With my extensive experience in tax, fiscal, economic, regulatory, and financial services policy, I’ll be fearless champion for the economy of Southwest Virginia and the nation at large. Since the previous generation of Americans built the middle-class, the new generation must take action to restore it.
The American economy can’t really succeed unless we develop a fair and level playing field for workers, business, and young people. The US can and must return to having an economy that reflects our American values, not one that caters to the interests of the wealthy and well-connected.
Unfortunately tens of millions of American families have been falling behind for decades, and desperately need a voice in Washington that will fight for them. For too long, our all-talk, do-nothing politicians have failed American families, while cozying up to lobbyists and big money donors. .
Investing in America and Its Workers
Science and Technology
The U.S. must invest in funding for scientific research in all agencies and fields, including the National Institutes of Health (NIH), National Science Foundation (NSF), National Aeronautics and Space Administration (NASA), the Department of Energy (DOE) and many others.
The 9th district is home to Virginia Tech, one of the premier research institutions in the entire world. Many of Virginia Tech’s research projects rely on consistent funding from these federal agencies.These investments yield life-saving and world-changing innovations necessary to keep us safe, healthy, and secure. Failing to make these investments would not only hurt the Hokie community, but could also result in an “innovation deficit” that would cost us our position as a world leader in cutting-edge research and design.
Empowering American Workers
In order to rebuild America’s middle class, we need to protect the rights of workers to stand up for themselves if they need to. One of the best ways to do this is to pass ‘card check’ legislation, which would help our nation’s workers organize. That’s why I would support a modern version of the Employee Free Choice Act (EFCA) with card check and first contract arbitration clauses.
A card check provision would simplify the organizing process, and a first contract arbitration clause would ensure that any further organizational disputes are officially resolved in a timely manner. These provisions would help put workers on an equal playing field and open up free and fair discussions between all parties.
The United States’ infrastructure is in undeniable decline, going from what was once the envy of the world to ranking among the bottom compared to other developed countries. Everyone knows that we need to get back to fully funding infrastructure projects, and transportation experts say this currently amounts to over $2.2 trillion in work. Fully funding these improvements will create hundreds of thousands of jobs across the country, in many different fields.
Here in southwest Virginia, we have plenty of working people who know how to dig, log, and mine. That’s why I’m proposing we put these skills to work building new railways for freight and high-speed passenger rail. Anyone who has ever driven on Interstate 81 can understand the need to get more freight off the roads and onto rails. And one of the biggest things holding back the development of tourism in Southwest Virginia is lack of accessibility to and from major population centers in Richmond, Charlotte, and Northern Virginia.
If I’m elected to Congress, I will immediately begin working with federal rail and transportation officials to build a plan for a high speed rail network that quickly connects southwest Virginia with the millions of people who want to visit our incredible natural beauty. This bold new project will employ thousands of people all across Southwest Virginia, regardless of education or skill level.
As an accident of history, the federal minimum wage was never tied to inflation. This means that Congress has to pass a new law every time it wants to raise the minimum wage. Since the legislative process can be slow, tricky, tangled, and political, there have been many periods where the minimum wage wasn’t adequately adjusted for inflation, and now the value of the minimum wage in real (inflation adjusted) dollars is near an all-time low. It has now been over 10 years since the federal minimum wage has been raised by Congress. Millions of minimum wage workers, the majority of whom are adults working full time, are unable to make basic ends meet with their current wages.
In fact, a recent nationwide study found that there are zero states in which a minimum wage worker can find affordable housing. In order to afford a modest, two-bedroom rental home in the U.S., renters need to earn a wage of $21.21 per hour, which is $13.96 higher than the federal minimum wage of $7.25, and $4.83 higher than the average hourly wage of $16.38 earned by renters nationwide. This means that a renter earning the federal minimum wage would need to work 117 hours per week just to afford a two-bedroom rental home at the Fair Market Rent.
That’s why I am proposing to make a one-time inflation adjustment to the minimum wage to make up for the years where it was eroded by inflation. I would also then permanently tie the wage to an official measure of inflation, such as the Consumer Price Index (CPI) compiled by the Department of Labor. This way, the minimum wage would always keep up with inflation, and Congress wouldn’t have to constantly fight over adjusting it. This would help millions of American workers (many who are single moms) while also helping to reduce some of the nasty partisanship in Congress.
