Income Disparity

            Three articles in this Sunday’s Newark Advocate inform each other and present wonderful evidence as to the “why” of income disparity in this country (and its continuous growth). OK, you haven’t kept up with the figures. Well, yearly there is a steady decrease in who owns what in this country. The numbers are everywhere – 1% of the population earns 36% of the country’s income, etc. If you aren’t current, start doing some insightful reading. Few, however want to tackle the why. Fewer still want to recognize and identify the why within their midst, their neighborhood, their community. Taken together, today’s Newark Advocate articles do just that. The three are: Ohio Pushing Local Governments Toward Self Reliance, Benjamin Lanka for Central Ohio.com (Gannett), Ohio Banks Swimming In Cash, Russ Zimmer for Central Ohio.com (Gannett), and Downtown Housing Projects To Pursue Historic Tax Credits, Kent Mallet Newark Advocate (Gannett). All are dated 10-20-13. For context let’s look at two online commentaries to the Lanka report. One, from someone named Steve Thorp, ““It is clear … that people all across are deeply concerned about tax policies that disproportionately favor the top and hurt working- and middle-class Ohioans,” Rep. Tom Letson, D-Warren, said in a September news release. “The impact of this tax shift has been made worse by deep cuts to schools and local communities over the last two state budgets.” Now isn’t that just like a Democrat. Heck let’s just tax all businesses out of Ohio. All this moron wants is a free hand out.” And part of one from some fellow named Urban Chronotis, “Government spending is out of control, there is very little accountability if any. Punishing the wealthy to bail out cities, or states, who’s elected officials have not been good stewards of their position and power is wrong. The government can be funded sensibly via taxes…” This coupled with the recent brinksmanship re: the default and legislatively self-imposed debt ceiling clearly highlights the polarity surrounding and supporting income disparity in the US.

 

            “There is plenty of space in older buildings, but the massive cost of renovating such structures has discouraged the investment needed to convert them into residential units.” (Mallett) “Randy Cole, state Controlling Board president and Kasich policy adviser, said the state is not walking away from the fact the local government fund was cut in half, but instead is trying to put that cut in context with the entirety of support the state gives to communities. He said Kasich’s policies have improved the state’s bottom line, allowing it to cut taxes and improve the business climate in an effort to encourage economic growth. “If we do, both state and local governments will have what they need,” he said.” (Lanka) “Steve Layman and Liz Argyle have the enthusiasm, the buildings and the design plans to follow through, but need the available state and federal tax credits to make their projects feasible.” “The 25 percent tax credit from the state and a 20 percent tax credit from the federal government would make Layman’s $2.5 million project viable, he said. “With credits it becomes a reasonable investment, not a great investment,” Layman said.” “Layman said. “There are thousands of examples across the country where this can be done.””Argyle has owned the building about seven years, but the project expected to cost almost $500,000 has been beyond her means. “We’ve always wanted to put apartments above the studio,” Argyle said. “It was our original intent when we bought the building. You can’t have successful commercial without residential. “It’s so expensive to rehab an old building. It’s cheaper to build new. We got to a point we couldn’t do it, couldn’t finance it for what we have available.” “The third floor has been unused for about 80 years and the second floor was used as an FOP Lodge many years ago, she said.” (Mallett) And finally, ““Deposits are the primary source of funds that banks tap into for loans.” “A bank with more money has the potential to send more of it out into the community through small business loans or home mortgages, but that’s not a guarantee, said Mike Brandl, who teaches global finance and economics at Ohio State University. “Many large banks find that they can be rather profitable while holding onto to large amounts of cash — not lending — because they use that cash for trading instead,” he said.” “A spokeswoman for the Federal Reserve Bank of Cleveland noted the rise in deposits is happening despite low interest rates for depositors, which banks pay to attract money that they can then lend out to customers at higher rates.” “Banks, by and large, have plenty of money to lend and interest rates for loans have remained low but small business owners are hesitant to extend themselves, said Brown [John Brown, president of Richland National Bank in Mansfield], who also leads the county’s economic development group. The community’s wealth will be there when they are ready, he said.” (Zimmer) Along with this Russ Zimmer provides a statistics with regard to Licking County’s “wealth [which] will be there when they are ready” ($1.2 billion with Park, $209.8 million with JP Morgan Chase).

 

            OK, all sounds pretty noble: cut us some slack and we’ll have an energized and vital downtown. Analysis needs to provide some further context. During the Clinton and Bush presidencies the legislature chose to deregulate the financial industry, thereby allowing banks to become insurers, brokers, speculators, etc. and retailers to become banks (like Walmart, State Farm, etc.). Bear in mind that JP Morgan Chase did precisely that with the London Whale debacle and lost 2 Billion dollars (ten times what is available at Chase in Licking County, “will be there when they are ready”), poof, vanished (no biggie according to Jamie Dimon). So Mr. Brandl’s insights as to why banks don’t lend to local small businesses (even though they are sitting on the cash) is very pertinent and must be understood. Return on investment becomes a rather ignoble motivation (as opposed to renovate and vitalize the downtown!). Now we see that if Liz and Steve, Park and Chase can make enough on their investment, they’d be more than glad to oblige. This is where the economics, at the heart of income disparity and the polarization that it nurtures, comes into play. Basic economics states for every debt, there is someone owed that earns surplus on that amount due (principle and interest). Bank deposits are considered as a debt on the bank balance sheet (the depositor must be paid if they demand a withdrawal), so they are essentially borrowed money (much as certificates of stock are borrowed money since they must pay a dividend). Bank loans are considered assets (because they generate revenue, make money on what is owed). As the Federal Reserve spokeswoman points out, depositors are receiving a pittance. But a pittance is not enough of a return of investment to make it worthwhile to renovate a salvage value school building, or a two thirds abandoned downtown high rise. There must be more. Enter the government. Needless to say, the same folks who are clamoring for less government (no government) likewise want less taxes (no taxes). Mr. Chronotis believes “The government can be funded sensibly via taxes”. But Mr. Layman and Mrs. Argyle (and the large corporate entities like the banks) want the government to collect less tax revenues so that they can receive a greater return on their investment. The math seems to be there alright. For large investments (large sums of money), the money is not only available to be lent (Jumbo home mortgage rates have been going down to match that of the Bush era’s!), but these investors must likewise be given a tax break to make it worth their while. If the government receives less (tax) revenue, where is the funding for government’s functioning to come from (“There are thousands of examples across the country where this can be done.”)? At the same time the worker with her deposits in the bank, making regular payments to the financial corporation on her student loan and the mortgage of her totally occupied residence, receives a pittance on her savings deposit, must pay a state and federal tax on that very pittance, is passed over because the collateral on her fully occupied 50-100 year old residence is insufficient, and the state of Ohio now taxes her more on each of her “non-investment” purchases. “All this moron wants is a free hand out.” One wonders what Mr. Thorp believes to be the function of government — local, state or federal — if not to provide the infrastructure, the security (fire, police, emergency response), the educational facilities, public health care, etc. Analysis assumes Mr. Thorp believes it is the morons who should pay for these things. As Mrs. Argyle astutely notes, “You can’t have successful commercial without residential.”

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