Irresponsible bankers caused this economic crisis. It's only fair that they pay to clean it up

[depakid]

by Dean Baker

The deficit hawk crew, famous for missing the $8tn housing bubble that wrecked the economy, is now on the warpath, pressing the case for a big, new, national sales tax. They claim that the United States badly needs additional revenue to address projected budget shortfalls.

While we may need additional revenue at some point, it makes far more sense to impose a financial transactions tax, which would primarily hit the Wall Street banks that gave us this disaster, than to tax the consumption of ordinary working families. We can raise large amounts of money by taxing the speculation of the Wall Street high-flyers while barely affecting the sort of financial dealings that most of us do in our daily lives.

The logic of a financial transactions tax is simple. It would impose a modest fee on trades of stocks, futures, credit default swaps and other financial instruments. For example, the UK puts a 0.25% tax on the sale or purchase of shares of stock. This has very little impact on people who buy stock with the intent of holding it for a long period of time.

For example, if someone buys $10,000 of stock, they will pay $25 in tax at the time of purchase. If they sell the stock 10 years later for $20,000, they will have to pay $50 in tax. The total tax would be equivalent to an increase of 0.8 percentage points in the capital gains tax.

By contrast, if someone is interested in buying stock at 1.00pm to sell at 2.00pm, this tax is likely to take a bit hit out of their expected profits. The same applies people who are speculating in futures, credit default swaps and other financial instruments.

We can raise more than $140bn a year taxing financial transactions, an amount equal to 1% of GDP. Before we look to impose a national sales tax, or value-added tax, as the deficit hawk crew would like, we should insist that we first put in place a set of financial transactions taxes.

A national sales tax will primarily hit the consumption of ordinary workers. People will pay for it in all of their everyday purchases. Food, clothing, medicine - everything will cost a bit more as a result of a sales tax. Poor and middle-class people will end up paying a larger share of their income in this tax. This is both because they spend a larger share of their income than the wealthy and also because they spend a larger share in the United States. While the wealthy may have the opportunity to travel extensively in Europe or in countries not affected by the national sales tax, few low- or middle-income people will have this option.

Since the financial sector is the source of the country's current economic and budget problems it also makes sense to have this sector bear the brunt of any new taxes that may be needed. The economic collapse caused by Wall Street's irrational exuberance has led to a huge increase in the country debt burden. It seems only fair that Wall Street bear the brunt of the clean-up costs. A financial transactions tax is the way to make sure that this happens.

More: http://www.commondreams.org/view/2009/11/10-3

[dkf]

1. People have been screwed out of their savings by investing in the stock

market and now you want to tax them to get out of their losses? Its a load of BS.

[The Magistrate]

2. Hear Hear, Sir! This Tax Is Both Proper And Necessary, And Long Over-Due

My only suggestion would be to levy it on sale, rather than purchase, which would be easier on long-term investors and more of a deterrent to quick-swap traders and speculators. Instruments in a retirement account or held long term by small investors could also be held exempt.

[dkf]

3. Why not just increase the capital gains tax then?

Its not fair to tax someone if they are getting out of a miserable investment. And watching people who are loyal to their investments has been really painful to watch. Some of the most emotionally attached buy and holders went down with their companies. I think we should encourage people to get out of old time investments that have gone horribly wrong, like GM or AIG instead of charging them to sell.

In addition, its not old companies like GM who are creating jobs, its the new companies! We need to encourage the movement of investment to expanding industries that keep us on the cutting edge.

Lastly, we wouldn't have to trade stocks to get some benefit out of them if only they paid dividends instead of giving everything to their CEOs in outrageous pay.

[The Magistrate]

4. The Benefit, Ma'am, Of A Transaction Tax, As Opposed To Increasing The Capital Gains Tax

Is that it would operate to some degree to supress churning of stocks and other short term speculations. These are a leading cause of the volatility that whip-saws and fleeces small investors. Capital gains rates apply only after the instrument has been held for a length of time, and much of the destructive activity comes in activities of much shorter term. Exemptions of the sort suggested above would remove liability from many of the people you describe. The speculative churning does nothing to allocate capital to useful new businesses. In regards to the beneficial effects of dividends rather than looting by management, we are certainly in agreement.

The capital gains rates, in any case, are something that sticks in my craw. Income from labor should not be taxed at higher rates than income gained by investment. Indexing for inflation when investments have been held for a long term is proper, of course.

[dkf]

5. Then why not only put this tax on truly short term holdings, maybe only

for day trading. It does not make sense to tax ALL transactions if you are simply targeting very short term trading. Frankly I think its an excuse to tax "the rich".

[Mopar151]

6. This should apply to commodities trades as well

Perhaps even to currency trading. Another thing - arbitrage is almost like a tax on the system, but it pays the speculators! and incrementally raising the transaction cost is a good way to clip the wings of the arbitageeurs.

[yurbud]

7. I entirely agree. Investment income should at a MINIMUM be taxed the same as work

[yurbud]

8. We need even more fundamental reform: end short selling and any other practice...

that allows speculators to drive down the price of a stock and ruin a business in the real economy. It is a lot easier to break something than to build it, and the last couple of decades Wall Street seems to have figured that out. They pump up a phony investment (or worse falsely value real investments as they did internet companies and now houses), give their pals the wink when it's time to get out and start short selling, and those of us in the real economy pay the price.

We need to call these guys what they are: economic terrorists, and treat them accordingly.

[Yehonala]

9. Especially When......

"It is a lot easier to break something than to build it, and the last couple of decades Wall Street seems to have figured that out"

Especially when their little businessmen take over businesses, then proceed to dismantle them and sell off the divisions one by one and make billions. Meanwhile everyone loses their job and livlihood and the owner of the company watches his entire life's work get destroyed as well. All these companies getting dismantled are the root problem. We don't encourage people to build their own businesses and use acutal skills to do so. For some reason, people see getting their hands dirty as something to look down on. Instead of taking pride in hard work, people are taking pride in being pencil pushers.

I mean, there are dozens of small businesses that are having a difficult time and kids these days want to be the Wall Street Execs who don't actually build anything. I wish there were some sort of law that made such takeovers difficult, mainly to prevent the full blown destruction of livlihoods. Our business 'elites' are the ones who sit all day in their offices and then ruin our economy because they are happily experimenting with the theories they learned in college to see if it works in the real world.

[yurbud]

10. looking down on ''not getting your hands dirty'' is left over from slavery

when manual labor was done only by slaves and the master sat on the porch drinking mint juleps.

Today's Wall Street execs make those masters look workaholics. At least they got out a cotton crop. Wall Street itself makes nothing of value and any service of value it provides comes at too high a price.

[Angry Dragon]

11. All bonuses paid to Wall Street and banks

to be paid to government. We were the ones to save it so we are the ones to get the bonuses.