Taxing the Wall Street Casino
In the United States and many countries around the world, there is growing momentum behind proposals to place a very small tax on trades of stock, currency, derivatives, and other financial assets.
A deregulated U.S. financial system spun out of control in 2008, sparking financial and job crises across Europe and into the developing world. As stock markets crashed and financial wealth evaporated, tax bases shrunk and the pressure to cut government spending grew. Today there is a healthy international debate over how to fairly and effectively raise new revenues to create jobs and pay for vital "public goods," like programs to address climate change and HIV/AIDS.
The authors of this study have looked carefully at a range of options for raising revenue that have merit, including everything from raising capital gains taxes to progressive estate taxes. This study focuses on the tax idea that is generating the most passionate support around the world. In this country, many are calling it the "financial speculation tax" (FST). It is also known as a "financial transactions tax" or, among activists in the United Kingdom and several other countries, a "Robin Hood Tax." It would consist of a small tax on trades of stock, derivatives, currency, and other financial instruments. Under pending proposals in the U.S. Congress, the tax would be no more than 0.25 percent on each trade.
The pages that follow explain in further detail the dual benefits of such a tax:
- Since it would make trading more costly the shorter its time horizon, the tax would curb excessive short-term speculation and encourage more long-term, productive investment.
- Although the tax rate would be so low as to be virtually unnoticeable to ordinary investors, it has the potential to raise hundreds of billions of dollars in revenue from the high-risk, high-speed types of investment activities that led to the current crisis. FST proposals pending in Congress exempt retirement funds and the first $100,000 of trades made by an individual each year.
Momentum behind financial speculation taxes is growing, with support from key leaders in Germany, France, the United Kingdom, Korea, and the European parliament, as well as many members of the U.S. Congress. Many prominent economists and business leaders, as well as labor unions, environmental groups, and global health advocates also support these taxes.
No one claims that taxing speculation will solve all our problems. It won't singlehandedly prevent another financial crisis. It won't create all the jobs we need, eliminate global poverty, or solve climate change. But combined with other sensible financial regulations, it could take us a long way towards reining in Wall Street and meeting urgent social and environmental needs.
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