Billionaires like the Bronfmans can get loans these days at rates under 1 percent, and they've been rushing to take advantage. The "wealth management" departments at America's top banks the offices that service America's most affluent have now made loans that total over $600 billion in value, a sum that's running 17.5 percent higher than the comparable total from the middle of last year. Loaning to the rich has essentially become a major part of the business that major banks do. These loans, the Financial Times observes, currently add up to "22.5 percent of the banks' total loan books, up from 16.3 percent in mid-2017."
"JPMorgan and Citi are now lending more to a small number of ultra-high net worth clients than to their millions of credit card customers," adds the Financial Times take. "A decade ago, JPMorgan was lending five times as much to credit card customers as it did to private clients."
What makes banks like JPMorgan, Citi, and Morgan Stanley so eager to extend these billions in loans to the rich at such low interest rates? One reason: The loans come as close to risk-free as risk-free could be. A more important reason: Big banks cherish close relationships with extremely rich people. These rich often run extremely large corporate empires and can steer their corporate banking business to the banks that cater to their personal needs. Elon Musk, for instance, has used Morgan Stanley, his personal lender, for Tesla stock and convertible-debt offerings.
"Providing mega-mortgages," a Bloomberg analysis sums up, "helps bank profit margins in the short run and is highly strategic long-term."
The only losers in all this loaning and borrowing: average Americans who pay their taxes while wealthy people avoid theirs. Working Americans pay the price for that avoidance. They depend on public services that tax shortfalls cripple. Rich people, meanwhile, don't use public services. They live in private worlds made ever more comfortable by the "asset-backed loans" that have become, points out Institute for Policy Studies analyst Chuck Collins, "one of the principal tools the ultra-wealthy are using to game their tax obligations down to zero."
The best antidote to this gaming of the federal income tax? That may be the wealth tax legislation that Senator Elizabeth Warren from Massachusetts introduced this past spring with Representatives Pramila Jayapal of Washington State and Brendan Boyle of Pennsylvania. These lawmakers are proposing an annual wealth tax set at a mere 2 cents per dollar on wealth between $50 million and $1 billion and 3 cents per dollar on riches over $1 billion. A wealth tax along these lines would have raised $114 billion in taxes from billionaires alone in 2020. Just one of these billionaires, Jeff Bezos, would have faced a personal $5.7-billion wealth tax bill.
Bezos and the rest of America's billionaires could easily afford Warren's proposed wealth tax freight. Their current combined fortune: $4.7 trillion, up $1.8 trillion since the pandemic began.
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