sound business to eliminate any middleman in a business transaction. Wall Street is nothing more than a middleman between funding and community needs, and if the Wall Street middleman was eliminated, more money would remain in our communities. How could this be done?

There is another way to finance public projects and it is already happening across the world and in the state of North Dakota. North Dakota has its own public bank, the Bank of North Dakota. This bank has been in existence for a century and provides communities and businesses with low cost loans. Some examples of this: A new business in North Dakota can get a 1% loan for 5 years, student loans are available at below market rates with no bank fees, no town or county in ND has or needs a “rainy day” fund, they instead have the Bank of ND where they can obtain low interest loans should an emergency arise.

The Bank of ND does not compete with community banks, but rather partners with them. There is a correlation between this partnering and the fact that North Dakota has the largest number of community banks per capita of all states in the nation. Additionally, the Bank of ND has only one office and no branches, no tellers, and no ATMs that compete with community banks.

This partnering with local community banks means that the Bank of ND does not lend directly to small local businesses, but relies instead on the local community banks to originate those loans. The public state bank can provide funding beyond the deposit base of a small community bank allowing the community bank to finance projects it could not have financed without the partnership. If a local bank had a $5 million limit, and a business wanted $10 million for a new showroom, the bank would have to say no to the loan, forcing the business to go to a Wells Fargo, Citi, JP Morgan Chase or other large Wall Street bank. This results in the loss of business for the community bank. With the public state bank, the community bank could partner on the loan, raising its loan ceiling, retain the money in the community, and provide the services needed.

One very important issue that needs to be raised is that of the safety of the loans being made. It is important to be sure that bank loans are made to people and entities that are truly credit worthy. In North Dakota there is a double check on this process. Any loan that a community bank requests a partnership with would require approval by both the community bank and the state bank officers, since both would be providing the funds. This results in a lower default rate as two sets of eyes are examining and approving the loan.

There are those who may say that a state public bank could be at risk of failure and may need to be bailed out by the taxpayers. This was an issue that created much anger during the 2008 crisis. However, the Bank of ND was properly managed and did not need a bail out and in fact returned a profit of millions that year and every year since then to the state treasury. Politicians on BOTH sides of the aisle in the North Dakota Legislature love and support their state bank! How common is that?

The proper management of the Bank of ND can be attributed to the fact that the officers of the bank receive appropriate salaries (far less than their Wall Street counterparts) and have no bonuses and therefore no incentives to take on excessive risk. The private Wall Street bankers are pressured by their shareholders to return high profits, which often leads to excessive risk taking rather focusing on the economic growth of the state and nation. Some of these investments could possibly be for things the community would not support or would even work against the best interests of their community. The public bank is required by its owners, which would be the people, to invest wisely to promote the economic vitality of the community.

The prosperity created by keeping deposits locally and recycling the fee and interest money locally, would create new jobs, new businesses, fund “wish list” projects, and as a result would raise tax revenue. As more businesses thrive, the tax base and ratables would became larger, which could possibly contribute to tax cuts.

A public bank is not limited to only states. Municipalities and counties could also form their own. There are public banks being considered in New Jersey, Philadelphia, Santa Fe, Vermont, California, Seattle, Los Angeles, Oakland, San Francisco and other places. These public banks have the ability to transform how communities obtain funding. It will keep deposit and interest money circulating locally and out of the hands of Wall Street, thus enabling our local communities to thrive.

I would encourage readers to do their own research and discover how a public bank can tip the balance towards Main Street, rather than Wall Street, and help their small community banks at the same time. A good place to start is with the Public Banking Institute. Perhaps this is a good time to eliminate the Wall Street Tax that you are paying.

On Thursday April 6, 2017 two world-renowned economic thinkers, Michael Hudson and Ellen Brown, came to Franklin & Marshall College in Lancaster, PA to discuss how a public banking option can affect governmental effectiveness. This discussion was moderated by Walt McRee, the chair of the Public Banking Institute. This discussion which was open to the public focused on the key differences between government’s unquestioned reliance on private capital markets and how an entirely new, more productive arrangement could be devised. Kudos to Franklin & Marshall College for providing their students and community with such a high caliber seminar. The following video is that discussion.

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Prosperity for Main Street, not Wall Street

January 30, 2014 1 comment

The key reason that communities are struggling is the huge burden of interest payments that are flowing to the big banks. Think about this, if you buy a home for say $100,000 dollars, typically you will have paid $250,000 once the loan is paid off. This means the typical loan will incur $150,000 in interest charges.

The same concept applies when a community builds an infrastructure project such as school, road, bridge, sewer or other project. That $1 million dollar school could end up costing taxpayers in the community $2.5 million after interest charges.

So taxpayers are paying more to the financiers of the project than to those who supplied the materials and actually did the labor to build it. Are you OK with them acting as a middleman sucking prosperity from our communities? Any good business model dictates the efficiency of eliminating middlemen.

If we look at cities like Detroit and Philadelphia, hundreds of millions of dollars in interest payments and fees are leaving the city and flowing into the coffers of Wall St. This lost money impoverishes your community while Wall St gets bigger and richer than ever. The video below describes a solution to this problem.

