Why isn't everyone in favor of taxing financial speculation?
Why is there so little discussion about one of Bernie Sanders鈥檚 most important proposals 鈥� to tax financial speculation?
Buying and selling stocks and bonds in order to beat others who are buying and selling stocks and bonds is a giant zero-sum game that wastes countless resources, uses up the talents of some of the nation鈥檚 best and brightest, and subjects financial market to unnecessary risk.
High-speed traders who employ advanced technologies in order to get information a millisecond before other traders get it don鈥檛 make financial markets more efficient. They make them more vulnerable to debacles like the 鈥淔lash Crash鈥� of May 2010.
Wall Street Insiders who trade on confidential information unavailable to small investors don鈥檛 improve the productivity of financial markets. They just rig the game for themselves. 聽
Bankers who trade in ever more complex derivatives 鈥� making bets on bets 鈥� don鈥檛 add real value. They only make the system more vulnerable to big losses, as occurred in the financial crisis of 2008. 聽 聽
All of which makes Bernie Sanders鈥檚 proposal for a speculation tax right on the mark.
He wants to tax stock trades at a rate of 0.5 percent (a trade of $1,000 would cost of $5), and bond trades at 0.1 percent.
The tax would reduce incentives for high-speed trading, insider deal-making, and short-term financial betting. (Hillary Clinton also favors a financial transactions tax but only on high-speed trading.)
Another big plus: Given the gargantuan size of the financial market and the huge volume of trading occurring within it every day, this tiny tax would generate lots of revenue. 聽
Even a 0.01 percent transaction tax (a basis point is one-hundredth of a percentage point, or 0.01 percent) would raise $185 billion over 10 years, according to the nonpartisan
Sanders鈥檚 0.5 percent tax could thereby finance public investments that enlarge the economic pie rather than merely rearrange its slices 鈥� like tuition-free public education.
After all, Americans pay sales taxes on all sorts of goods and services yet Wall Street traders pay no sales taxes on the stocks and bonds they buy.
Which helps explains why the financial industry generates about聽 but pays only about聽.
Naysayers led by the聽financial industry鈥檚 lobbyists (the Financial Services Roundtable and Financial Markets Association) warn that even a small tax on financial transactions would drive trading overseas, since financial trades can easily be done anywhere.
Baloney. The U.K. has had a tax on stock trades for decades yet remains one of the world鈥檚 financial powerhouses. Incidentally, that tax raises about 3 billion pounds yearly (the equivalent of $30 billion in an economy the size of the U.S.), which is pure gravy for Britain鈥檚 budget.
At least聽28 other countries also have such a tax, and the European Union is well on the way to implementing one.
Industry lobbyists also claim the costs of the tax will burden small investors such as retirees, business owners, and average savers.
Wrong again. The tax wouldn鈥檛 be a burden if it reduces the volume and frequency of trading 鈥� which is the whole point.
In fact, the tax is highly progressive. The Tax Policy Center that 75 percent of it would be paid by the richest fifth of taxpayers, and 40 percent by the top 1 percent.
It鈥檚 hardly a radical idea.
Between 1914 and 1966, the United States itself taxed financial transactions. During the Great Depression, John Maynard Keynes urged wider use of such a tax to reduce excessive speculation by financial traders. After the聽Wall Street crash of October 1987, even the first President George Bush endorsed the idea.
Americans are fed up with Wall Street鈥檚 financial games. Excessive speculation contributed to the near meltdown of 2008 鈥� which cost millions of people their jobs, savings, and homes. 聽
So why is it only Bernie Sanders who鈥檚 calling for a financial transactions tax? Why aren鈥檛 politicians of all stripes supporting it? And why isn鈥檛 it a major issue in the 2016 election?
Because a financial transactions tax directly threatens a major source of Wall Street鈥檚 revenue. And, if you hadn鈥檛 noticed, the Street uses a portion of its vast revenues to gain political clout.
So even though it鈥檚 an excellent idea championed by a major candidate, a financial transactions tax isn鈥檛聽being discussed this election year because Wall Street won鈥檛 abide it.
Which maybe one of the best reasons for enacting it.
This article first appeared at .
