Americans for Financial Reform welcomes the President’s proposed tax on the liabilities of financial institutions. Since the tax would fall specifically on debt liabilities, it would create incentives against excessive leverage in the financial sector, while raising revenue as well. Excessive financial sector leverage is a crucial source of risk to our economy.
We also see the President’s bank tax proposal as contributing to a broad and emerging consensus on the appropriateness of taxing the financial sector commensurately with its profits. Today the financial sector generates 30% of corporate profits but accounts for only 18% of corporate tax revenues. Last year, Dave Camp, then the Republican Chairman of the House Ways and Means Committee, proposed a tax on banking liabilities very similar to what the President is proposing. The European Union is moving forward with a tax on financial speculation. Representative Chris Van Hollen, with support from Speaker Pelosi, also recently proposed such a tax, and a speculation tax is a longtime priority of the House Progressive Caucus.
Such taxes are well justified by economic goals including the need to provide greater incentives against destructive financial practices like excessive leverage and predatory high frequency trading, as well as the need for greater revenue.