Both parties of Congress are in agreement on diverting billions in Wall Street subsidies to rebuild America’s crumbling infrastructure. If you’re by a window, look outside for flying pigs.
Currently, the Federal Reserve pays out a 6 percent annual dividend to roughly 2,900 banks – JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo net approximately $350 million apiece each year from the dividend. These banks own stock in the Federal Reserve as a means of becoming members of regional Fed branches around the country, and unlike other stocks, the big banks are guaranteed to never lose money on their investment in the Fed. For years, the Congressional Progressive Caucus has proposed reducing that dividend to 3 percent in order to pay for repairing American infrastructure. After lying dormant for over a year, it appears that idea has now caught on with Republicans as well.
According to Bloomberg, Senate majority leader Mitch McConnell (R-Ky.) recently told a group of Wall Street executives at a Financial Services Roundtable event that he wouldn’t use his power to remove a new rule that allots funding for federal highways by reducing that dividend to 1.5 percent. The House is now weighing whether or not to back the dividend reduction before highway funding runs out at the end of October. Should the proposal go through, America’s highways would benefit from an additional $17 billion in repairs over the next ten years.
Now, Wall Street is in panic mode.
“The idea that going forward that we are going to pay for our nation’s infrastructure on the backs of one industry sector is a really flawed public policy,” said American Bankers Association president Rob Nichols.
While Fed chair Janet Yellen has taken the banks side, saying she believes the policy “could conceivably have unintended consequences,” Washington prognosticators believe the banks will ultimately have to sacrifice their Fed dividend, and possibly more federal handouts further down the road.
“The industry is in a very dangerous spot because it is a pot of gold,” Karen Shaw Petrou, managing partner of Federal Financial Analytics, told Bloomberg. “With the general political climate I don’t know a lot of people on Capitol Hill that like banks.”
The proposal is likely to pass, as past Republican proposals to fund infrastructure repair included a tax repatriation holiday – allowing corporations to bring back some of the $2.1 trillion stashed in overseas tax havens back to the U.S. at a 5 percent rate rather than a 35 percent rate – a proposal that President Obama has promised to veto in the past. As I previously wrote in The Guardian, the only result that came out of past attempts at repatriation was mass layoffs of workers, while corporations used the repatriated cash to buy back their own stock, driving up the value of the options owned by executives.
Bad of an idea as it is, repatriation still attracted the support of Wall street-backed Democrats like Chuck Schumer, and corporations have lobbied Rep. Paul Ryan (R-Wisc.), the House Ways and Means chairman, to include repatriation in a tax reform package. However, lawmakers predicting an Obama veto are rejecting the idea of repatriation for now and are gravitating toward a solution for America’s highways they know Obama will sign by the end of the month.
C. Robert Gibson is editor in chief of US Uncut. His past work has been published in The Guardian, Al Jazeera America, NPR, and the Washington Post. Follow him on Twitter: @crgibs