In the lore of political budgetary rhetoric, Sen Everett Dirksen's observation is often useful: "A billion here, a billion there, pretty soon it adds up to real money" he is rumored to have said--rumored because there is some debate about whether he actually used that whole phrase. But, whatever--it's useful to our current discussion. Where do we get some money to fund our national needs? Of course, let's go where the money is: Wall Street.
To set the record straight, I contend that there is no deficit or debt "crisis"--and I think too many Democrats/liberals/progressives are falling into that trap, and helping frame a phony debate (for a more lengthy discussion about the scam, you can read my e-book, "It's Not Raining, We're Getting Peed On: the Scam of the Deficit Crisis").
But, even if we accepted the phoniness of the debate, there is still a very good reason to enact a Financial Transactions Tax, something I've supported for a long time. Dean Baker of the Center for Economic and Policy Research has been one of the most vocal economists pushing the FTT. You can see one of Baker's arguments here. But, CEPR is out with a new argument today.
The potential revenue: $150 billion a year. As Dirksen might say, that's real money.
My own view, besides the direct money we would get, is that we should do this whether you believe there is a debt or deficit "crisis": an FTT would encourage big traders to "buy and hold" financial instruments rather than engage in the crazy casino-like environment that fuels a speculative bubble—-which hurts all the regular people when the bubble bursts, which is always does.
This WILL NOT HURT THE INDIVIDUAL INVESTOR:
It is also important to recognize that the tax will be borne almost entirely by the financial sector, not by ordinary investors. The financial sector is likely to bear almost the entire burden of the tax since investors are likely to respond to an increase in trading costs by reducing the number of trades they make. Most research suggests that trading volume is relatively elastic, meaning that investors will sharply reduce the frequency of their trades if the cost of a trade goes up.[emphasis added]
It won't hurt the financial markets:
The U.K. experience is important for two reasons. First, it shows that a tax on financial transactions is collectable. The government has been able to collect a substantial amount of revenue through this tax with relatively little difficulty. In fact, the Board of Inland Revenue (now HM Revenue and Customs) reported that the administrative cost of collecting this tax is lower than for any other tax.4 While some amount of financial transactions has undoubtedly been shifted away from the U.K. to avoid the tax, there clearly is still a substantial amount of trading that is subject to the tax, as the London Stock Exchange remains the largest in Europe.
This raises the second reason why the U.K. experience is important. The existence of the tax has not prevented the U.K. from having a vibrant financial market. The London Stock Exchange is the fourth largest stock exchange in the world. Apparently investors view the benefits of trading on the London exchange as being valuable enough to outweigh the cost of the tax. Presumably this would be even more true in the case of the United States since the U.S. market is even larger. Furthermore, the U.S. government is better positioned than the U.K. government to use economic and political power to discourage countries from establishing havens for avoidance of this tax.
We could use the money to help the states--which helps the economy because it stops the layoffs of a lot of people who, without a paycheck, can't spend money:
The Center on Budget and Policy Priorities projects that the cumulative shortfall in state budgets in fiscal 2011 will be $160 billion, with a gap of $101 billion remaining after taking account of funds coming from federal stimulus programs. If an FST raised $150 billion in 2011 then it could provide the federal government with almost enough revenue to fill the full gap and $50 billion more than the amount of revenue needed to fill the remaining gap in state budgets[emphasis added]...
What is really odd, as CEPR points out, is the the deafening silence about pursuing an FTT:
While a number of commissions and organizations around Washington have produced plans for reducing the projected deficit in the decades ahead, most have not included a financial speculation tax (FST) in the mix.1 This seems peculiar since an FST has several features that could make it attractive as a revenue source.
I can answer part of the reason: Wall Street contributions to political candidates. People in both parties benefit from that money and few people want to be seen as, god forbid, biting the hand that they want to feed them.
Some members of Congress support the idea. Rep. Peter DeFazio (OR) proposed such a tax more than two years ago.
Make it so.