A speculation tax would make Wall Street pay for damages

Americans have a right to expect Wall Street to pay. Wall Street should pay for the trillions of dollars of public supports it has received to continue operation, and it should pay for the massive damage it has inflicted on the national and global economy.

A speculation tax — a sales tax applied to stocks, derivatives and other financial instruments — is an ideal way to make this happen.

{mosads}A speculation tax has at least three distinct benefits.

First, it can slow the churning of stocks and financial instruments on Wall Street. Too much of Wall Street’s business is based on lightening trades to capture very small margins. This business contributes little or no social value — it does little to advance the efficient allocation of capital that is Wall Street’s purported social contribution. But it has major downsides, especially because it relies on high degrees of leverage that put financial institutions at risk — and, worse, endanger the entire financial system.

Vanguard founder John Bogle says he “loves” the speculation tax. “The tax costs to traders are basically zero,” he says, “and the commission costs are half a penny a share or something like that. So we’ve taken the frictional costs out and that helps explain why we’ve had this orgy of speculation.”

Second, a modest speculation tax can raise very substantial revenues. A quarter-percent tax on stock trades, and a commensurate rate tax on other instruments, could raise more than $100 billion a year, according to estimates from the Washington-based Center for Economic and Policy Research.

That’s still a lot of money, even in Washington. There are many good purposes to which it could be allocated. Jobs creation. Healthcare. Infrastructure.

Global health. Transition to a green economy. Helping developing countries transition to a green economy. Education. Pick your issue — there is no shortage of need.

Third, the speculation tax would be extremely progressive. It is self-evident that it is the richest Americans who trade stocks the most. The richest 1 percent of Americans own about 40 percent of the stocks; the top 10 percent own about 80 percent.  There is no question about the administrability of a speculation tax. The Securities and Exchange Commission is presently funded by a micro tax on stock trades.

Opponents of the speculation tax sometimes say it will drive financial business overseas. This is implausible. The United Kingdom currently maintains a financial transaction tax, and has been gaining not losing business over the past decade. (Indeed, prior to the financial crash, Wall Street firms were arguing that supposedly onerous accounting rules were pushing new stock offerings to London.) And while it’s obvious that Wall Street traders would not like such a tax, it is not obvious why listed companies or offerors would oppose a modest tax curbing turnover.

{mosads}While we don’t need to wait for an international agreement — and should not wait for one before acting — international application of a speculation tax would be a good thing. The UK, France and Germany have all indicated support for an international agreement on a speculation charge. If the United States embraced the idea, there is a very good chance an international accord could be reached.  The speculation tax is an idea whose time has come.

Representative Peter DeFazio (D-Ore.) has taken the lead on the issue, and with 20 co-sponsors has introduced the “Let Wall Street Pay for the Restoration of Main Street Act.” Sen. Tom Harkin (D-Iowa) will soon introduce a Senate companion. DeFazio’s bill would allocate the raised funds for the purposes of job creation and deficit reduction. The idea of a speculation tax to fund a jobs initiative is gaining a warm reception among House leaders, and it is likely to gain traction to fund other policy objectives as well.

Steeply progressive, revenue generating and well-targeted, look to the speculation tax as one of the big ideas of the coming year.

Weissman is the president of Public Citizen.

Tags Tom Harkin

Most Popular

Load more


See all Video