The US Doesn’t Tax Financial Transactions. Here’s Why That Might Change Soon.

Europe gives “Robin Hood tax” momentum toward potential counterbalance against riskier speculation.
By @clbtea |
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    R.J. Barnett of New York marches with a crowd up Connecticut Ave. N.W., Saturday, April 20, 2013, in Washington, to demand support for the Robin Hood Tax, a financial transactions tax on Wall Street that they feel would solve the country's growing revenue crisis. (AP Photo/Carolyn Kaster)

    R.J. Barnett of New York marches with a crowd up Connecticut Ave. N.W., Saturday, April 20, 2013, in Washington, to demand support for the Robin Hood Tax, a financial transactions tax on Wall Street that they feel would solve the country’s growing revenue crisis. (AP Photo/Carolyn Kaster)

     

    WASHINGTON – A series of rallies, briefings and stepped-up lobby efforts rolled through Washington this week in support of legislation that would institute minor new taxes on the trading of stocks, bonds and derivatives, action on which the United States is lagging far behind much of the rest of the world.

     Advocates of a U.S. financial transactions tax (FTT) say it would raise desperately needed revenues. Given the gargantuan size of the U.S. financial markets, some estimate such a levy would offer hundreds of billions of dollars per year, which could be used on domestic social programs or global common goods — or to lower individual tax rates.

     They also argue that an FTT would lead to a far more stable economy, by cutting down on the impetus for investors to engage in speculation and the high-frequency, computer-run trading that has come to characterize today’s financial sector.

     “As someone studying the economics of this, I can say that a financial transactions tax is a policy no-brainer,” Lynn Stout, a professor of corporate law at Cornell Law School, said at a Wednesday briefing on Capitol Hill. “It’s all upside, there’s virtually no downside, and it’s astonishing we don’t have one.”

     Stout notes that essentially all products and services in the United States are taxed when they go through a public transaction, from daily necessities to luxury items.

     “What is not taxed? Speculating in stocks, bonds and derivatives. That’s crazy! That means we’re essentially subsidizing speculation in financial instruments,” she says.

     “For one thing, this leaves a lot of money on the table that could go to taxpayers … But there are other good policy reasons to tax stocks, bonds and derivatives, just like there are good policy reasons to tax tobacco, alcohol and gambling: because speculation is actually harmful to our economy.”

     

    After the crash

     The idea of a financial transactions tax has been around in some form for centuries, and indeed, the United States had such a levy until the 1960s. Proponents are quick to point out that, contrary to current concerns from the financial sector, the economy seemed to function just fine under those conditions.

     Yet the idea has come strongly back in vogue in recent years in the U.S. as well as around the world. This comes as a result of multiple factors, but most can be traced back to the 2008-09 global financial crisis, whose underlying cause boiled down to years’ worth of excessively leveraged bets made within the U.S. financial sector.

     The resulting crash did at least three things: it severely ate into U.S. (and global) government coffers, it heightened public frustration with Wall Street to levels not seen in decades, and it underlined the need for greater regulatory action to stabilize financial markets. Similar trends can be seen in developed and developing economies around the world.

     In the United States, momentum toward an FTT appears to have been growing after some activists adopted the idea in the context of the Occupy Wall Street movement. It was in this context that the FTT found a new U.S. nickname, with some referring to it as a “Robin Hood” tax. (It’s also called a Tobin tax after a U.S. economist credited with popularizing the idea of bringing it back.)

     “Several years ago, our members began seeing the horrendous fallout of the latest crisis caused by the banks – floods of patients who couldn’t pay their medical bills, forced to choose between paying for food or medications,” Charles Idelson, communications director for National Nurses United, the country’s largest organization of nurses and a supporter of an FTT proposal, told Mint Press News.

     “Our members understood that the solution to the U.S.’s economic problems is not more cuts, which seems to be the fashion in Washington. Rather, we need to find more revenue, and the best place to get it is from those people who aren’t paying their fair share right now.”

     

    European impetus

     While 40 countries have by now adopted some form of FTT, the United States, home to the world’s strongest and most influential financial sector, continues to lag behind. Indeed, 11 European Union countries have already agreed to phase in an FTT, slated to go into effect in the middle of next year.

     “Hopefully this is a tax that will soon become a reality in Europe, but is a tax that will achieve its full potential only if implemented on a larger scale, a global scale,” Anni Podimata, a political leader from Greece and current vice-president of the European Parliament, stated on Capitol Hill this week. “In this context, the U.S. is an extremely important jurisdiction.”

     Podimata notes that, as in the United States, the financial industry in Europe is fighting hard to delay, water down or even kill the EU FTT.

     “But what we’re saying is that the FTT will become reality because it’s a fair tax, because it’s a means to shift part of the burden from citizens to a sector that is admittedly under-taxed,” she says. “It is politically unacceptable to have been increasing taxes on labor and pensioners and give in to lobbyists claiming the industry will not be able to withstand this tiny tax.”

