A group of congressional Democrats is pushing on with their efforts to enact a tax on financial transactions, in the face of what they acknowledge are long odds.
The financial transactions tax has prominent supporters in Europe, including President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany.
But the Obama administration has decided against embracing the idea, most recently at a meeting of the Group of 20 nations in France. Meanwhile, Republicans on Capitol Hill remain opposed to tax increases, and banking and financial advocacy groups are also fiercely against the transaction tax.
“The Republican majority will decide whether we take this bill up or it passes,” said Peter Welch (D-Vt.). “But it’s kind of hard to defend some of the conduct.”
Under the proposal introduced by Rep. Peter DeFazio (D-Ore.) and Sen. Tom Harkin (D-Iowa), trading of stocks, bonds and certain other transactions would be hit with a tax of three basis points – or, essentially, a tax of .03 percent per trade.
DeFazio, Harkin and other supporters of the tax have said the levy would be especially aimed at more speculative short-term trading that they say is too prevalent on Wall Street these days.
“This would drive the most destructive, high volume, useless traders out of the market. Those people don’t set markets,” DeFazio, who has been calling for a transaction tax for years, told The Hill. “We built a great country without them. We don’t need them now.”
But groups like the Securities Industry and Financial Markets Association (SIFMA) and the Independent Community Bankers of America (ICBA) are lobbying against the tax, with SIFMA saying it will further weigh down a sluggish economy by hurting markets and investors.
“While financial tax proposals may not be intended to target community banks, which did not cause the financial crisis, we fear with reason that any tax on the financial sector will end up unfairly impacting all banks and their customers as the federal debt and deficit fuel a growing demand for additional revenues,” Camden Fine, ICBA’s chief executive, wrote to lawmakers on Friday.
Supporters of the tax had hoped that Obama’s trip across the Atlantic for the G-20 meetings would give the tax some momentum. The European Union, prodded by Sarkozy and Merkel, has proposed putting a transaction levy in place, while Great Britain and Switzerland are among the countries that already have some sort of transaction tax.
But a top administration official signaled in France that the White House would continue pursuing a different policy – a fee on the largest banks to help make up for policies like the Troubled Asset Relief Program.
“Both share in commonality the idea that the financial sector has an appropriate role to play in contributing to the resolution of the crisis,” Michael Froman, the deputy national security adviser for international economic affairs, told reporters. “And I think there is broad consensus between the Europeans that the President met with this morning and ourselves about the ability of each to go – to each pursue this in their own way in whatever way they see to be most effective.”
Some Democrats are skeptical about the Harkin-DeFazio approach as well.
Rep. Barney Frank (D-Mass.), the ranking member of the House Financial Services Committee, said the idea of the transition tax had merit. But he added that the U.S. should not implement that sort of tax unilaterally, saying it would hurt the country if other large market economies didn’t put the policy into place at the same time.
Faced with Republican opposition to new taxes on Capitol Hill, congressional Democrats behind the transaction tax are hoping the deficit-reducing supercommittee will consider the idea.
But either way, they say they believe the frustrations personified by the nationwide Occupy protests and the need for revenues will cause their approach, also known as the “Robin Hood Tax,” to receive another look. Just this last week, hundreds of union members rallied in support of the tax in Washington.
“Over the course of the next year, I think you’re going to be seeing more and more people scratching their heads,” said Earl Blumenauer (D-Ore). “And this is a very powerful alternative to things that are going to hit average Americans very hard.”