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A great idea for making Wall Street pay its fair share

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October 25, 2013, 3:13 p.m.

Here's an idea for raising government revenue whose time may have come. Instead of taxing the income of the wealthy, tax investment transactions that don't contribute much, if at all, to economic growth.

The idea is known as a financial transaction tax. It would amount to fractions of a penny on the dollar value of every stock, bond and derivatives trade -- perhaps 5 cents per $100. But estimates of its potential return run as high as $700 billion a year. That would bump up current federal revenues by about 24%.

A proposal for a financial transaction tax introduced by Rep. Keith Ellison, D-Minn., would exempt stock and bond trades of ordinary people who don't make their living from fancy trading -- individuals with income up to $50,000 and couples earning up to $75,000....

... Washington's solutions to fiscal issues always seem to point more to cutting services for the poor and working class -- food stamps, Head Start, Social Security, etc. etc. -- instead of to tax increases for the wealthy.

Sachs isn't joking when he talks about resistance from the financial industry. In a broadside issued in March, Deutsche Bank called it "counterproductive" (bankspeak for "it will mean less money for us") and claimed it would "hurt the real economy."

Actually, one good thing about the tax is that it would hurt the fake economy. Robert Pollin of the University of Massachusetts, one of the leading experts on the tax, says it's possible the tax would cut the number of stock and bond transactions by 50%. (In that case, the potential take from Ellison's proposal would be about $350 billion a year.)

But paring back financial trading could be a good thing. The volume of financial transactions has exploded over the last 20 years or so as high-speed stock trading and derivatives plays have taken over the market. How much this activity contributes to the "real economy" is debatable, and it's arguable that it detracts from the financial markets' proper role of discovering the right price for financial assets.

"There's no evidence that having more trading leads to better outcomes," says Pollin; in fact, he says, the evidence goes the other way. What does the market gain from stock trading paced in seconds or even fractions of a second? "Does the valuation of a company change every 30 seconds?"...

...Wall Street has escaped paying the bill for the damage it did to the economy in 2008. The U.S. taxpayer bailed out the financial sector to the tune of more than $700 billion; despite that, the big Wall Street trading firms and banks continue to flout the law, continue to overpay their executives and traders, and continue to squeeze mortgage borrowers and small businesses alike. This is a way to start getting repaid....


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It would be simpler to just eliminate the special capital gains tax rates. If something is income tax it as income. That change would allow Warren Buffet to pay more in taxes than his secretary.

The thing to watch on a financial transactions tax is the unintended consequences. Taxes are a great way to modify behavior. Revenue is a secondary effect. I don't know what people would do to avoid the tax or how that would affect the economy. We are seeing a lot of unintended consequences with the ACA such as loss of work hours and loss of millions of insurance plans. This could be a good time to discuss the merits of the Robin Hood tax but I wouldn't suggest implementing it until we see how the economy reacts to the ACA.

It is billed as a teeny tiny tax that drains $700 billion from a sector of the economy. That reminds me of the africanized bee attacks. One sting is teeny tiny but enough stings at once have killed pets, people, and livestock.

The exemption for the little guy is a nice touch but unnecessary. An individual who earns less than $50K/yr probably is not doing much in the stock market anyway. If he is in the market then paying a nickel to play should be no big deal. However, such an exemption opens up an out for a company that could create a few subsidiary corporations to each handle a portion of their portfolio. Each sub corp would make sure they kept total profits for the year under $50K and thus avoid the tax.

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I cannot see why a .05% tax would discourage any transaction unless the expected net was less than or equal to it. I suppose the hedge fund quants may actually be raking in their billions on that small a margin but if so they certainly aren't benefiting anybody but the .01% . The money is being "drained" either way. I continue to advocate for the financial transaction tax to be taken to maximum conceivable concept of transaction as a substitute for income tax. It would be perfectly progressive and perfectly fair.

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Instead of Paul Ryan's 'Robin Hood in Reverse,' Why Not a Robin Hood Tax?

John Nichols on October 29, 2013

... Ryan makes little secret of his agenda. The Wisconsin Republican is already talking about implementing the "entitlement reforms" he's been pitching for years. So no one should rule out the prospect that the committee will entertain proposals for the roll-the-dice experiments with Social Security, Medicare and Medicaid voucher schemes, hiking retirement ages, establishing means tests and reducing protections against inflation. At the same time, Ryan would reduce the corporate tax rate and eliminate the alternative minimum tax--completing the "Robin Hood-in-reverse" scenario that so appeals to austerity advocates.

But what are the prospects that the committee will discuss proposals that might attract the resources needed to avoid cuts to essential programs and steer the US economy toward job creation and growth? The Democrats make a bow in the right direction. In addition to investing in job creation, transportation infrastructure and worker training programs, Senate Budget Committee chair Patty Murray, D-Washington, includes proposals to close tax loopholes and eliminate tax breaks for corporations that offshore operations.

But if they are serious about countering austerity--and they should be--Democrats need to offer something more substantial. And the place to begin is with a real alternative to "Robin Hood in reverse." ...

... That's a tax on high-stakes financial transactions, as proposed in the House by Congressional Progressive Caucus co-chair Keith Ellison, D-Minnesota. Ellison's "Inclusive Prosperity Tax" would raise hundreds of billions in new revenues. "This is a small tax on Wall Street transactions to meet the needs of our nation," says Ellison, who asks: "Didn't America step up to the plate when Wall Street needed help?" ...


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