What is important is that the financial sector, which bears a disproportionate share of the blame for the deep recession that is still affecting employment and growth, share in the costs of insuring against future bailouts and be forced to restructure itself to better insulate the rest of the economy from excessive risk.
-Jeremy Scott, Forbes
A tax, which would cost you $1 for every 800 cups of coffee you bought, does not seem that bad at all.
Senators Tom Harkin (D-Iowa) and Sheldon Whitehouse (D-R.I.), along with Rep. Pete DeFazio (D-Ore.) are the latest on Capitol Hill to propose a financial transaction tax (FTT). The tax would feel very small to those on Wall Street; it would feel like they too were paying $1 for every 800 cups of coffee they drank for every financial transaction they made. The proposal stated that all financial transactions would cost three pennies on every $100 traded. According to Salon, this tax could raise $352 billion in revenue over the next ten years.
This past October, we watched the government shut down, and many non-essential workers were not allowed to come into work. While these employees struggled, Wall Street remained unscathed. It has raked in billions of dollars in profits from financial transactions, and it does not pay a penny in taxes on most of them.
Instead of the perpetual battle regarding entitlement benefits cuts, Congress should look to revenue from the base that helped create the 2008 financial crisis. When it comes to cutting the deficit, 6 in 10 Americans prefer taxing the financial industry to cutting social spending.
Many critics note that the tax could be destructive; however, when the FTT existed in the US from 1914-1966, it helped provide a healthy economy with less income inequality and more jobs. Currently, the US has a very minor 0.0034 per cent tax on stock transactions; this revenue goes toward supporting the operation costs of the Securities and Exchange Commission.
Different financial transaction tax bills have been proposed in Congress since 2009. The bills have suggested a .025%–.5% tax on stocks, .025%–.1% tax on bonds and .005%–.02% on derivatives with the funds going to health, public services, debt reduction, infrastructure and job creation.
Not only is the FTT a revenue booster, it will also provide a much-needed financial regulatory mechanism. The high-frequency traders that dominate our markets would be the hardest-hit by the tax. Financial analysts often fear that their mass-trading, speculative techniques can lead to large disasters if the markets act up unexpectedly.
Similarly, a common argument against the FTT is that it will adversely affect investors like you and me. Don’t worry! 401k accounts and similar middle-class investment accounts will have tax credits available to them under the most recent legislative proposal for the FTT.
“Investment funds would still be taxed on their trades, but this could encourage longer-term productive investment” instead of the short-term speculation that adds little to no value to the real economy. The FTT is about the giant banks and investment firms: the “too big to fail institutions” like Bank of America, Citigroup, JPMorgan, and Goldman Sachs.
Maybe this tax just needs a little more time…?
The conservative German government, along with eleven other European nations, is unveiling its own financial transaction tax this year. Critics have argued that the tax will be ineffective because of the easiness of evading the tax. However, Mr. Scott further points out that these critics cherry pick bad examples of the FTT, such as Sweden’s FTT 30 years ago. “This is like saying cars don’t work because you bought a Datsun in the ’70s,” he notes.
Conversely, he points out that the FTT has been successful in the United Kingdom; it has been able to raise close to $5 billion per year on a 0.5 percent tax on stock trades alone.
So perhaps Congress and President Obama should stop with the budget cuts and the derailment efforts of the European FTT. Instead, the two should work together to impose a tax that would keep in check those who oft speculate to the detriment of the many.
It’s a simple tweak that would reign in an out-of-control financial sector, stimulate jobs, generate billions of revenue, and possibly prevent another heart-wrenching crisis.
-Lynn Stuart Parramore,
JDKatz, P.C. is a full-service law firm focused on tax law, business and transactional law, estate planning and elder law. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys, or visit http://www.jdkatz.com.