POLITICS
01/12/2015 02:46 pm ET Updated Jan 13, 2015

House Democrats Break With Obama By Calling For Wall Street Tax

WASHINGTON -- House Democrats on Monday unveiled a plan to cut taxes for middle-class families that would be paid for in part by a new tax on Wall Street trading.

The proposal, laid out by Rep. Chris Van Hollen (D-Md.), the top-ranking Democrat on the House Budget Committee, represents a significant shift in economic policy and political messaging. In a speech at the Center for American Progress on Monday, Van Hollen not only sharply criticized competing Republican budget plans, but also broke with the Obama administration by pressing for a tax on financial transactions that both Treasury Secretary Jack Lew and former Treasury Secretary Timothy Geithner have rejected.

Van Hollen employed strong rhetoric for a detailed policy speech, attacking the GOP for favoring the rich and criticizing sky-high CEO pay and risky Wall Street activities.

"Republicans always say they're for smaller government and less spending," the Maryland Democrat said. "When it comes to the tax code they're simply for spending money through the tax code on powerful elites and the already wealthy."

Van Hollen also warned of "excessive speculation" in financial markets, particularly in the form of "computerized high-speed trading," and said the existing tax code is "wired in favor of making [money] off of money instead of earning money from hard work."

The plan -- which is unlikely to pass with Republicans in control of both chambers of Congress -- includes a host of tax perks for the middle class. The proposal would establish a new $1,000 tax credit for each worker, significantly expand the tax credit for childcare and expand tax deductions for families with two earners. Van Hollen said that under the plan, a two-income family with one child making a total of $80,000 a year would receive an additional $4,400 a year. The plan also includes a "savers bonus," which would grant an additional $250 to anyone who saves at least $500 of their new paycheck tax break.

But it's Van Hollen's push for a financial transactions tax to pay for much of the plan that marks the biggest shift in Democratic policy priorities. Van Hollen and his Democratic colleagues in the House are proposing a 0.1 percent tax on Wall Street trades of stocks and derivatives -- not enough to significantly change the economics of any particular deal, but enough to create a small cost for purely speculative activity.

The sheer volume of financial trading makes a transactions tax a powerful revenue-generating tool for lawmakers, good for at least tens of billions of dollars a year, depending on how the tax is structured. Financial reform advocates have been pushing for a similar tax for years, but have been stymied by Wall Street lobbyists and the Obama administration.

The U.S. already applies a tax of less than 0.1 percent on stock trades to fund the Securities and Exchange Commission. The U.K. imposes a similar 0.5 percent tax on stock trades that take place over the London Stock Exchange. Van Hollen noted that he is paying attention to a more comprehensive tax currently being developed by European authorities that would cover far more trades, including derivatives transactions.

The Obama administration has long opposed a financial transactions tax. In his memoir Stress Test, Geithner ridicules reformers who pushed for the tax and says he worked to undercut global efforts to establish one. In April 2013, Lew called a transactions tax "very problematic."

The Treasury Department declined to comment for this article, and the White House was not immediately available to comment.

Van Hollen said the tax would not only pay for his proposed perks for the middle class, but also make the financial system safer by curbing risky activity.

"In addition to the revenue, as I indicated, there are important policy reasons to be imposing this small fee: dampening excessive speculation, and as I said, dealing with this issue of computerized high-speed trading, which essentially skims value out of the economy for the high-speed traders, but doesn't do anything for anybody else," he said.

"The financial sector is pretty good," Van Hollen continued. "I don't blame them. They go over to the European markets, they say, 'Don't do this because otherwise all the trades will flow to the United States.' And then they come to the United States and say, 'Don't do this because otherwise all the trades will flow to London and the European markets.'"

Van Hollen said the legislation would also generate revenue by closing a number of loopholes that benefit the wealthy, though details of those proposals are still being worked out.

Adam Jentleson, a spokesman for Senate Minority Leader Harry Reid (D-Nev.), said on Monday that Reid was "still reviewing the details of this proposal but his initial reaction is favorable."

"While Republicans work to rig the system for millionaires, Senator Reid believes we should be pursuing policies like those proposed by House Democrats to ensure that working people see more economic mobility, rising wages and retirement security," Jentleson added.

Democrats have been rethinking their approach to economic policymaking and messaging after getting pummeled in the November midterm elections. Although Democrats lost seats in both the House and Senate, voters approved increases in the minimum wage -- the party's flagship economic policy issue of 2014 -- in both conservative and liberal districts.

On Monday, Van Hollen praised the Obama administration's efforts to boost the economy, saying measures focused on equal pay for equal work, student loan relief and investments in science and technology would be helpful. But he also suggested that Democrats need a more ambitious agenda to deal with the scope of the country's economic troubles.

"I think those policies will absolutely help boost the economy," Van Hollen said. "They will absolutely help provide for more shared prosperity. It's a strong foundation. But I believe that in order to tackle that decades-old problem of chronic stagnant wages and very flat incomes for most Americans, we need to go further."

CORRECTION: An earlier version of this story incorrectly identified Harry Reid as the Senate's majority leader.

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