Banks To The Rescue

Nearly every state has problems with balancing their budget. As a result schools suffer from a lack of funding, state and local roads crumble from the weight of trucks and SUV’s . Other infrastructure and citizen needs go unmet, because the state and local government cannot afford to pay for it. Some of these expenses possibly can be pushed onto the Federal government to fund and that would alleviate most of those costs, there are still administrative costs and local public initiatives that must be paid for. Even here, in the so-called Peoples Republic of Massachusetts, we have a flat income tax, a sales tax, and for local funding there are property taxes. All forms of regressive taxation. Because the state’s constitution prohibits progressive taxation much of the state’s wealth is left untapped preventing the state government from modernizing traffic lights to updating the technology available to schools to making sure that all departments in critical areas such as Family services, court evidence labs, and compounding pharmacy oversight are fully staffed and the oversight of the work being performed is in place. Almost all other states also have similar problems, even with progressive taxation.  One solution, of course, is to eliminate all regressive taxation completely, and replace it with a progressive tax rate on income.  But the hue and cry, especially from the Right, makes it politically impossible. However, states can tap into one of the most profitable businesses in the world to increase state revenue. A common idea along those lines is to authorize casinos to be built to provide for additional revenue. The data is showing that much of the market for gambling is oversaturated and casinos are not generating a net gain in tax revenue once all the associated costs incurred are factored in. No, we want a sure thing.

The answer is rather simple. A state run banking system.

Banks are very profitable. And nearly everyone needs to do business with a bank at some time. Taking on a mortgage, buying a car or starting  a small business requires you to do business with a bank. Only with a state bank, the profits (or the interest paid) goes back to the state treasury. Think about that for a second. A state run bank would mean that instead of banks making a profit on your mortgage, your monthly payment actually could reduce your state taxes. Profits over reserves goes into the state coffers and the rest is used to either increase state spending or lower taxes. The state of North Dakota has been doing this for around 100 years. Local and state government agencies also use the state bank for their own capital spending, so when the state needs to sell bonds to fund modernization of their state college system, the bonds are sold by the state bank. Since the shareholders of the bank are effectively the taxpayers, the state bank can provide competitive returns on the bonds due to lower overhead just by making those returns not subject to a state income tax.

Sure, big business will still do business with commercial banks, but you can go to a state bank for your home mortgage, which can be offered at better rates than commercial banks for ‘qualified’ home buyers. It also allows some positive creative financing to occur. For example, a city may choose to offer owners of homes that are in disrepair to participate in a neighborhood home improvement project. Any home would be eligible to get a loan up to 50% (or maybe 25%) of the home’s appraised value. The loan is paid back when the home sells. The payback is from the sale. So a city would lend a person 25K for repairs on a home appraised for 100K. If the house sells for 300K after the repairs and 5 years later, the city gets back $75K, the amount loaned prorated to the sale.  The numbers here may need to be tweaked for this example to work, but by having a state bank; the state, it’s communities, and it’s people get a bigger say in where money is invested.