Presidential candidates are making Wall Street pay
Both Bernie Sanders and Hillary Clinton recently proposed new Wall Street taxes, which reflect their strikingly different philosophies (and, perhaps, their different personalities).聽聽 Bernie鈥檚 proposal is bold鈥攈e squeezes Wall Street to fund programs for our country鈥檚 future.聽 Hilary鈥檚 proposal is targeted鈥攕he tackles a specific problem precisely.
Bernie goes big:聽聽legislation that included a 鈥渟peculation fee鈥� on 鈥淲all Street investment houses and hedge funds鈥� to collect a 0.5% tax on stock trades, 0.1% on bond trades, and .005% on derivative trades.聽 聽The tax would hit a wide range of financial transactions鈥攁nd market participants (not just investment houses and hedge funds).聽 And his tax would be big:聽聽 a stock buyer鈥檚 typical commission of $5-$10 on a $50 thousand stock purchase would jump by $250 under Bernie鈥檚 proposal.
Bernie expects his new tax to raise聽聽to pay for free college for all.
In contrast, Hillary聽聽a more targeted financial tax.聽 She would add a small tax on stock order cancellations, presumably along the lines of聽.聽 Her tax would apply to algorithmic traders, who place and then cancel millions of orders a year.聽 She wants her tax to curtail harmful trading practices鈥攁nd get 鈥淲all Street to work for Main Street.鈥� 聽Raising revenue is not the goal鈥攖he best outcome would be the disappearance of the cancellations and hence no new revenue.
The flash tax approach has substantial merit, as I have聽.聽 High-frequency traders impose real burdens on the rest of us.聽 They use high-speed computers and fast connections to outrace investors to the market.聽 And much of their activity is simply a new form of old-fashioned front-running, in which these traders exploit unfair information to buy or sell stock ahead of the rest of us (for example, they pay the exchanges for early glimpses of other investors鈥� orders).聽 These traders simply extract a small toll from the rest of us who want to buy or sell stock.
High-frequency traders now account for more than half of all U.S. stock trades.聽 And, as, they spend billions to save milliseconds (by, for example, laying expensive high-speed 聽fiber-optic cables directly between exchanges in Chicago and New York).聽 They waste a lot of social resources, which could otherwise address important social challenges.
A Tax Policy Center聽聽finds that a financial transactions tax could raise a lot of revenue, mainly from higher income taxpayers.聽聽 It could also address serious problems with parts of the financial sector鈥攂ut might also impose substantial distortions.
Bernie鈥檚 financial transaction tax could raise a lot of much needed revenue鈥攁nd there are few revenue options out there.聽 Hillary鈥檚 small high frequency tax wouldn鈥檛 raise much but could limit the worst of market abuses, without disrupting the market place much.
So, the next presidential election may determine whether we go big, or go small, on Wall Street taxes.
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