Protecting Social Security
No Cuts, No Privatization
Social Security is one of the most successful federal programs ever created, and many Republicans, including Representative Griffith, are attempting to destroy it. Efforts to privatize Social Security will serve only the Wall Street lobbyists interested in profiting from the fees paid by seniors and working Americans saving for their well-earned retirement.
Contrary to statements made by corporate-funded lobbyists, politicians, and Washington think-tanks, Social Security is not going broke. The Social Security Trust Fund can pay out benefits in full until 2037. In fact, by simply eliminating the cap on income that is subject to payroll taxes, we can preserve the balance of the Trust Fund for decades to come – you can find more details on this plan in the section on Justin’s tax plan.
We must fight back against efforts to throw America’s seniors back into poverty by standing up for Social Security. If elected to Congress, I’ll strongly oppose any and all cuts to Social Security, including raising the retirement age, adoption of “chained-CPI”(Chained Consumer Price Index), or any other benefit cut.
In all of the years that Social Security has existed, only three have resulted in a non-increase in cost of living standards (COLA). All three of those years have been since 2010. This means that in an environment where many seniors have lost their retirement savings due to the Wall Street crash, the social security program has been less generous than at any point in recent history.
For this reason, I believe we should expand Social Security benefits for those who need it, so current and future retirees don’t have to live out their golden years in financial distress. We are the wealthiest nation in human history, so we shouldn’t have to settle for anything other than a relaxing, dignified retirement.
Expanding High Speed Internet and Cellphone Access
Rural Connectivity for the 21st Century
Our mountains and hollers are what make Southwest Virginia beautiful. But they also make it difficult for rural Virginia to get fast, affordable cell phone coverage and internet access. For many years, the 9th district was represented by Rick Boucher, who became a pioneer in advocating for and developing rural internet access. Blacksburg was one of the first towns in the country to be fully connected to the internet thanks to Congressman Boucher, and many other areas of the district boasted some of the highest connectivity rates in the country.
Unfortunately, Representative Boucher’s legacy of progress has been completely abandoned by his do-nothing successor. As many urban, wealthy areas of the country have been enjoying ultra high speed fiber-optic internet access, rural America has been falling behind. Many rural Americans are now stuck with few slow, expensive, and outdated options like satellite and DSL, which puts us at a competitive disadvantage with the rest of the country.
In the 21st century, internet access is a requirement for success in the economy, not a luxury. Many large employers now have full time employees that work 100% remotely. While this is a great option for those who can enjoy it, the slower internet speeds in rural areas puts southwest Virginia’s workers at a disadvantage in this new digital age.
That’s why I’m calling for a new federal project to lay millions of miles of new ultra-high speed fiber-optic cables through our mountains and streams. We also need to build dozens more cell phone towers so rural folks can get consistent access to mobile phone service and 4G data.
This effort will be similar to the Rural Electrification Project of the 1930’s and 40’s. In 1934, less than 11% of U.S. farms had electricity, compared to nearly 90% of farms in Europe. So as part of its “New Deal” program, the Roosevelt Administration created the Rural Electrification Administration (REA).
The REA gave loans to rural organizations to help set up their own power systems, and was one of the New Deal’s most successful programs. By 1937, hundreds of new municipal power utilities were created nationwide. By 1942, nearly 50% of US farms had electricity, and by 1952 almost all US farms had electricity. If our grandparents and great-grandparents could succeed in efforts like these, there is no reason we can’t now.
A Tax Code That Works For Everyone
An effective tax plan that works for all Americans reduces the burden on working families, while ensuring that everyone is treated fairly. Reducing the number of loopholes and exceptions in the tax code is in everyone’s interest. The tax code should not be rewarding those who can hire consultants and experts to maximize their deductions. It should be simple and straightforward, rewarding those who play by the rules and work hard to provide for themselves and for their families.
My tax plan is centered around the basic idea that the government should tax bad things, and not tax good things. This means reducing the tax burden on work, employment, and production, and shifting it towards social ills.
