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Richard (RJ) Eskow

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It's Simple: You're Either For the Bank Tax or You're For the Banks

Posted: 11/08/11 09:26 PM ET

There's talk that the president and other elected officials will try to tap the Occupy Wall Street movement's energy to boost their campaigns. It's good to see the rhetoric finally moving in the right direction. Even better, now there's an easy way to prove it isn't just election-year lip service: They can support the financial transactions tax being introduced in the Senate.

That should please the self-described "deficit hawks," since it will put an estimated $350 billion on the government's books. But the best thing about this tax might not even be the money. The best thing about it is that it just might help prevent the next financial crisis.

This tax helps the public ask its leaders a simple question: Are you for the banks, or are you for us?

Fair Play

The reason for the tactical about-face by politicians is clear enough. Occupy Wall Street caught on quickly and dramatically, and has already achieved the seemingly impossible by changing the public dialog from what Washington wants to discuss -- deficits -- to what the rest of the country wants to talk about, which is bank malfeasance and economic inequality in a rigged political and financial system.

Suddenly, cuts in spending aren't the only theme of the campaign. Case in point: Obama senior advisor David Plouffe was quoted as saying that "We intend to make (that anger) one of the central elements of the campaign next year... I'm pretty confident 12 months from now, as people make the decision about who to go vote for, the gut check is going to be about, 'Who would make decisions more about helping my life than Wall Street?' "

Actually, the prevailing theme of this mass movement is not anger, although that's part of the mix. The theme is justice, rather than rage or retribution. And the desire for justice today leads to certain conclusions: Criminals should pay for their crimes. The wealthy should pay their fair share. The ones who ruined the economy should help bear the cost of fixing it. And we must make sure that this sort of reckless greed is brought under control once and for all.

The financial transactions tax hits at least three of these four points. And if bankers try to evade it, we trust that the Justice Department and the SEC will finally start bringing wrongdoers to justice.

An idea whose time has come

The idea is simple: Every time someone buys or sells a stock, bond, or derivative, a tax of 0.03% is applied to the transaction. This is a miniscule tax in real terms. If someone gave you $100,000 in stocks or bonds as a gift, it would cost you thirty bucks. It would only cost $300 if they gave you a million dollars' worth. You'd spend more than that on dessert when you went out to celebrate that night.

As you can see, it would be overstating this tax to call it "peanuts." It's not even peanut dust. So why is it good, and why is important?

It's good because the "bipartisan" crowd in Washington has been pushing austerity all year, even though polls show that a bipartisan consensus of voters wants them to first work on creating jobs and stimulating the economy. If these politicians mean what they say about government deficits, they should be thrilled about the hundreds of billions it will bring in.

The flip side is also true: If they aren't thrilled about this tax, they aren't serious about the deficits. They just hate government and want to keep taxes low for their rich patrons.

Thought experiment: This tiny tax vs. Social Security benefits

All year long Washington's been telling us we can't afford to give people the Social Security benefits they've paid for all their lives. They've been telling us the government's so financially strapped that even Social Security, which is forbidden by law from contributing to the deficit, must be cut.

Social Security's required by law to be self-supporting, so this is mainly just a thought experiment, but do you know how many people's Social Security benefits this tax would pay for if it were enacted?

More than two million. [1]

Politicians who are eager to cut benefits for disabled people and seniors should use that "more than two million" figure to put a human scale on what this discussion. We've called it a thought experiment, but it could be reasonable to use this tax to shore up Social Security. That program's long term imbalance exists because the very highest earners have captured much more of our wealth than was expected, so the payroll tax barely touches their income.[2] That would help redress the balance.

Otherwise, just consider it form of measurement. We could have used firefighters' salaries, hot meals for kids, or all sorts of other measures. But you get the point: It's a lot of money.

Cascading Failure

The other great benefit of this tax is that it slows down the kind of wild speculation, much of it driven electronically, that turned the stock market into an ultra-high-speed computer game. In last year's "Flash Crash,"he stock market lost nearly ten percent of its value in a few minutes as electronic trading algorithms drove ever-increasing numbers of trades at high speed. It was a lot like the phemonenon engineers call "cascading failure," where one events creates several others, which each in turn create several others, creating a chain reaction that soon spins out of control completely. Cascading failures can cause power blackouts -- and nuclear meltdowns.

Remember "we almost lost Detroit"? With the "flash crash," we almost lost the economy - again.

Electronic traders make their money from billions of high-speed trades, most of which are conducted without human intervention. These aren't reasoned judgments about the worth of a stock or the state of the world economy. They're mob panics, conducted at high speed, where software programs try to figure out who's buying and selling and getting ahead of the wave -- without ever knowing what it means in real-world terms.

These trades don't contribute anything of value to society. They don't create jobs or growth, and they don't create wealth - except for the traders, who are draining money out of the productive economy with every mindless, robotic mass trade. It's gambling, pure and simple, and the financial transactions tax will slow this electronic fun fair down once and for all. It will apply a touch of the brakes to the Wall Street Crazy Train.

That might, just might, help prevent the next financial disaster. And it will bring much-needed money into the Treasury.

The Litmus Test

So it's simple: Either our elected officials support this tax or they support Wall Street. And by "support," we don't mean the "say the public option's a good thing then let it die" kind of support. We mean the "get on the horn every day to the Hill and push it" kind of support. We mean the kind of aggressive support that forces a floor vote, at least in the Senate, so voters can see who's voting for it and who's voting against it.

It's impressive -- and sometimes surprising -- to see how many Republicans, as well as Democrats, will do the right thing, if they're forced to do it in the daylight.

The tax isn't perfect. Frankly, it's a little small. (The European version is three times bigger, except for derivatives.) But at least its modest size should help reassure the moderates and centrists. The bottom line is, it's an idea whose time has come. Sen. Tom Harkin and Rep. Peter DeFazio are to be commended for introducing it.

This bill makes a perfect litmus test. Supporting it means supporting the 99%. It would be a good idea if we all called our leaders in the House, Senate, and White House and asked them if they'll be working for the financial transactions tax. Because if they are, they're working for us and not the banks.

So why not give 'em call and tell 'em you'll be watching?

__________________

[1] I did a little quick-and-dirty spreadsheeting: I took the current average benefit, applied a uniform cost of living increase (one which was probably too generous), found the total ten-year cost per recipient, and then divided $350 billion by the result. Back of the envelope, as they say, but good for some perspective.

[2] See the work of economist L. Josh Bivens.

 

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