This was written and posted by Mitchell Hirsch last week at Working America's 'Main Street' blog, where he is a featured guest blogger. Mitch was kind enough to email me his HTML text to cross post it here.
What if Wall Street's financial transactions could be taxed to help fund job creation and economic recovery on Main Street? Politically the idea is vastly appealing, especially in the wake of Wall Street's bailouts and the resurgence of its obscene bonus plans. But as it turns out a financial transactions tax also makes a lot of economic sense.
The basic idea is fairly simple. Impose a small percentage tax of anywhere from .02% to .5% on things like securities trades and derivatives transactions, thereby generating an estimated $150 billion annually.
Support is now growing for such a financial transactions tax (FTT), to help fund jobs and economic recovery programs in the next few years, and to help reduce fiscal deficits in the outlying years.
Recently the Economic Policy Institute (EPI) proposed a financial transactions tax, specifically to pay for the five-point American jobs plan being promoted by the AFL-CIO and its allies.
In endorsing a financial transactions tax, EPI stated:
An intelligently designed financial transactions tax should be a key item on the policy menu. Those concerned about the state of the job market today and the state of the deficit tomorrow should embrace a proposal that calls for increased action to boost employment in the next two years that is paid for with the implementation of an FTT. The economic bottom line is that a financial transactions tax is a progressive revenue-raiser that is likely to be either efficiency-neutral or even efficiency-enhancing. Few other revenue-raisers can make this claim.
Just last week Congressman Peter DeFazio (D-OR) introduced an FTT bill in the U.S. House of Representatives that he and 21 co-sponsors call the "Let Wall Street Pay for the Restoration of Main Street Act".
The Oregonian quoted DeFazio at the news conference:
''The American taxpayers bailed out Wall Street during a crisis brought on by reckless speculation in the financial markets,'' DeFazio said. ``This legislation will force Wall Street to do their part and put people displaced by that crisis back to work.''
The Hawk Eye quoted Senator Harkin on a conference call:
"Until 1966, the United States taxed all stock transactions and transfers," Harkin said during a conference call with reporters on Friday. "Indeed, Congress doubled the transaction tax rate during the Great Depression in order to finance economic recovery initiatives."
Harkin's bill would place a 0.25 percent tax on each stock transaction and a 0.02 percent tax on options, futures and swaps, but it would exempt tax-benefited accounts like retirement plans.
Harkin said there's "nothing novel or untested" about such a proposal, as Great Britain levies a tax on such transactions.
Perhaps the most prominent and consistent supporter of a financial transactions tax has been economist Dean Baker, co-director of the Center for Economic and Policy Research (CEPR) in Washington, D.C. In September of 2008, as Wall Street's "too-big-to-fail" giants tumbled under the weight of multiple, bursting asset bubbles, hurling the rest of the economy into deep recession while the Bush administration frantically maneuvered to bail them out, it was Baker who wrote "Medicine for Wall Street: A Financial Transactions Tax".
Last week, as President Obama convened a White House jobs forum that included many supporters of an FTT, including Baker and Paul Krugman, Baker's CEPR announced that more than 200 prominent economists had signed a letter (pdf) supporting a financial transactions tax.
December 3, 2009 An Open Letter from Economists in Support of Financial Transaction Taxes
To Whom It May Concern:
A modest set of financial transaction taxes could raise a substantial amount of needed revenue while having little impact on trades that have a positive economic impact.
The cost of trading financial assets has plummeted over the last three decades as a result of computerization. This has led to an enormous explosion in trading volume, with most trades having little economic or social value and redistributing disproportionate resources to the financial sector. A set of modest financial transactions taxes, which would just raise trading costs back to the level of two or three decades ago, would have very limited impact on trades that have real economic value.
Such taxes could both reduce the volume of speculation in financial markets and provide substantial revenue for either important public purposes and/or deficit reduction. Financial transactions taxes could be an important part of a reform package that seeks to remake the financial sector so that it better serves the larger economy.
The various versions of the financial transactions tax proposal currently have differing tax rates, target different types and sizes of transactions, and would generate a range of revenues over different periods of time. They will all face stiff opposition from financial lobbyists, Wall Street's pundits and their allies in Congress. But support for a set of smart financial transaction taxes is growing.
And with the urgent need for immediate action to create jobs, extend and expand jobless benefits, and invest in a real recovery on Main Street, as Nobel Prize-winning economist Paul Krugman wrote recently
a financial transactions tax is an idea whose time has come.