Read our letter to President Obama and Treasury Secretary Timothy Geithner requesting that they urge the Super Committee to support a financial transaction tax here.
October 28, 2011
President Barack Obama
President of the United States of America
1600 Pennsylvania Avenue NW
Washington, DC 20050
The Honorable Timothy Geithner
Secretary of the Treasury
Department of the Treasury
1500 Pennsylvania Avenue NW
Washington, DC 20220
Re: Financial Speculation Tax
Dear President Obama and Secretary Geithner:
We are writing to you today to urge the Joint Select Committee on Deficit Reduction to examine a small levy on financial speculation as a revenue-raising measure.
The deficit problem that the Select Committee must address was to a significant degree created by the world financial crisis, a crisis caused by Wall Street speculation. It is therefore appropriate that we call on Wall Street to help address it. A small tax on financial market transactions has the potential to raise significant revenue and simultaneously limit reckless short-term speculation that can threaten financial stability.
The idea of a small fee on the sale of financial instruments like securities and derivatives is not a new one. Such taxes have a long track record both in the United States and globally. The United States had a transfer tax from 1914 to 1966, which levied a small fee on all sales or transfers of stock. The UK levies a transaction tax of one half-percentage point on stock transfers and has done so for many decades. Asian countries such as Hong Kong, Taiwan, South Korea, and India also currently levy securities transaction taxes. The European Union is currently proposing a tax of one-tenth of one percent on the trading of shares and bonds, as well as a smaller tax on derivatives transactions. The French and German governments have already endorsed this idea.
There is no question that even an extremely low fee on the vast market in financial transactions would generate significant revenue. The value of the U.S. market in stocks and bonds alone exceeds $40 trillion, and the notional value of derivatives transactions is several times that. The IMF cites estimates that a miniscule tax of one cent per $100 of financial transactions globally would raise over $200 billion each year. The European Union’s proposed financial transaction tax is forecast to raise almost $70 billion annually. In the United States, economists at the University of Massachusetts and theCenter for Economic and Policy Research have estimated that one U.S. financial transaction tax proposal would raise $176 billion a year. Even a smaller tax could easily raise tens of billions per year.
Beyond the revenues to be raised, even a small financial transactions tax would have the salutary effect of discouraging the kind of high frequency trading that has increased harmful volatility in financial markets and was responsible for the “flash crash” last year. High frequency traders sometimes hold stocks for only fractions of a second and do not generally contribute to the capital markets’ purpose of long-term price discovery. A financial transaction tax could create economic benefits by channeling resources away from such unproductive short-term speculation and toward more useful purposes.
Numerous bills have been introduced in Congress utilizing a financial transaction tax mechanism. In the 111th Congress these included S. 2927 (Harkin) and HR 4191 (DeFazio), while in the current Congress they include HR 870 (Conyers), HR 755 (Stark), and HR 2003 (DeFazio).
Over 1,000 economists recently signed an open letter advocating a financial speculation tax “technically feasible” and “morally right.” They join a long list of historically prominent economists — including Nobel Prize winners like James Tobin and Joseph Stiglitz — who have endorsed the idea of a transaction tax as a valuable tool to discourage high-volume speculative trading that serves no useful social purpose.
Critics charge that if the United States reapplies this tax domestically it would push trading overseas. This claim is demonstrably false as countries like the United Kingdom and Hong Kong levy small transaction taxes while remaining world financial centers. This claim also ignores the international movement toward the use of transaction taxes, as shown by the European Union’s transaction tax proposal. Respected institutions like the International Monetary Fund and the Gates Foundation have concluded that it is administratively feasible to levy a small financial transaction tax in a single jurisdiction.
Today, three years after the financial meltdown and a taxpayer bailout, Wall Street is booming with record profits and bonuses being reported. At the same time folks on Main Street are still suffering with zero new job growth and rising poverty. It is both fair and practical to call on Wall Street to do more to aid the recovery.
Sincerely,
Americans for Financial Reform