My Small Business-Friendly Tax Plan
This plan lowers and simplifies existing corporate tax rates and significantly cuts federal taxes on businesses that file as corporations. While lowering corporate rates is important, we also need to reduce the cost of tax compliance for all types of business.
Employers should be free to spend their valuable time and resources on running their businesses, not filing paperwork and jumping through hoops. That’s why my plan lowers rates and makes the tax system easier to understand. This is yet another way in which I hope to reorient our economy towards real productivity, and away from make-work jobs like tax compliance.
My plan eliminates taxation on corporate income up to $100,000 per year, lowers the remaining marginal rates, and adds a few more brackets to reflect the current state of American business. All income levels will adjust for inflation.
|Corporate Income||Current Marginal Rate||My Plan|
|$0 to 50,000||15%||0%|
|50,000 to 75,000||$7,500 + 25% of the amount over 50,000||0%|
|75,000 to 100,000||13,750 + 34% of the amount over 75,000||0%|
|100,000 to 335,000||22,250 + 39% Of the amount over 100,000||3%|
|335,000 to 1 million||[New Bracket]||5%|
|1 million to to 5 million||[New Bracket]||7%|
|5 million to 20 million||[New Bracket]||10%|
|20 million to 50 million||[New Bracket]||12%|
|50 million and up||[New Bracket]||15%|
Payroll Tax Relief
I will lower the employee-paid portion of Social Security and Medicare (FICA) tax rate from 7% to 2%, and the employer-paid portion from 7% to 4%. Since the FICA tax is automatically withheld from our paychecks, this reform would provide immediate tax relief to all working Americans, especially those who pay more in payroll taxes than income taxes. Since working people already pay food taxes, sales taxes, property taxes, fuel taxes, and state income taxes, they deserve relief from federal payroll taxes.
With this tax relief, the average working family would instantly see their take home pay go up by about several hundred dollars a month, and businesses would also see a boost in their bottom lines.
Income Tax Relief
The current income tax drains too much money away from hard working Americans, and the recent Republican tax plan actually makes this worse! My plan on the other hand will increase the value of work, by allowing families to keep more of their hard-earned money.
As the table below demonstrates, I’ll reduce income tax rates for the middle class, while raising rates only on the very wealthiest earners. All income levels will adjust for inflation.
|Income Bracket (Head of Household)||Current Marginal Rate||My Plan|
|$13,251 – $50,400||15%||7%|
|$50,401 – $130,150||25%||15%|
|$130,151 – $210,800||28%||20%|
|$210,801 – $413,350||33%||30%|
|$413,351 – $441,000||35%||35%|
Financial Sales Tax
Whenever you and I buy something, it is almost always subject to a sales tax. This sales tax comes straight out of our wallets and helps fund local governments. But for some reason, when Wall Street traders buy and sell financial instruments, often multiple times in one day, no sales taxes are applied. This is a massive give-away and subsidy to an industry which is already too large and profitable.
Since state sales taxes usually range from 4 to 7%, I’m proposing a federal sales tax of 2% on all financial transactions to even the playing field between banks and real businesses. This tax can also serve as an instrumental tool to cut down the size of the financial industry, reduce systemic risk, and increase economic stability. This tax will apply evenly to all sales of equities, securities, futures, derivatives, and other non-consumer financial instruments. If structured correctly, this tax has the potential to raise anywhere from $600 billion to $1 trillion per year.
In addition to raising significant revenue, this tax would help protect the economy from dangerous “flash crashes” that pose a severe risk to the savings of working Americans. Many of the sales that happen on Wall Street serve no constructive purpose. Traders and their computer systems often buy and sell the same products multiple times a day, in order to manipulate market swings and make a profit. This type of “high frequency trading” is just an insider’s game to make money- it does nothing to help the real economy in which most of us live and work. The financial sales tax could significantly reduce the volume of these pointless trades and incentivize Wall Street to focus on real, productive investments in the economy.
I would support efforts to crack down on tax inversions, which have become a common tax dodging practice among large corporations. Many of these corporations, which do most of their business in the US, re-incorporate in other countries which have lower rates or weaker enforcement. This is a sneaky way for large corporations to avoid paying taxes- a technique that regular Americans could never pull off.
