FEDERAL RESERVE BANK TO GET A TAX BREAK?

Michigan Community Newspapers | Publication date of May 2, 2002 | Jim Rarey

[Medium Rare]

MEDIUM RARE

by Jim Rarey

May 2, 2002

FEDERAL RESERVE BANK TO GET A TAX BREAK?

On April 23rd the Michigan State Senate took the first step intended to make the Federal Reserve Bank in Detroit eligible for a tax abatement. “Tax abatements, usually granted by local governments, can forgive 50% of local taxes for a period of up to twelve years. Under some circumstances, the state executive branch can approve a tax abatement even if the local government refuses to grant it

The original intent of the state law establishing tax abatements was to give cities a tool to lure industrial companies to locate manufacturing plants in their cities. Lately, abatements have been granted to keep a company from leaving the city.

Until recently a company could not move from one Michigan city where it has a tax abatement to another city within the state and then claim an abatement at its new location without the permission of the city it was leaving.

After an epic struggle between the Cities of Troy and Warren over tax abatements for General Motors, the state legislature changed the law eliminating the requirement of permission from the city losing the industrial facility.

As the law stands now, engineering facilities engaged in research and development qualify as “industrial” operations and are eligible for tax abatements. The law is due to expire (sunset) on June 30th of this year. State Representative Nancy Cassis introduced a bill (HB5568) that would extend the law for five years as well as add electric generating plants to the definition of industrial facilities. It passed the House and went to the Senate where an amendment was tacked on.

The amendment provided, “Industrial property also includes a Federal Reserve Bank operating under 12 U.S.C. 341 located in a city with a population of 750,000 or more.” This obviously applies only to Detroit.

At this point some may say, wait a minute this doesn’t make sense. Federal agencies do not pay local property taxes. How can they get a 50% reduction of taxes they don’t pay in the first place? Therein lies the dirty little secret that has been kept from most of the public for over eighty years.

The Federal Reserve Bank and its regional subsidiaries throughout the country is not a government agency, it is a private, for profit bank. It issues stock and pays dividends to its stockholders made up primarily of investment banks in the U.S. and foreign countries.

The Congress chartered the “Fed” as it is called in 1913. (Banks have either federal or state charters.) Over the years it has been granted extraordinary powers some believe are unconstitutional for even the federal government to wield. The Fed now controls interest rates, margin requirements in the stock market and other banks. It exercises regulatory control over bank holding companies. (Talk about the fox guarding the chicken coop!)

But the Fed’s most important function is working in tandem with the U.S. Treasury to create the money for deficit spending. Treasury issues (gives) the Fed interest bearing bonds. The Fed then creates a similar amount in the government’s checking account. Since another function of the Fed is as a clearinghouse for checks, the government’s checks won’t be bounced although the credit in its account was created only by an accounting entry.

The Fed, and whoever the Fed sells the bonds to, then collect the interest paid on the portion of our national debt financed in this manner. Between the Fed and the U.S. Treasury over three trillion dollars of debt has been created to be paid from future taxes.

Obviously, at least some of the Michigan Senators are aware that the Fed is a private bank and are doing there best to keep it a secret. Amendments to bills are normally introduced by a single legislator (either in committee or on the floor of the House or Senate). However the amendment defining the Fed as an “industrial facility” was introduced by a seldom-used procedure called a “committee of the whole.” Thus the official record does not identify any individual senator as being responsible for the amendment. The amendment was passed, presumably by voice vote, although the Senate Journal does not say what voting method was used. It certainly was not a roll-call vote.

On second thought, maybe the Fed is an industrial facility. After all it does manufacture something, money out of thin air.

Permission is granted to reproduce this article in its entirety.

The author is a free lance writer based in Romulus, Michigan. He is a former newspaper editor and investigative reporter, a retired customs administrator and accountant, and a student of history and the U.S. Constitution.

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