What would the Economic Democracy Act 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 of his or her life an allotment of self-repaying capital credit equal to that of every other citizen.
This capital credit could only be used by citizens to invest in corporations (both established companies and viable start-ups) seeking to add new capital or transfer ownership. Thus, as corporations seek financing, every citizen will have an equal opportunity to purchase with insured credit new, qualified shares to be sold by those corporations. (To be qualified under the Economic Democracy Act, the shares would have to be full dividend payout, full voting shares.)
The profits paid out on the new shares (i.e., dividends), must first be used to pay off a citizen’s capital loan. Once that loan is paid off, the continuing stream of dividends would become for that citizen-owner a second source of personal income. Thus, the economy as a whole would be able to grow in a more just and sustainable way.
Through a transparent, multi-vetted, insured financial system, the Economic Democracy Act 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.
As an example, on the day a child is born his or her parents (or a legal guardian or trustee) set up a Capital Ownership Account (COA) at a local bank for that child. Every year until that child reaches the age of independence, the parents with the guidance of a certified financial advisor would invest the child’s insured capital credit in qualified shares being sold by companies needing to purchase new capital assets or transfer ownership. As that child’s annual capital loans are gradually paid off with the full stream of “pre-tax” corporate dividends, the child accumulates in his or her tax-sheltered Capital Ownership Account shares that generate an annual stream of income.
By the time that child reaches the age of 18, he or she will have accumulated $190,000 in capital assets, generating $18,190 in dividends for that year. By the time that person reaches 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.
Imagine 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 the Economic Democracy Act Would Mean to the Average Citizen
Projected Wealth Accumulations and Dividends
Under the Economic Democracy Act (Explanatory Notes)
- These projections are calculated on the assumption that a citizen 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. [Note: The estimated amount of annual capital credit per citizen has been lowered to $10,000 in order to be conservative and simplify our calculations — and taking into account that not all owners and companies will choose to finance their new capital through Capital Ownership investments.]
- The one-time “discount,” sometimes incorrectly called an “interest rate,” consists of all loan expenses added to the cost of the shares the citizen ncludes all current and future bank charges to service the requested Capital Ownership 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 citizen owes to the bank. It is used to “purchase” the bill of exchange from the citizen and backs the demand deposit out of which the Capital Ownership 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 citizen has to repay each loan, based on the annual earnings of the shares. As noted in (15), in this example a small portion (1.85%) of total dividends used to repay the loan is paid to the capital homesteader as consumption income, in order to help citizens start recognizing the benefits of capital ownership. While this small amount paid to the citizen prior to full loan repayment does not significantly extend the repayment period, a larger amount would extend the payback period and possibly render the proposed loan not financially feasible.
- Age of the citizen participating in the Economic Democracy Act. (While this example stops at age 65, every citizen participates every year until death.)
- Total amount of assets the citizen will accumulate, everything else being equal.
- This is the full amount of earnings attributed to the shares owned by the citizen, paid out as dividends. These are tax-deductible to the corporation paying them out, but are ordinary taxable income to the citizen 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 citizen for consumption purposes. In this example, rather than using 100% of dividends to pay off the annual capital loans, a token 1.85% of total dividends for years 0-6 are paid directly to the citizen. (A larger percentage would add years to self-liquidate the capital credit loan.) Along with programs to educate citizens about the Economic Democracy Act, such “early” dividend payouts are intended to help citizens experience the benefits of capital ownership as soon as possible without significantly increasing the loan repayment period.