Michael Moore acted out a near-universal fantasy when, in his latest film, Capitalism: A Love Story, he pulled up to a bank in a Brinks truck, stepped out, and announced to security guards: "We're here to get the money back for the American people."
As effective as it must have seemed at the time, there are ways to get our money back that don't require moneybags and get-away cars. Taxing trades in financial markets is one of them. But it's been hastily dismissed thanks to a sketchy exaggeration of the difficulties to ensue, a reluctance to take on Wall Street, and a failure to appreciate just how broke the nation is.
Let's face it, America: the rest of the world is not going to forever finance your mountainous debt, as it reaches into the stratosphere. Your health care costs will continue to soar, whatever plan you decide on. Afghanistan, Iraq and other foreign adventures won't pay for themselves. Private capital flows, though thickening, are still in short supply, and invariably fail to filter to the rest of society.
The answer is to raise capital for the public sector. A lot of it.
Like a Tobin Tax, but Better
Just weeks ago Britain's financial regulator, Adair Turner, the Chairman of the Financial Services Authority, proposed a global tax on financial transactions to curb excessive speculation and executive pay. It would go beyond the Tobin Tax on foreign currency exchanges, which the late Nobel-prize-winning economist James Tobin had recommended in the 1970s to penalize short-term speculation. The resistance that met Lord Turner's -- and indeed every such proposal -- comes predictably from apologists of unfettered finance, for whom the idea of regulation and additional fees, are anathema.
This sector of society, largely untouched by the travails of a still struggling economy, prefers that the excesses of the financial sector go unnoticed, and untaxed. But as the world of finance returns to eye-watering profits, unemployment and poverty levels are on the rise, and the national budget teeters on unsustainably narrow tax revenues.
The most reliable way to expand those revenues would be to impose a modest fee on every stock, every bond -- in short, every financial transaction. According to one study, a fee of just 0.5% would raise more than $100 billion a year, in US markets alone. That would defray health care costs, and help struggling states restore social services that have been axed over the past two years.
Making it Work
Critics opine that such a tax would be unworkable. Not so. A stamp tax of 0.5% is currently imposed on stock trades in the United Kingdom. Far from suffering from subdued trade, it's the home of the London stock exchange, one of the largest in the world.
The claim that taxing finance would drive investment elsewhere is part of Corporate America's all-purpose Anti-Tax mantra. By its logic, we shouldn't really tax anything, should we? Why tax cars or clothes? Buyers will just go elsewhere!
But unlike other taxes, this levy could be periodically altered, in the same way the Federal Reserve adjusts interest rates: according to market activity.
Most individuals or small firms make medium or long term investments -- a pension fund of $10,000 on behalf of a retiree, for example. At a rate of 0.5%, the investor would pay only $50 in fees. The tax would bear more heavily on traders, who make countless infinitesimal trades per day. As their business is based on fine margins, a tax would indeed affect profits. But because of years of falling costs and productivity gains from cutting-edge software, the impact would be minimal.
The tax would discourage excessive speculation and casino-style trades, which do little to contribute to the wider economy, and in fact tend to undermine it. Traders may be unenthusiastic about these kinds of proposals, but they're not likely to pack up and go home. There is simply too much money to be made for a half-percent dent to scare them off.
Swedish Bonds
Critics point to Sweden which, for a short time, imposed taxes on stocks and bonds before abandoning the policy. Some investors avoided fees by trading in alternative financial products. But that is the point: taxes were not applied to all financial products, so investors could trade in some, and avoid others altogether. This is why for maximum effect, all of the major financial markets would have to impose a levy across the board.
Perhaps you're thinking, "We could never tax financial transactions here." You already do. The US government imposes a tax on new equity issues, the proceeds of which finance the operations of the Securities and Exchange Commission. It's a minuscule tax to be sure, but this, and the U.K. stamp tax show a levy is not only feasible, but potentially lucrative; it could help replenish desperately dwindling public coffers.
