I love ironies. I love that I can appreciate them, not their effects.
There are two major ones in this post.
1. I favor relaxation of American and state securities laws to provide exemptions to registration requirements and some immunity from liability (certainly excepting intentional fraud) allowing for “outline” disclosures for stock and other share offerings to non-intimates for all capital requests less than $1,000,000, and less than $3,000,000 for qualified “commonwealth” endeavors.
2. That the proposed Obama tax cuts for those earning under $250,000 will likely not accomplish a stimulus to the productive economy, will exacerbate the US trade deficit, and will expedite – rather than inhibit – the migration of jobs overseas and/or out of home regions.
I wish I didn’t feel this way.
1. American securities laws – American and most states’ securities laws require SEC registration and annual audit for offerings of ANY securities to non-intimates (family, personal friends), constituting a public offering.
This is in place as residual of the waves of bank and insurance fraud perpetuated during the 1920’s, that contributed to the 1930’s depression and bankruptcy of many that had invested in less than worthy securities. The securities acts of the early thirties do provide the federal government with an authorized agency to attempt to intervene in the economy at large, limited. But, the main emphasis of the securities laws is to function as a consumer protection agency for the consumers of investments.
What happens in practice though, is that the law also functionally prohibits the creation of community supporting enterprise. The disclosures required to protect issuers from liability in even a restricted offering, even in discussion of an offering, require front-end legal and other professional fees of in the range of $50,000, a fixed front-end cost, with no exceptions.
So, a local proposed community supported retail store to provide an alternative to big box stores, that seeks $300,000 in capitalization from non-intimate community members, must spend $50,000 to draft and audit the documents before they can even speak to their non-intimate neighbors.
Or, a community bank similarly.
Or, transportation alternatives that rely on the self-capitalization of an enterprise through contributing one’s private auto, must invest the legal and professional fees to protect themselves from liability. The $50,000 saved by the self-capitalization of private vehicles into a community car-rental, is then a public offering.
Yes, we are over-regulated.
Investment in community enterprises prohibited or at least greatly hindered.
2. Obama’s propose tax reduction to those earning less than $250,000/year. I know that $60,000/year doesn’t go very far in cities where is costs $20,000/year in mortgage costs to own a simple home. In my home town, Greenfield, MA, there are few jobs outside of state and municipal and medical fields that pay greater than $60,000/year. Teachers can get by, barely. Even lawyers and accountants struggle a bit.
I support the restoration of tax law to pre-Bush era status in rates, capital gains and dividends taxes, estate taxes, etc for those earning cosiderable income. I disagree with the contention that a 5% swing in the maximum capital gains rates will cause a migration of investment out of the United States.
As I commented widely when the Bush tax cuts were enacted, I do favor some favored tax rates on genuinely new investment in productive assets or enterprise. (How to distinguish what is new from what is merely a functional shifting of organization names is tricky.)
But, continuing reduced capital gains rates for preexisting investment does not stimulate the economy, it stimulates the securities markets primarily, and that overwhelmingly consists of pre-existing wealth and institutional pools of money.
The dilemma that the Obama administration faces is of how to induce the very wealthy institutions, corporations, private wealth to not sit on the sidelines. It is not grandmothers that are stuffing dollars under the mattress currently. It is corporations and their owners.
There are tax laws applying to corporations that tax accumulated earnings, or cash and other assets accumulated but not put to operating business purposes. They are required to either be distributed as taxable dividends (albeit at very low tax rates) or put to use, or plausibly demonstrated for tangible future use.
There doesn’t seem to be much enforcement of this law, although small corporations are somehow scared that it will be enforced.
The proposed tax reductions for those earning less than $250,000 are attractive to me personally, slightly. I would get a moderate tax break. But, too much of the spending socially would go to superfluities, resulting in likely exacerbation of the trade deficit. In effect then, the spending that would be stimulated would not contribute sufficiently to US jobs to revive the economy, but would revive the Chinese economy and considerably increase the cost of fuels.
“A rising tide that lifts all boats” that lifts only a few boats, is not a rising tide, its artificially pumped, temporary.
The combination of the two is the irony.
Rather than stimulate community economy, the proposed tax cuts would primarily stimulate the consumer economy, and at a large cost in long-term deficit to the working economy.
There would remain prohibitions from working people investing in their communities. To the extent that they save/invest, they would be permitted to invest (through IRA’s, 401(k)’s, etc) only outside their communities. There would be prohibitions from working people investing in “commonwealth” enterprises (those who are genuinely for-profit, but seeking social objectives as much or more than private profits).
Big flow to the wealthy, with little effect for communities. It is the 1930’s. Those with a lot of cash “under the pillow” got very wealthy coming out of the depression.
That big money can afford to spend on securities registration as an incidental fixed cost to them, but working people cannot legally create social capital, except through not-for-profit organizations, is not the type of society that I want to live in.
I want to live in a world in which members of the community do invest in and support local corporations, and build capital from work and enterprise in that way. I don’t want to have to rely on the class of “qualified investors” only to fund enterprise.
In order for the US, the world, to get out of this economic slump (9.6% official unemployment), it needs investment to get to enterprise that performs needed services, and not only through the logic that would appeal to large external sole (or publicly offered) investment.
The combination comprises an irony, a prohibition from investing in one’s community, but more money available chasing large corporate offerings only.
As republicans love to emphasize, it is small business that generates the majority of new jobs and hence the majority of new tax revenues. But, only large business, not small business, efforts are enhanced by both the Obama and all republican “proposals”.
He means well.
If the securities laws were changed to enable commonwealth enterprises through community “public offerings”, then the Obama proposed tax reductions would make change.
In the stacked deck current securities regulations, not.
Securities laws usually include registration requirements for securities brokers and dealers, registration requirements for securities to be traded within the state, and anti-fraud provisions. Most states appoint a Securities Commissioner or similar official to oversee their securities laws and regulations.
Thanks for sharing……
Securities Fraud Attorney
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