Financial Services and General Government FY 2023

House Appropriations Financial Services and General Government, May 30, 2022 

House Appropriations: Financial Services and General Government, May 21, 2021

1. Add funds to the Securities and Exchange Commission and direction in the General Provisions section of the appropriation to investigate the extent to which Mr. Mulvaney’s tenure as director of the Consumer Financial Protection Authority led to the current increase in the cost of oil futures contracts - and with it the current inflation crisis. As an SSDI recipient, I have skin in this game - which has led me toward applying for and the State of Maryland to grant me (federally funded) Food Stamps.

Comments about inflation, crypto and the upcoming recession can be found in our attachment Depression 2022, The video is here.  This section ends with "Who wants to bet on where the latest pool of junk is hiding?"

The Dodd-Frank Act provides for liquidity when crashes, such as the upcoming disaster, occur. However, neither the law nor the Federal Reserve provide any relief to the renters, homeowners and credit card customers whose debts are being purchased by the Federal Reserve and remarketed. 

In 2009, home values plummeted. Even borrowers (such as my family) who did everything right (except buying at the top of the market), found themselves unable to sell our homes. Bankruptcy and divorce followed. Job loss in the 2011 debt deal did not help matters either. Had the Federal Reserve or the Virginia Housing Development Agency marked these properties to market, what can only be called an Economic Depression would not have occurred.  

When the Fed marks bonds to market, M3 is reduced. The money vanishes in the same way it was created, with a keystroke. This also deflates the financial markets. Experience has shown that simply throwing money out of the window of the Central Banks did nothing to improve the economy. Forgiving debt would have.

Let us not repeat (or rather continue to repeat) the bad practices that left the economy in the doldrums. During the pandemic, the Federal Reserve has purchased bad paper, but without benefit to those whose debts are held in those bonds.

This time around, credit card balances and back rent should be forgiven when the Federal Reserve buys the bonds that hold the debt. Loans could also be written down, which would stop bondholders from benefiting from issuing bonds that should never have been issued in the first place. Renters of both commercial and residential property should be offered the chance to purchase their locations and homes, with assistance from Government Sponsored Enterprises, with their paper replacing the debt paper that has been securitized in Exchange Traded Funds.

ETFs may take a hit, but what was falsely sold as AAA paper would actually become what was sold. Bad landlords, and Glantz demonstrates that Mr. Mnuchin and Mr. Ross truly are bad landlords, degrade properties so that the bonds that were issued for them to cash out are nowhere near the value at issue.

In 2009, the United States aided and abetted those who created the crisis. We are currently repeating the mistake. When the inevitable crisis occurs again, doing the right thing will also be the right medicine for the economy.

I mention this issue here so that and General Provisions for this industry include these actions and because part of any bailout will require appropriated funds. In 2008, the bill passed with the promise that borrowers would be helped. Mr. Paulson lied. Let us act truthfully this time around. 

Fiscal Year 2021

The Center’s major legislative focus is tax reform, which seeks to end the need to file taxes except for all but the wealthiest households. To do this, income from capital gains and income must be split out for the sake of privacy from employers, who may look askance at portfolios that are none of their business. We also suggest ending the exemption for mutual funds. I believe this is the natural evolution of bipartisan tax reform and it is preferable to any wealth tax.

It is not too early for the Securities and Exchange Commission, this Subcommittee, the Financial Services Committee, the Ways and Means Committee and the Office of Tax Policy to examine how such a plan might be implemented. Here are the details to begin the analysis.

Asset Value-Added Tax (A-VAT). A replacement for capital gains taxes, dividend taxes, and the estate tax. It will apply to asset sales, dividend distributions, exercised options, rental income, inherited and gifted assets and the profits from short sales. Tax payments for option exercises and inherited assets will be reset, with prior tax payments for that asset eliminated so that the seller gets no benefit from them. In this perspective, it is the owner’s increase in value that is taxed.  

As with any sale of liquid or real assets, sales to a qualified broad-based Employee Stock Ownership Plan will be tax free. These taxes will fund the same spending items as income or S-VAT surtaxes. This tax will end Tax Gap issues owed by high income individuals. A 26% rate is between the GOP 24% rate (including ACA-SM and Pease surtaxes)  and the Democratic 28% rate. It’s time to quit playing football with tax rates to attract side bets.

Taxes on salaries can be collected by employers without having to file because taxes on capital income and gains would be funded separately. Rental and capital gains on real property would be collected by states and capital gains and income from financial assets would be collected by the federal government, with funds remitted by brokers or trading platforms directly to the Securities and Exchange Commission. Our proposed rate is 26%.

The biggest tax shelter is the use of money market funds to accumulate capital gains and income without taxation. This practice must end if salary surtaxes no longer include non-salaried income. 75% of such funds are held by the top 10% of households as measured by the 2019 Survey of Consumer Finance by the Federal Reserve.. I suspect the other 20% are held by high income retirees. The working class will not be harmed. 

This ratio affirms what Pareto found, except his ration was 80% of wealth held by 20% of asset holders. Clearly, things have gotten worse for the 80th to 89.9th percentile. If you apply the Pareto rule to higher levels of income, and with Berkshire Hathaway there is no reason not to, the top 1450 households hold roughly 30% of all wealth in mutual funds. This ratio also applies to bond holdings, but this is a topic for another day.

We have left a loophole on Asset Value Added Taxes that some will be able to fly a 757 through, which is trading stock overseas to avoid taxation. The only way out of this is an internationally negotiated asset VAT rate, or at least the same range. This ends the need for a minimum tax on corporate income (note that corporate income taxes will be discontinued under this proposal).

There are further details on other consumption and salary surtaxes which can be found in most of our comments to the Revenue Committees.

Video https://youtu.be/FcdMypQU3KI