     The U.S. Chamber of Commerce, the country’s largest business lobby group, has opposed an FTT for years. In a 2010 report, Chamber-commissioned researchers warned that such a levy would hurt jobs growth and make it more difficult for businesses to recover from the economic recession. They also released results from a poll suggesting that 70 percent of U.S. registered voters did not want an FTT instituted.

     The U.S. government, too, has a history of antipathy on the issue. The U.S. Treasury has formally warned the European Parliament that its EU proposal would harm U.S. investors. Last year, the Congressional Research Service, the U.S. Congress’s main research arm, found that while an FTT could be a significant source of revenues, it was unclear whether such a tax would help tame volatility in the economy.

     

    $350 billion a year

     Still, numerous bills to create FTTs of various scope and shape have been introduced in Congress in recent years.

     For many activists, perhaps the foremost of these is one introduced in the House by Rep. Keith Ellison (D-Minn.), a co-chair of the Congressional Progressive Caucus. Called the Inclusive Prosperity Act, this proposal would impose a tax of 0.5 percent tax on stock trades, 0.1 percent on bonds and 0.005 percent on derivatives and currency.

     “The Inclusive Prosperity Act will ask those people who got so much benefit from the American people to do just a little bit – a little tax on stocks, derivatives, bonds – just a miniscule amount, but it adds up to $350 billion a year,” Rep. Ellison said Wednesday.

     “If we get $350 billion a year, we don’t argue about paying for the things this country needs … We make sense; we do what proper countries do – put the welfare of their people upfront, as opposed to profits for rich bankers.”

     Needless to say, $350 billion dollars a year is a massive amount of money. In comparison, the current across-the-board cuts to the federal budget known as the sequester — over which there continues to be much hand-wringing on both sides of the political aisle — would cut just $309 billion in the growth of domestic discretionary spending, and that’s over the course of a decade.

     Advocates who have been pushing for an FTT for years say that there is today far more momentum toward creating such a tax in the United States.

     “When we used to discuss this issue with lawmakers even just a few years ago, we would literally be laughed at – anyone who knew anything about tax policy would say this would never happen,” Jennifer Flynn, managing director of Health Global Access Project, which works to fight HIV/AIDS across the world, told Mint Press News.

     “But then people started talking about revenue, and right now everyone says that they love the idea of an FTT. But what’s shocking is that when you try to hold their feet to the fire by asking them to sign on to a bill, many remain reluctant because they’re worried about campaign contributions.”

     Still, the current activities in the European Union will provide a major test of the efficacy of a broad FTT, and could prove to be a major impetus for the United States.

     “An FTT is inevitable in the U.S.,” Flynn says. “By June, after all 11 EU countries have implemented this plan and every major financial institution in the world is paying it, I imagine people will suddenly wake up and ask why, for instance, Germany is getting money on stocks that a U.S. company originated.”

     

    Transcendent aims

    Still, even if some sort of FTT were to be passed in the United States, the next fight – and almost certainly a larger one – would be over what to do with these new revenues. Rep. Ellison, for instance, wants to use that new money to focus on domestic needs – infrastructure, health care, education and retirement accounts.

     Others have a more global outlook, focusing on the potential to have a major impact on global warming and disease. Health GAP’s Flynn says, for instance, that current estimates suggest the global AIDS epidemic could be brought under control within decades by using just a fraction of this potential pot of money – $6 billion a year.

     Conservatives, meanwhile, would undoubtedly push for any FTT revenues to be given back in large part to taxpayers.

     “Even though I’m optimistic that an FTT is finally on the horizon in the U.S., I fear it will be very watered down – a couple billion dollars on the table, which wouldn’t actually be able to be used to achieve these transcendent aims,” Flynn says. “That sort of use will only be possible if real social movement is pushing for it.”

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      • Professor Smartass

        The initial rate should be set bring in the exact amount Bush’s Treasury Secretary Hank Paulson demanded in a no-strings attached bailout: $700 billion.

        And call it RESTITUTION or REPARATIONS for economic terrorism committed on not just Americans all of humanity.

      • http://www.lesperanceassociates.com/ David S Lesperance

        Let’s put aside fantasy and deal with realities. Even if you think them “unfair” ” UnAmerican” or doesn’t conform to your philosophical/ political preferences.

