By Vicki Needham - 01/24/11 05:55 PM EST
As designed, this tax would almost exclusively hit the financial sector, not individual investors, "because investors would respond to any increase in transactions costs by cutting back their trading, leaving the total amount they spend on trades little changed."
The tax would help rein in "economic rents" earned by the financial sector by taxing the turnover of credit-default swaps, options, stocks and other financial instruments.
"In terms of potential revenue when deficit reduction is now playing a central role in Washington debates, it is surprising that an FST is not given more attention as a policy-tool," Baker said. "Few other options are as attractive or generate as much money with as little pain as an FST."