Easier Tax Filing
Filing taxes is rightfully considered one of the most dreaded and time-consuming tasks for families every year, but it does not have to be this way. Since around two-thirds of taxpayers take only the standard deduction and do not itemize, their tax filing is relatively simple. Frequently, most of their income comes from wages from one employer and interest income from one bank. For many of these people, the IRS already receives information about each of their sources of income directly from their employers and banks. The IRS then asks these same people to spend time gathering documents and filling out tax forms, or to spend money paying tax preparers to do it. In essence, these taxpayers are just copying into a tax return information that the IRS already receives independently.
The Simple Return would have the IRS take the information about income directly from the employers and banks and, if the person’s tax status were simple enough, send that taxpayer a return prefilled with the information. If the taxpayer approves of these calculations, they would merely sign the form and send it back to the IRS- that’s it. This change would save American taxpayers time, money, and the yearly stress of filling out confusing tax forms.
Rebuilding the Estate Tax
I believe that the estate tax is one of the fairest, and most American taxes ever devised. This country was founded on the principles of hard work and self-sufficiency, in deliberate contrast to the dynasties and inherited wealth that plagued old Europe. Therefore, the best way to make sure America remains the land of opportunity is to impose taxes on large estates, so our nation’s wealth does not become concentrated among a handful of powerful families who can pass their massive wealth on to their children. Unfortunately, Republicans and many Democrats have forgotten the lessons of our own history, and the wealth and income inequality now present in our country is beginning to resemble the Gilded Age of old.
Over the years, Congress has whittled down the estate tax to almost nothing. Currently, only the very wealthiest estates pay the estate tax, because it is levied only on the portion of an estate’s value that exceeds a specified exemption level, which is now set at $5.43 million per person (effectively $10.86 million per married couple) in 2015. Only the estates of the wealthiest 0.2 percent of Americans — roughly 2 out of every 1,000 people who die — owe any estate tax at all. This is because of very high exemption amount, which has jumped from $650,000 per person in 2001 to $5.43 million per person in 2015.
To make matters worse, the effective tax rate — that is, the share of the estate’s value that was actually paid in taxes — was just 16.6%, on average, according to the Urban-Brookings Tax Policy Center (TPC), even though the top rate is actually 40%. This is because many wealthy estates use attorneys and financial advisors to create and take advantage of many loopholes in the tax code to shelter much of their estate value from taxation. As your representative, I would work hard to close as many of these loopholes as possible, and reverse the cuts to the estate tax.
A basic principle of this plan is that the value of anyone’s land that remains in its natural state (i.e. is not developed for commercial, residential, or industrial use) would be completely exempt from the estate tax. This serves as an incentive to protect natural, undeveloped land and the wildlife that lives on it. Farmland would also be grandfathered in and exempted from the estate’s value. Additionally, the first million of any estate’s appraised value is exempt from this tax, which means that 95% of Americans will never be affected. All levels will adjust for inflation.
|Estate Value (for joint filers)||Proposed Marginal Rate|
|$0 to $1 million||0%|
|$1 million to $5 million||15%|
|$5 million to $20 million||45%|
|$20 million to $40 million||50%|
|$40 million and up||60%|
The American economy must be built on fairness, with regulations that do enough to protect consumers and workers but also remain simple and straightforward, so that businesses aren’t too burdened with the cost of compliance. A government that effectively regulates does as little as possible to intrude on the lives and operations of people and businesses, but does not hesitate to act in cases of abuse to people or the environment.
Protecting American Consumers
I support the improvements made by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Although this critical law is barely 6 years old, it is already under assault from Congressional Republicans and their Wall Street lobbyist friends who are seeking to roll-back many crucial provisions. For example, Title 10 of the Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB), which is a favorite target for Republicans.
So far, this new federal agency has returned over $11 billion to American consumers who have been defrauded, ripped off, and deceived by banks, credit card companies, mortgage servicers, debt collectors, payday lenders, and other unscrupulous financial institutions.
