WASHINGTON -- Boosted by the Occupy Wall Street movement, two Democrats in the House and Senate are renewing a push for a transaction tax on speculative trades. The tax would be set at a nominal rate designed to have little impact on pension funds that buy and hold securities for the long term or on individual investors who don't make hundreds or thousands of trades a day.
"This proposal will not only curb some risky trading activities, but will also raise greatly needed revenue in a way that does not negatively impact middle-class Americans," said Kate Cyrul, a spokeswoman for Sen. Tom Harkin (D-Iowa), who plans to introduce Senate legislation when the upper chamber, which is now in recess, returns.
The global reach of the OWS demonstrations is critical to passage of a U.S. tax on financial speculation, because banks argue that the extra cost would simply drive the risky trades from New York to an overseas exchange. But if Europe and other major financial centers implemented their own transaction fees, there would be little haven left for speculative trading.
"The big threat that the Wall Street apologists have always used is, 'My God, all of our firms will move to Europe,'" Rep. Peter DeFazio (D-Ore.), the House sponsor, told HuffPost. He noted that London already has a small fee on some transactions, yet "I haven't noticed the people fleeing Fleet Street."
DeFazio has introduced a version of the transaction tax in the past, but said this year's bill will be different. Previous proposals set a considerably higher rate, but included carve-outs for small investors and pensions funds. The new tax will be flat.
"We've decided to go with a substantially lower rate, agreed upon by a number economists who we are consulting with, that would both raise the significant amount of revenue but would not be a burden on legitimate long-term value investors, but would be a real burden for people who trade" in extremely high volume," he said. "It would be problematic for them."
The OWS movement has been criticized for lacking specific demands, but the renewed push for the transaction tax undermines that line of attack. Specific solutions to economic inequality are not in short supply. What's been missing for years has been the political will to implement them. Yet if the protesters had proposed a rally and occupation to specifically support a nominal transaction tax, it's doubtful more than a handful of die-hards would've showed up.
"Occupy Wall Street has just reminded a large majority of the American people that our economy was destroyed by gambling on Wall Street. And that the people who destroyed our economy have been amply rewarded and not prosecuted," said DeFazio.
Josh Ehrenberg, a 20-year-old from Rochester, N.Y., spent two weeks in Zuccotti Park before heading down to join Occupy DC last weekend. He isn't demanding a transaction tax, but he likes the notion. "I think that's a great idea. I like that tax a lot," he said while serving oatmeal to morning protesters. "I don't know too much about it, and I'm not going to claim to understand it to a degree I don't, but that is in [the same] vein with a lot of the things that I want."
The European Union is also contemplating such a tax. "If the EU were to implement a tax, then [Wall Street traders] basically would ... have nowhere to go but Third World countries. Or maybe they want to go live in China," said DeFazio.
The EU proposal is currently opposed by the United Kingdom, despite the nominal tax it already levies on some trades. The British say that they will only agree to a transaction tax if it's applied "globally" -- code for "in the United States." British leaders worry that a tax imposed in London but not in New York would drive traders to Manhattan.
The EU fee wouldn't take effect until 2014. The proposed Wall Street tax isn't moving quickly, either. "The Republicans in the House -- 97 percent of them have signed an oath of fealty to Grover Norquist, and they can't do anything he doesn't like, and obviously Grover would hate this idea," said DeFazio. "So that counts out 97 percent of the Republican members of the House, who happen to be in charge."
Tax policy generally has two goals: to raise revenue and to encourage or discourage certain behaviors. To encourage home ownership, retirement saving and charitable giving, the U.S. tax code provides credits and deductions. To discourage smoking, high sales taxes are imposed. While the Wall Street tax would raise a significant amount of revenue, its primary goals are to make lightning-speed speculation less attractive and to help stabilize the markets.
"The most important thing to benefit all Americans and put us on a long-term path to recovery is rein in speculative activity," said DeFazio.
Americans for Financial Reform, a coalition of progressive and labor organizations focused on reforming Wall Street, threw its weight behind the tax in a letter to the super committee:
The idea of a small fee on the sale of financial instruments like securities and derivatives is not a new one. Such taxes have a long track record both in the United States and globally. The United States had a transfer tax from 1914 to 1966, which levied a small fee on all sales or transfers of stock. The UK levies a transaction tax of one half-percentage point on stock transfers and has done so for many decades. Asian countries such as Hong Kong, Taiwan, South Korea, and India also currently levy securities transaction taxes. The European Union is currently proposing a tax of one-tenth of one percent on the trading of shares and bonds, as well as a smaller tax on derivatives transactions. The French and German governments have already endorsed this idea.
There is no question that even an extremely low fee on the vast market in financial transactions would generate significant revenue. The value of the U.S. market in stocks and bonds alone exceeds $40 trillion, and the notional value of derivatives transactions is several times that. The [International Monetary Fund] cites estimates that a miniscule tax of one cent per $100 of financial transactions globally would raise over $200 billion each year. The European Union's proposed financial transaction tax is forecast to raise almost $70 billion annually. In the United States, economists at the University of Massachusetts and the Center for Economic and Policy Research have estimated that one U.S. financial transaction tax proposal would raise $176 billion a year. Even a smaller tax could easily raise tens of billions per year.