If I told you there was a tiny tax that could be applied that only a few people would pay, which would potentially raise billions of dollars annually, would you be interested? It’s not a new idea actually and it is already in place — it’s just not being properly implemented.
Since 1905, New York has placed a tax on Wall Street transactions which currently raises about $16,000,000,000 annually. It does not apply to checking or savings accounts, but solely on the buying and selling of shares that are traded in the millions every day on the New York Stock Exchange (NYSE). Over the decades the rate of taxation has gone up and down, but here’s the shocker — every year since 1981, New York has collected the tax and promptly returned it to the traders. Yes, New York takes the tax and gives it right back.
Some have argued that this is a bad idea — that it doesn’t discourage speculation and creates market volatility which is the opposite of some of the intended effects. But what if we applied it in a proper, common sense way nationwide and actually put the money into the national coffers instead of giving it right back like New York currently does?
It is an idea which has been put forth in both Congressional and Senate legislation a number of times, most recently this past February when Democratic Senator Tom Harkin (D-Iowa) and US Rep. Peter DeFazio (D-Ore.) submitted a bill that would impose a 0.03% tax on financial transactions, and potentially raise over $350 billion annually. As mentioned before, some have claimed it would place undue burden on Wall Street and wouldn’t curb speculation, but almost all are in agreement that it would bring in revenue. In fact, some finance industry professionals submitted a letter in support of it in which they said the following:
Dear G20 and European leaders,
As individuals with first-hand knowledge and significant experience in the financial industry, we urge you to introduce small financial transaction taxes (FTTs). These taxes will rebalance financial markets away from a short-term trading mentality that has contributed to instability in our financial markets. They also have the potential to raise significant revenue.
In the last few decades, financial market activity has increased tremendously, with the value of transactions now seventy times greater than the size of the real global economy. The primary role of financial markets is to raise investment, allocate resources efficiently, and mitigate risk. However, much of today’s financial activity does not contribute to these goals. Computer-driven, high frequency trading, for example, allocates resources on the basis of algorithms designed to turn very short-term profits and have been shown to drain liquidity in stressed markets when it is needed most.
Financial transaction taxes of a small fraction of a percent on each trade, such as those proposed by the European Commission and backed by a number of G20 countries, would moderate the incentives for such short-term speculation while having a negligible impact on long-term investment.
Concerns have been raised that FTTs could damage growth. But a growing body of evidence suggests that by reducing volatility and raising much needed revenue, the overall effect would be positive. Critics have also wrongly associated trading volume with efficiency-enhancing liquidity and failed to sufficiently take into account market resilience and trust that are undermined in a world where very short-term trading dominates the financial system. As many notable economists have observed, a modest transaction tax will actually improve the functioning of markets.
FTTs have a proven track record. Numerous countries, including those with deep and fast-growing markets, such as the UK, South Africa, Hong Kong, Singapore, Switzerland, and India, currently have FTTs on particular asset classes that raise billions of dollars per year. New FTTs, whether agreed by the G20, EU, or by individual countries, offer a real opportunity to help restore the financial sector to its proper role, while raising massive revenues for people in urgent need at home and in the world’s poorest countries. We believe this is an opportunity that should not be missed.
To me, the idea of raising revenue based off a tax that takes a tiny fraction of stock and derivative trades from the same institutions we had to bail out after they took us into the last recession just makes sense. Not to mention that some of them, like Bank of America, repaid our kindness by lying to homeowners and finding ways to not renegotiate mortgages. This is an idea which, combined with removing corporate subsides and reducing defense spending, could very well balance the budget and reduce the debt.
So if it makes sense, could help balance the budget and reduce our debt, why hasn’t it happened? Well, when you have a government made up of hundreds of elected officials who don’t care about coming together and doing what’s best for the country, this is what happens. Good ideas fall by the wayside while corruption and gridlock takes center stage. And they wonder why they’re far less popular than head lice?
Latest posts by Manny Schewitz (see all)
- It Looks Inevitable, Donald Trump Will Eventually Be The Republican Nominee - January 17, 2016
- Donald Trump Is Now Using Ted Cruz’s Canadian Birth Against Him - January 14, 2016
- Hillary Clinton’s False Statements On Bernie Sanders’ Healthcare Record Are Disgraceful - January 14, 2016