As the Roosevelt Institute Campus Network releases its progressive, practical Budget for a Millennial America, those who helped craft it will explain their innovative ideas and tough choices in a series of posts. Zachary Kolodin calls on the US to both rein in Wall Street and expand access to capital.
American politicos have discovered that our national debt is rising but haven't come to grips with how we got here and how to prevent it from happening again. When the Roosevelt Institute Campus Network started preparing its Budget for the Millennial America, we wanted to find solutions that not only dig our way out of a fiscal ditch, but also prevent the U.S. from again stumbling into that hole. This approach embodies the Millennial Generation's desire to build a prosperous future, rather than just get by crisis to crisis.
We identified four key drivers of the debt: rising health care costs, the Bush-era tax cuts, wars of occupation without clear goals, and financial sector instability. What stood out to us about problems in the financial sector was that the Congressional Budget Office doesn't take them into account. Stock market crashes that wipe out trillions in savings and jobs? Not scoreable by the CBO. Unprecedented bailouts costing hundreds of billions of dollars? Not scoreable. So you won't see financial sector reform in most budget hawks' agendas. In fact, Paul Ryan's budget rolls back the reforms in the Dodd-Frank bill. But we all saw what happened in 2008 and 2009 when the Wall Street collapse demanded hundreds of billions of federal dollars, and dragged the rest of the economy down with it. We know that we can't claim a responsible federal budget until we stop promising to bailout the big banks. So we started thinking about how our budget proposal could stabilize the financial system.
If big banks are too powerful to be effectively regulated by the various agencies in charge of regulating them, then we had to find another way. Our answer was simple: make being "Too Big to Fail" unprofitable. Our budget proposes a 25% financial activities tax on institutions exceeding $200 billion in assets. This tax would affect the top 12 largest banks in the United States, forcing them to split up their activities into new companies. These new companies would pose significantly less risk to the global financial system, since they would no longer be "too big to fail."
Having experienced the fallout of an under-regulated, bubble-chasing financial sector, Millennials are committed to making the Wall Street of the 21st century a vehicle for strengthening America. The "Too Big to Fail" tax is the first step in that journey, but it doesn't stop there.
The Blueprint for the Millennial America, which was the basis for creating the budget, calls for a level playing field for entrepreneurship. One of the foundations is equitable access to capital. Yet, despite its remarkable growth in the past 20 years, U.S. banking has not improved this access. Now that we are devoting 17% of U.S. GDP to banking, can we claim even a single improvement in the allocation of capital?
Moving forward, we recommend new public policy that leverages the expertise of the financial sector to ensure better access to capital for all Americans -- particularly in our rural areas and inner cities. The Intersect Fund, a nonprofit organization started by Roosevelt Campus Network alum Joe Shure that provides microloans to jumpstart social mobility through entrepreneurship, offers a small-scale model for what the financial sector can achieve on a large scale. The Budget for the Millennial America offers the promise of an America in which the financial sector again empowers Americans, rather than causing anxiety over the federal debt. As we work toward that goal, let us not be confined by the 21st century paradigm of concentrated capital. The America we inherit can be one of democratized access to capital.
Zachary Kolodin is the Director of the Future Preparedness Initiative at the Roosevelt Institute.