Tax is Not a Four-Letter Word
The key would be to raise the levy to an international scale. Several countries, including France and Belgium, have already proposed or passed legislation seeking to tax financial transactions worldwide. The German Finance Minister made a similar proposal earlier this month. And at the G20 Summit, a smaller, global tax for development assistance was discussed, but omitted from the final communiqué. Such timidity cannot continue. For any plan to take flight, it would need American support. President Obama must provide it, lest millions more be abandoned by the 'jobless recovery,' and be tempted to take matters into their own hands, with Brinks trucks and moneybags.
Kyle G. Brown is a writer and journalist based in Toronto, Canada.
Follow Kyle G. Brown on Twitter: www.twitter.com/Kyle_G_Brown
The Canadian government’s Staff of the Parliamentary Research Branch did a comprehensive study on the transaction tax in the few remaining countries that actually still have or had the tax. Conclusion of their study: “Sweden, on the other hand, appears to be a classic example of an experiment gone wrong, while Germany, like many other countries, has decided that the costs outweigh any benefits from this type of tax.”
The Independent Budget Office of New York City considered a much smaller transaction tax on just the NYSE and AMEX exchanges and it would result in net negative revenue. The higher the tax, the lower the revenue with hundreds of thousands of jobs lost, most not related to finance. There would be millions of jobs lost if all exchanges were taxed.
Self directed investors will see through this "small " tax right away. They are very aware of the affect transactions costs have to their yearly returns. They question how you can charge a tax on trades and investments placed in a tax free or tax deferred account like an IRA or 401K. Obama promised no new taxes on those making under $250k. Remember Bush 1 "read my lips no new taxes"? This is a tax on their retirement accounts and life savings which will go over like a lead balloon.
It will not take very long for the passive investors (those investing via mutual funds, money mangers, pension funds) to see through selling points, like this is a tax on wall street speculators. They will find out very quickly that their returns in these funds are being being fleeced by the government to the tune of $50 billion per year and they will revolt in a major way at the ballot box. On the surface it sounds like a small tax, but when you dig a little deeper you will find these institutions make millions of transaction on behalf of their investors every year. The average mutual fund turns their portfolio over at least once every 9 months, money managers are often more active.
As such, this tax would drive investors away from unhealthy day-trading and toward more stable investment. Stop trying to scare people that they would have to pay huge taxes if they engaged in safe, intelligent, stable investment.
This tax would be an addtional $500 for this single trade. If you think this is an attempt to scare people you are mistaken. These are the facts. This is more that 20 times the current cost of doing business and will fleece middle class investors retirement accounts.
If you want progressive taxes, tax people who make more at progressively higher rate and raise capital gains tax. But don't find sneaky deceptive ways to tax people in a fashion that allows you to call it something other than a tax.
As I wrote in the piece, the fees would be minimal.
The whole point of NOT proposing a higher income tax for example, is because a Tobin Tax would be a highly progressive and targeted levy that hits people who trade most. Typical (small) investors, and 'regular' people do not make hundreds of transactions a week, so the levy for them would be negligible.
Multiply those transactions many times over, however, and it adds up for traders who engage in the feverish speculation that threatened to topple our economies in the first place. The tax seeks to discourage hyperactivity, and raise revenue for the real economy.
I wrote the piece to lay out the case, so we do not - yet again - resort to reflex anti-tax sentiments, which have gotten us nowhere. Governments will always tax us, but without strategies like these, tax policy follows the paths of least resistance. This is why people in the finance sector have always escaped harsher measures, and those least able to pay proportionately more. The Tobin Tax would offer a much fairer alternative.
Let's think differently.
Maybe you should truly INVEST, meaning put your money in a company you believe in and keep it there. This constant trading is just gambling on which stock will rise this moment, little different than betting which number comes up on a roulette wheel.
Would have only cost me about $5-$10 this last year,... 'Cause I buy and hold.