Why a Tax on Wall Street
Trades is an Even Better Idea than You Know
By
Robert Reich
One
of Bernie Sanders’s most important proposals didn’t receive enough attention
and should become a law even without a president Sanders. Hillary Clinton
should adopt it for her campaign.
It’s
a tax on financial transactions.
Putting
a small tax on financial transactions would:
1. Reduce incentives for high speed trading, insider deal making and short term financial betting. Buying and selling stocks and bonds in order to beat others who are buying stocks and bonds is a giant zero sum game. It wastes countless resources, uses up the talents of some of the nation’s best and brightest and subjects financial markets to unnecessary risk.
2. Generate lots of revenue. Even a one
tenth of 1% transaction tax would raise $185 billion over 10 years according to
the non-partisan Tax Policy Center. It could thereby finance public investments
that enlarge the economic pie rather than merely rearranging its slices.
Investments like better schools and access to college.
3. It’s fair. After all,
Americans pay sales taxes on all sorts of goods and services, yet Wall Street
traders pay no sales tax on the stocks and bonds they buy, which helps explain
why the financial industry generates about 30% of America’s corporate profits,
but pays only about 18% of corporate taxes.
Wall
Street’s objections are baloney.
Wall
Street says even a small transaction tax on financial transactions would drive
trading overseas since financial trades can easily be done elsewhere.
Baloney.
The
U.K. has had a tax on stock trades for decades, yet remains one of the
world’s financial powerhouses. Incidentally, that tax raises about 3 billion
pounds yearly. That’s the equivalent of 30 billion in an economy the size of
the United States, which is a big help for Britain’s budget.
At
least 28 other countries also have such a tax and the European Union is well on
the way to implementing one.
Wall
Street also claims that the tax would burden small investors such as retirees,
business owners and average savers.
Wrong
again. The tax wouldn’t be a burden if it reduces the volume and frequency of
trading, which is the whole point.
In
fact, the tax is highly progressive. The Tax Policy Center estimates that 75%
of it would be paid by the richest 5th of taxpayers and 40% by the top 1%.
So,
why aren’t politicians of all stripes supporting it? Because the financial
transactions tax directly threatens a major source of Wall Street’s revenue.
And
if you hadn’t noticed, the Street uses a portion of its vast revenues to gain
political clout. Which may be one of the best reasons for enacting it.
ROBERT
B. REICH is Chancellor's Professor of Public Policy at the University of
California at Berkeley and Senior Fellow at the Blum Center for Developing
Economies. He served as Secretary of Labor in the Clinton administration, for
which Time Magazine named him one of the ten most effective cabinet secretaries
of the twentieth century. He has written fourteen books, including the best
sellers "Aftershock", "The Work of Nations," and"Beyond
Outrage," and, his most recent, "Saving Capitalism." He is also
a founding editor of the American Prospect magazine, chairman of Common Cause,
a member of the American Academy of Arts and Sciences, and co-creator of the
award-winning documentary, INEQUALITY FOR ALL.