Sounds of Resistance

April 20, 2011 4 comments

2 out of 3 corporations pay no federal taxes. Some of the biggest tax evaders include Exxon, Verizon, Bank of America, Boeing, CitiGroup, among others. These corporate executives sit there with their “patriotic” flags on their lapels, while they scheme how to avoid paying their fair share of taxes, cut deals to ship American jobs overseas, and setup tax havens in the Caribbean. Is it any wonder that the rest of the country is mired in this economic misery while they prosper?

We don’t have a budget crisis in Washington. We have a MORAL CRISIS. When Congress can seriously debate forcing veterans into homelessness, cutting early childhood education, Pell grants for our students, heating assistance for the elderly, and cutting food aid to pregnant women and children, while giving tax breaks to billionaires and large corporations, something is very, very wrong.

If these corporations paid their share, we would not need to be cutting these programs. So on Friday April 15, 2011 hundreds of people met at Union Square Park in New York to protest this fact. This event was called the Sounds of Resistance and the target was Bank of America. While this bank received $billions in taxpayer funds, it made $billions in profits, it was busy foreclosing on millions of homeowners, all while working very hard to create over a hundred foreign tax havens to avoid paying taxes on their profits.

This video by EndTheIllusion highlights this event.

Student Debt Burden Solution Part 2

Student Debt Burden Solution Part 2 from Illusionist on Vimeo.

Wealth GapIn the last video we presented information on how the gap between the wealthy and the rest of us has been growing wider and wider, and how the financial elites were not only NOT suffering but were actually thriving in this economic environment, while the rest of us struggle to make ends meet and endure draconian cuts in the social safety net programs and aid to education. All while the financial elites showered themselves with huge tax cuts. Well, unfortunately the situation is even worse than the first video presented.

If you look at the current tax rates, it appears that the millionaires and billionaires have to pay a tax rate of 35%, but this figure is very misleading. It assumes a level playing field for all taxpayers, however, that is not really the case.

Apparent Tax Rates

If you take a look at the number of pages in our tax code, you will see that the size has been growing rapidly until the current tax code is an astounding 71,684 pages in length. So how is it that the tax code has become so large? The answer is very simple, the wealthy elites contribute to the political class and therefore they ultimately control the government and have the clout to have these bought politicians write loopholes into the tax code that enable them to take huge deductions on their taxes. So you end up with a situation where you have an illusionary apparent tax rate, but you also have a real world effective tax rate once all of the deductions are taken. Our 71,000 page tax code is totally riddled with these loopholes. The KEY TERM here is the Effective Tax Rate.

According to Forbes Magazine, the highest-earning taxpayers in the U.S. paid an income tax rate of only 17%–the lowest rate paid by the richest elites during the 15-year period covered by the IRS statistics. So their Effective tax rate is lower than someone who only makes $34,000 a year! They pay a smaller share in taxes than their secretaries, gardeners, nannies, and chauffeurs!

Now while wealthy individuals pay an extremely low effective tax rate, we have a similar situation with the corporations. The largest corporations in the US are supposed to pay a tax rate of 35%. While the corporations bemoan this rate, the reality is that due to the loopholes in the 71, 000 page tax code, depending on what specific industry you are in, the effective rate can actually go into negative territory. For example: Thanks to its deductions and adjustments, GE reported an actual U.S. federal income tax rate of negative 10.5%. It got to add a “tax benefit” of $1.1 billion back into its reported earnings. The actual amount in corporate taxes that the government collects (“the effective tax rate”) is lower than those of Germany, Canada, Japan and China, among others.

Exxon-Mobil paid no taxes. Despite benefiting from this corporate welfare in the U.S., Exxon complains about paying high taxes, claiming that it threatens energy innovation research. The corporate owned media parrots these complaints convincing the average person that corporate taxes hurt everyone. Whay was the saying that Joseph Goebbels, Hitler’s propaganda minister said: “If you repeat a lie often enough, it becomes the truth.” In fact, in 2008, the Government Accountability Office found that “two out of every three United States corporations paid no federal income taxes from 1998 through 2005.

Military fighting for corporationsSo there we have most corporations in the US not paying any tax at all, while they suck local services such as police and fire protections, road maintenance so they move they products or services, as well as international protection by the US State Department and the US Military. These services do not come cheaply and since they are not paying for them, WE ARE!
These corporate executives sit there with their “patriotic” flags on their lapels, while they scheme how to avoid paying their fair share of taxes, cut deals to ship American jobs overseas, and setup tax havens in the Caribbean. Is it any wonder that the rest of the country is mired in this economic misery while they prosper?

So there you have it, the wealthy elites are not paying their fair share, the corporations are not paying their fair share, and the rest of us are struggling.

Foreclosed and evictedSo why am I mentioning this? Because those loopholes will cost the U.S. government $628.6 billion over the next five years, according to a 2010 report from the Tax Foundation.

If all of those loopholes were closed, we could provide every one of the 11-1/2 million college students in the nation with a $54,600 grant.

Or we could provide every one of the 43 million people on food stamps with a check for $14,600.

Think about this, we are taking money away from those who need it the most, so that we can give to the corporate and financial elites of this country, the very people who need it the least.

In the last video, we mentioned that we would show you what YOU can so about this and how this already being successfully done in Britain. However, this video was needed to supplement the first one to better illustrate and drive home the astounding depth of the wealth inequality. In our next video we will show the success story in Britain and explain how students here can start to organize and achieve the same success.

Click here for Part 3 of this article

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