Through its tough new rules and enforcement actions, the CFPB is working diligently to clean up the marketplace for consumer financial products in the U.S., and I support many of these efforts. Our incumbent congressman, on the other hand, has repeatedly voted for bills to weaken, tie down, and hamstring this agency to prevent it from adequately protecting America’s consumers.
I support the CFPB’s recent efforts to crack down on nasty and hidden arbitration clauses, which appear in almost all types of consumer contracts. These clauses, which rob consumers of their Constitutional rights to sue scammers and scoundrels, are often buried in the fine print of extremely long contracts and agreements. Unfortunately, our incumbent recently sided with the big banks, credit card companies, and their lobbyists when he voted to overturn the CFPB’s crackdown on arbitration clauses.
As your representative, I’ll also work to significantly increase funding for the federal protector agencies, like the Food and Drug Administration, Consumer Product Safety Commission, National Highway Traffic Safety Administration, and Federal Trade Commission. These agencies have been starved of funding for many years, and have been hamstrung by corporate lobbyists and their allies in Congress. It’s high time to fully support and fund these agencies, so they can get back to the work of keeping us safe.
Prosecuting Financial Crimes
I strongly believe in law and order, first and foremost for the financial industry. One of the greatest atrocities of our era is the total lack of criminal prosecution following the 2008 Wall Street financial crisis. Despite causing trillions of dollars in losses, executives and traders on Wall Street completely got away with their crimes.
While a few insufficient civil lawsuits have resulted in some small fines, not one single Wall Street banker went to jail. This is unacceptable to me- especially since the crimes of Wall Street have and continue to make all of our lives worse. And since these financial crimes directly or indirectly harm every single American, they should be prosecuted with at least the same vigor as common street crimes.
While I support the regulatory reforms made since the financial crisis, the government has fallen pathetically short of adequately prosecuting the financial frauds the led to the financial crisis. While the regulatory agencies have successfully prosecuted civil cases that have brought several billion dollars in settlements, there have been astonishingly few criminal prosecutions.
While fines and fees are important tools, big banks often see these penalties as simply the cost of doing business. If the U.S. government can throw thousands of people in prison for smoking marijuana, surely they can throw a few dozen bankers in jail for the fraudulent activity that cost the global economy tens of trillions of dollars and bankrupted countless thousands of families. We need tougher federal penalties for white-collar criminals, and more funding for the Department of Justice’s Criminal Division.
There is no debating that criminal activity occurred at all stages of the mortgage pipeline during the bubble years, all the way from the lowliest mortgage originators, to the largest Wall Street banks, which knowingly securitized and sold billions of dollars of these bad mortgages to investors around the world. We must forcefully urge the US Department of Justice to begin criminal prosecutions of these illegal behaviors.
In the years after the Savings and Loan debacle of the 1980s and 1990s, the US government made 30,000 criminal referrals, which produced over 1,000 felony convictions by the Department of Justice. But in the wake of the recent financial crisis, which was at least 70 times more damaging, the US government has failed to make any significant arrests and prosecutions.
Ending Predatory Financial Scams
As a passionate advocate for safe and effective financial services, I strongly support recent efforts to regulate payday lenders at the federal level. The payday lending industry often purposefully lure desperate borrowers into debt traps that they have difficulty repaying.
Unfortunately, our state of Virginia has over 150 payday lending shops in operation today, many of which are located in low-income and minority neighborhoods. By charging interest rates in excess of 300% APR, these lenders often do much more harm than good, and often deliberately target low-income and minority neighborhoods. That’s why I will fight for strong consumer protections for payday and other short-term loans. I’ll also look for any and all possibilities to help our small banks and credit unions serve borrowers in need.
Millions of Americans, especially those in rural and low income areas, suffer from lack of access to the banking system. These Americans often lack access to basic insured deposit account services as well as consumer credit. That’s why I will explore proposals from the USPS Inspector General that would allow US Post Offices to provide basic banking services in these underserved areas, so our fellow American’s do not have to rely on expensive check cashers and payday lenders to conduct basic financial services. Expanding access to safe, low cost Postal Banking will help many rural Americans build their savings, improve their credit, and bolster their financial security.
