Wall Street needs a sales tax

Last November Senator Tom Harkin, D-Iowa, and Rep. Peter DeFazio, D-Oregon, introduced a bill imposing a transaction tax on Wall Street traders of 1/2 of 1 percent (split between buyer and seller) every time they buy and sell a stock, and 3/100th of 1 percent every time they buy and sell a derivative, a security not backed any actual financial asset.

That seems reasonable to me.  As a resident of Monroe County, N.Y., I pay an 8 percent sales tax whenever I buy a restaurant meal or a paperback book.   What Harkin and DeFazio seems modest in comparison.

The Joint Tax Committee of Congress estimated such a tax would bring in slightly more than $350 billion over a nine-year period–roughly $39 billion a year– even if you assume that trading would fall by 50 percent in response.

Long-term investors would barely notice such a tax.  But it would be a burden on speculators who buy and sell stocks many times a day.  Even a nominal tax might inhibit derivatives traders, who buy and sell securities not backed by any asset, but whose trading exceeds the trading on the regular stock market many times over.   A tax might reduce this activity more than 50 percent, but this would be a good thing, not a bad thing.  Constant churning destabilizes the financial markets.

I don’t see any argument against such a tax on its merits, but it has no support from the Obama administration or the Democratic leadership in Congress, let alone the Republican leadership.   Wall Street has occupied Washington.

Click on A Wall Street Tax and an Independent Workers Movement for the transcript of an interview with Robert Pollin, professor of economics at the University of Massachusetts at Amherst, and Rose Ann DeMoro, executive director of National Nurses United, about a financial transaction tax.

Click on Wall Street Transaction Tax Would Raise $350 Billion for an explanation of the proposed tax on the Huffington Post.

Click on Why the financial transaction tax proposal is DOA for an analysis of the proposal’s dim legislative outlook on CNNMoney.

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