        Reality 1) US Politicians need to maximize in a sustainable manner the amount of tax revenue they collect in order to TRY to pay for entitlement programs which were put in place by themselves and predecessors. They will do this out of a sense of responsibility and/or a desire to be re-elected. As a result of the Prisoner’s dilemma, countries will compete with each other for sources of tax revenue and job creation. US politicians don’t get rewarded for helping other countries to the detriment of their own;

        Reality 2) The “tax equation” is “taxable income/capital gains” times “income/ capital gains rate” equals “taxes paid”. Quoting rates ( whether income or capital gains) in isolation is meaningless and misleading. The significant indicator is “tax paid”;

        Reality 3) In a progressive tax system like the US, the top 1% of taxpayers (aka. Golden Geese) pay over 1/3rd of the total personal taxes paid. This is true even though this group tends to pay more than other groups at capital gains rates. As a result of globalization these Golden Geese are no longer bound to remain in a given tax regime in order to make and maintain their wealth. Countries actively recruit and compete for these Golden Geese, by making their jurisdiction more tax friendly than others. Therefore income/ capital gains tax revenues will drop in jurisdictions which the Golden Geese deem as taxing too heavily. Increasing taxation on this group (aka “tax the rich”) will increase these departures and accelerate the loss of total taxes collected. (Note: For real life example look at Eduardo Saverin and the record number of American expatriations);

        Reality 4) Taxing international companies that deliver unique services delivered directly to devices ( eg Google and Twitter) are not as easily corporately taxed as companies which deliver standardized tangible goods either at retail outlets (eg Starbucks) or through courier/ mail (eg Amazon). With 3D printing becoming widespread and cheap; more tangible goods companies will be ones delivering programs on-line. This also makes it more difficult to apply VAT (ie consumption taxes) taxes on more and more goods. Therefore “Fair Tax” proposals will generate a dwindling amount of tax as this trend continues (Note: Puts those silly 3D food printing pioneers in a new light doesn’t it!)

        Reality 5) Financial transactions are quickly and easily moved between jurisdictions and not easily taxed. Therefore “Robin Hood” tax proposals are DOA, since any country trying to implement such a program will find a rapid loss of their financial markets to jurisdictions which do not implement such a tax. (Note for a real life proof look at the immediate loss of financial markets in the 11 EU countries which recently put in a financial transaction tax to the other 20 odd which did not);

        The sooner American politicians of all stripes recognize (and educate the voters about) these realities the more chances that they will be able to get their tax revenues stabilized and maximized and therefore get the long-term support of the voting public.

      • OH

        It should be a 200% tax on all income over a certain amount, with American student-loan style repayment terms.

        America does not need rich people, they are a burden, a curse, a threat, an enemy, and a deadly luxury we can not afford in any way at all. They lie, they spend their money to corrupt, they won’t release their death grip. One day America has to give the worthless un-patriotic rich something to actually cry about, the whining, pathetic whining soft shameful pieces of puff.

      • ftf123

        I’ve been following this tax for almost 5 years. The article above is bogus. $350 billion per year is many times more than the annual profits of the entire US financial sector including insurance, banking, investments. It’s also many times more than what annually gets invested. You can’t take out more than what gets invested.

        The principles of the tax are false…it does not create net tax revenue. Europe is your idol? It’s the EU Commission that wants the tax badly for its own funding. They have been extremely biased in favour of the tax. What does the EU Commission want? The Financial Transaction Tax. What does the EU Commission’s own study say about their own tax? European Scrutiny Committee citing EU Commission’s own FTT Impact Assessment: “The Minister next discusses the Commission’s impact assessment accompanying the proposal, saying that: a 3.43 % fall in EU GDP equates to a fall in economic output worth €421 (£362) billion and a 0.34% fall in employment equates to a loss of 812,000 jobs.”

        Negative revenue: The tax destroys its own revenue base. EU Commission expects tax revenue of €20-30 billion before a GDP loss of €442 billion that would have been taxed at approximately 45pc for a loss to various governments of €199 billion. For every dollar in revenue generated, $10 is lost in other revenue.

        In addition to substantial losses on investment yields, the public can expect significant cost increases for insurance, mortgages, products and services. IMF’s FTT Final Report For The G-20, June 2010, “Its real burden may fall largely on final consumers rather than, as often seems to be supposed, earnings in the financial sector.”

        • OH

          Americans do not need rich people, they deny Keynesian stimulus during a recession because of their corruption, we need these ultra-competent fools out of our way so we can have sensible policies! Let us have our govt back.
          We are constantly told that taxes on rich people destroy jobs, but the rich people call us lazy while outsourcing and hiring non-citizens and dodging taxes. The stock market is up and Americans are down, how much longer will we accept their convenient claims that their profits are good for us?
          $350 Billion is not many times more than the entire US financial sector, that is a lie, the dupes of the rich are never going to admit the truth is the truth. More money in the pocket of the worthless rich is a proven path to fewer jobs and we have all seen it – recently – you can’t just say “that didn’t just happen”!

        • OH

          $350 Billion is HOW MANY TIMES greater than the total US financial sector.
          Huh? Huh? Huh? I thought so. Typical.
          Huh?

          • ftf123

            You want to tax investments such as 401K’s and pensions. The entire investments industry’s best year profits was around 20 billion years ago.

      • The Greedy Ones won’t like it

        Hark that crescendo of agitated piggy-banksters oinking in O’bombers ears …

      • http://www.vote4ok.com/ Michael Fulks

        I have advocated for this and will work to pass this needed legislation.