Stopping Rigged Trade Deals
U.S. elites have consistently succeeded in promoting a trade agenda that benefits primarily the wealthiest individuals and the biggest companies. Bad deals like Trans-Pacific Partnership (TPP) are yet another in a long parade of agreements that harm American workers, provide dubious benefit to American consumers, and serve to insidiously advance the agenda of companies interested in weakening American sovereignty in the interest of their own profit.
While the TPP appears to be dead for now, there’s no doubt that the rich lobbyists and donors in Washington will try to revive it as soon as they can. That’s why I would oppose any such trade agreements– which are written in secret by corporate lobbyists, as well as “fast-track” legislative authorities that force these agreements through Congress with limited debate.
A Federal Reserve That Works for Us
The Federal Reserve System is one of the most powerful institutions in the United States today. As such, it should clearly held accountable for its actions and be reformed to allow more input from the public. I’ve had the personal opportunity to work within the Federal Reserve System, and I studied it extensively during my time in Washington, so I know how and why this powerful institution needs reform.
Structural Reforms to the Federal Reserve System
I believe that examiners and supervisory staff of the Regional Federal Reserve Banks should instead become employees of the Federal Reserve Board of Governors. Currently, examiners are employees of the Reserve banks, which have supervised entities as shareholders and board members. Without necessarily changing the work stations of exam/supervisory staff, shifting their employment to the Board would reduce the potential for regulatory capture or conflict of interest, which would help improve the ability of the Federal Reserve to more impartially regulate the private banks in its jurisdiction and prevent future banking crises like the one that started the 07-08 crash.
I also strongly supports legislation introduced by Senator Jack Reed, which would require Presidential nomination and Senate confirmation of the President of the Federal Reserve Bank of New York (FRBNY). Currently, only the members of the Federal Reserve Board of Governors are subject to this nomination and confirmation. Since the FRBNY is the closest to the Board of Governors in power and responsibility, and it should be overseen as such. This additional opportunity for public input is necessary because the President of the FRBNY is the only one of the 12 Reserve Bank presidents who has a permanent voting seat on the Federal Open Market Committee (FOMC). Further, since the FRBNY executes the monetary policy directives of the FOMC and supervises many of the largest bank holding companies in the world which are located in its New York district, its responsibilities are far higher than any of the other 11 Reserve Banks.
Allowing the purchase of municipal bonds
Currently, the US Federal Reserve is only allowed by law to purchase securities issued by, or backed by the full faith and credit of the US Treasury. This means that our towns and counties can only sell their debt issuances to Wall Street, often at very high interest rates that drain taxpayer dollars away from local communities.
In order to end this ridiculous giveaway to Wall Street, I would change current law to allow the Federal Reserve to purchase debt issued by municipalities at a small fixed premium above the equivalent maturity of US Treasury security. However, any such municipality that has cut income, property, or capital gains taxes over the previous 4 years will not be eligible for this program.
Reforming Wall Street and Breaking up the Big Banks
Finance Should Serve, not be Served
As a veteran of the financial services industry, I understand the importance of a healthy and robust financial sector. Unfortunately, the US financial system right now is too big, too dangerous, and too powerful. The top 10 banks in the United States hold about 50% of all deposits, leaving the other half split up among the thousands of small institutions. It is important to remember that finance itself produces nothing- it’s really just a large bookkeeping system. We call it “financial services” because finance is supposed to serve the real productive economy. But now, even after the financial crisis, we have a financial sector that serves itself first and foremost, while extracting billions of dollars out of the real, productive economy.
US banks are public/private partnerships, that exist to provide a safe and reliable payment system, and extend credit based on nonpolitical credit analysis. In the housing market, for example, the federal government provides much of the background support and regulates processes, with final credit determination made by private bankers. Supporting this type of credit creation on an ongoing, stable basis also demands a source of funding that is not market dependent. That’s why most of the world’s banking systems include some form of government deposit insurance, as well as a central bank that can provide infinite liquidity.
The US banking system is an extension of the US government, much like the military. While Congress ultimately controls the military, it does not micromanage its daily affairs. The military has the discretion to move tanks and point guns without constant approval from Congress. Similarly, US banks are allowed to price risk and allocate credit without constant approval from Congress. However, the structure in which they do so would not exist without constant federal support, regulation, and supervision. Despite what you might hear from the right-wing think tanks, federal regulation and supervision does not place a net burden on honest lenders. On the contrary, regulations are the only thing that allow the good guys to succeed, by relieving them of the impossible burden of competing with the scoundrels and scammers.
