What would Capital Homesteading mean to you and every other citizen in terms of lifetime wealth accumulations and capital ownership incomes? The projections below, which are explained in the following notes, show how a child born today would receive every year an allotment of self-repaying capital credit equal to that of every other citizen.
This annual credit would be used exclusively by citizens to invest in corporations (both established companies and viable start-ups) seeking to grow. Thus, as corporations add new capital, every citizen will have an equal opportunity to acquire new ownership shares in those corporations. The dividends generated by the new shares, after being used to pay off the citizens’ capital loans, will become a second source of personal income, thus enabling the economy as a whole to grow in a more just and sustainable way.
Through a transparent, multi-vetted, insured financial system, Capital Homesteading would unite the interests of corporations seeking to grow, citizens seeking to invest in those companies, local commercial and cooperative banks, capital credit insurance companies, and the twelve regional Federal Reserve Banks.
For example, a child (through parents, a guardian or trustee) could use his or her insured capital credit to invest in newly issued shares of corporations needing to purchase new capital assets. That child’s shares will be paid for with the full stream of “pre-tax” corporate dividends generated by the new assets themselves.
By the time that child reached the age of 65, he or she will have accumulated $660,000 of capital assets generating $88,690 of dividends in that year. In addition, over those 65 years that person will have received a total of $2,667,015 in dividends. That person would continue receiving for the rest of his or her life an annual capital credit allotment for purchasing new or transferred capital assets.
Just think of what such an opportunity would do for that person’s lifetime economic independence and empowerment, as well as for growing a sustainable, green economy and building a more democratic and just political system.
What Capital Homesteading Would Mean to the Average Citizen
Projected Wealth Accumulations and Dividends
Under Capital Homesteading (Explanatory Notes)
- These projections are calculated on the assumption that a Capital Homesteader will begin accumulating assets on the day of his or her birth (age 0).
- The amount of the annual capital credit allocation for each citizen is calculated by dividing the total estimated capital needs of the United States for the period, by the total qualified population of the United States. For this example, we divide $3.955 Trillion (total “US Gross Fixed Capital Formation” as of November 8, 2018; Source: St. Louis Federal Reserve) by 328.95 Million (the US population as of November 18, 2018; Source: CIA World Fact Book), getting a per capita capital credit allotment of $12,023 for every citizen. To be conservative and simplify our calculations, as well as account for some owners and companies not wanting to finance new capital through Capital Homestead investments, we have decreased the amount of capital credit per citizen to $10,000.
- The one-time “discount,” sometimes incorrectly called an “interest rate,” consists of all loan expenses added to the cost of the shares the Capital Homesteader wants to purchase (from a licensed broker independent from the commercial banks). The discount includes all current and future bank charges to service the requested Capital Homestead loan, plus a one-time risk premium to be paid to an independent capital credit insurer in the event the company issuing the shares fails to meet its projected future profits. Otherwise, the lending bank will consider the investment not “feasible” — i.e., the shares to be purchased with the proposed loan will not generate enough future dividends to pay off the bank’s promissory note, therefore the loan will not be made.
- The promissory note is the amount the Capital Homesteader owes to the bank. It is used to “purchase” the bill of exchange from the Capital Homesteader and backs the demand deposit out of which the Capital Homestead Account pays the one-time discount and insurance premium and purchases shares.
- The pre-tax rate of return on the shares is based on a conservative Return-On-Investment for a typical company. Actual ROI differs according to industry and type of company.
- The number of years the Capital Homesteader has to repay each loan, based on the annual earnings of the shares. As noted in (15), a small portion (1.85%) of total dividends used to repay the loan is paid to the capital homesteader as consumption income, which does not significantly extend the repayment period.
- Age of the Capital Homesteader. (While this example stops at age 65, every citizen participates every year until death.)
- Total amount of assets the Capital Homesteader will accumulate, everything else being equal.
- This is the full amount of earnings attributed to the shares owned by the Capital Homesteader, paid out as dividends. These are tax-deductible to the corporation paying them out, but are ordinary taxable income to the Capital Homesteader unless these dividends are used to make debt service payments.
- This is the amount of principal payments (13) plus the amortized discount amount (14).
- This column displays “BAD!” if the debt service payments exceed projected earnings, indicating the proposed loan is not financially feasible.
- Total amount of loans outstanding at the end of the year after principal and debt service payments.
- This amount is calculated by dividing the net loan principal (2) by the term of the loan in years (6).
- This amount is calculated by subtracting the net loan principal (2) from the amount of the promissory note (4) and dividing the result by the term of the loan (6).
- After subtracting debt service payments, this is the residual amount of dividends paid out as taxable income to the Capital Homesteader for consumption purposes. In this example, rather than using 100% of dividends to pay off the annual capital loans, about 1.85% of total dividends for years 0-6 are paid directly to the Capital Homesteader. Along with programs to educate citizens about Capital Homesteading, such token dividend payouts are intended to help citizens experience the benefits of capital ownership as soon as possible without significantly increasing the loan repayment period.