That’s why one of my top priorities is to break up and reign in the big banks and financial companies. I am a big believer in the power of small, localized finance embodied by the thousands of community banks and credit unions around the country. These local institutions aren’t “Too Big to Fail”, and have reputations in their communities that they must live up to. These small institutions are usually more efficient, have less overhead, and are better managed than the Wall Street behemoths.
Our German friends have developed a solid banking model in their country which we could replicate. In Germany, the vast majority of assets in the banking system are controlled by small, local banks and credit unions. Germany’s big banks, like the infamous Deutsche Bank, control less than 20% of all bank assets. As a result, Germany’s banking system is far more stable and less profitable than most developed countries.
Downsizing the Megabanks
My policy proposal begins by modeling a progressive capital requirement regime that imitates the progressive income tax code that the US currently employs. As banks get bigger, they will be required to progressively increase their capitalization (also known as equity or net worth.) This will add an additional layer of security to our banking system, while stopping any further consolidation of the banking sector.
Big banks that can’t meet these high capital requirements will have to sell off some of their assets and operations to smaller banks. They will have to continue selling off their assets until their capitalization meets the regulatory requirement. I believe that this system is the simplest way to break up the big banks, while strengthening community banks and credit unions at the same time.
Banks that benefit from federal deposit insurance should not be allowed to make margin loans or accept financial assets as collateral for loans. Lending against financial assets is not an appropriate role for the insured banking system because it exposes it to systemic and market risk, which can then jeopardize the public purpose of a stable national lending platform.
Lending against financial assets is a role for capital market entities such as private investment banks and hedge funds, which do not benefit from the subsidies of deposit insurance and unlimited Federal Funds. No public purpose is served by creating financial leverage within the banking system. This would also refocus the banking system on its original public purpose of lending against real productive assets.
Universal Access to Bank Accounts
Every American citizen should have a legal right to access the payment system at no charge (as defined by Regulation DD/Truth in Savings.) It is no more acceptable that 40 million Americans do not have full, direct access to the payment system than if they did not have access to the water, sewer, or phone systems. Like those systems, the payment system is a utility function necessary for modern life. Therefore, any citizen who applies for a checking and savings account would be provided one at no cost, either at an insured depository institution or at a US Post Office. This would cut down on check cashing fees, loss or theft of cash, and the volatility and fraud associated with nonbank payment and storage systems.
Currently, the Community Reinvestment Act (CRA) gives regulators a few mild tools, both sticks and carrots, to incentivize banks to serve the communities in which they are located. However, the CRA covers only lending activity, which is only half of the public purpose of the banking system. The CRA, and its implementing regulations and guidance documents that bank examiners use, should be updated to include incentives and penalties for achieving universal access to checking and savings accounts.
Return to a Strong, Simple Banking System
So while finance is supposed to be an intermediary service, the finance sector currently earns 40% of all business profits in the US. This is an absurd amount of money that should have remained in the pockets of American workers who produce the real wealth of the country. But because of their massive size, lobbying power, and large campaign contributions, the big banks continue to extract their enormous profits from real businesses.
To put this into perspective, slimming down the bloated financial sector has the potential to free up billions of dollar a year. Any reductions in revenue going to the financial sector will be at expense of the wealthy, since the financial sector accounts for a grossly disproportionate share of the individuals in the top 1 percent of the income distribution. The lower costs and efficiency gains will be a big boost to working families and the communities in which they live.
These proposals will re-establish a banking system that will promote public purpose and require less regulation, while substantially reducing the systemic risk inherent in our current system. This is completely possible, completely Constitutional, and firmly rooted in the successful American banking system we built decades ago. This leaner, simplified system does not threaten private enterprise. It actually strengthens private enterprise by reducing overhead financial costs. Capital formation is not a magical process. It is not something that requires a great deal of complexity or resources.
These reforms will restore our banking system to the simple, boring utility system that existed in the four decades when our nation was most prosperous and our middle class most robust.