Financial Speculation Tax
FINANCIAL SPECULATION TAX
What is a Financial Speculation Tax?
A Financial Speculation Tax (also known as a financial transaction tax) is a small tax on purchases or sales of stocks and other financial purchases like futures, options, or credit default swaps. The rates are proportional to actual transaction costs in the industry - for example, a stock purchase could have a small tax of 0.025%.
Why do we need a Financial Speculation Tax?
- A Financial Speculation Tax would raise an estimated $200-$500 billion per year in badly needed revenue. This is a substantial sum of money that -- from a sector that can afford it.
- A Financial Speculation Tax would reduce dangerous financial market speculation and encourage productive long-term invesments. The tax would hit high-volume, high-speed trading the hardest, making short-term speculation and complicated financial transactions (that would be subject to the tax over and over again) less attractive.
- Wall Street should pay their fair share for the mess they created. Reckless Wall Street gambling cost working people trillions in lost jobs, savings and housing wealth and costing states billions in lost revenue. It's time to put Wall Street to work rebuilding Main Street with a financial speculation tax to create jobs and support critical public services.
Who would pay the tax?
Anyone who trades stocks, currencies or debt instruments would pay the tax. It would apply to both buyers and sellers. Most of the income from this tax would come from big banks, hedge funds, and brokers who trade frequently. If you have a 401(k) and invest for the long term instead of trading for short term profits, you would pay very little tax -less than the fees normally
charged by mutual fund managers to handle your investments.
Could a Financial Speculation Tax hurt the economy?
Most of the trading and speculation that takes place in stock, currency and debt markets is unrelated to any productive activity in the real economy. For example, the value of currency trades is more than 25 times the actual value of our foreign trade. Even if trading were to decline by 50% - a very unlikely event - our financial markets would remain liquid and attractive to investors from both the U.S. and abroad.
Has anyone tried a Financial Speculation Tax?
Yes, Britain has had a "stamp tax" on stock trading of .5% for many years. It has provided needed government revenue and has not hampered the growth of the British stock market, which is now the second largest in the world. In fact, the U.S. had a "transfer tax" from 1914 to 1966 which levied a 0.2% tax on all sales or transfers of stock. In 1932, Congress more than doubled the tax to help financial recovery and job creation during the Great Depression.
Who supports the idea of a Financial Speculation Tax?
- Prominent financiers including George Soros, John Bogle, and Warren Buffet
- Prominent economists including John Maynard Keynes, Nobelists James Tobin and Joseph Stiglitz , Jamie Galbraith, Dean Baker, Robert Pollin and Larry Summers
- Prominent world leaders including French Prime Minister Nicolas Sarkozy and Germany's Andrea Merkel
- The New York Times highlighted the Financial Speculation Tax as a top idea of 2008
- Unions and community organizations
- Polls have shown widespread support for measures that would rein in Wall Street, including a Financial Speculation Tax
Is there a Bill in Congress?
Rep. Pete DeFazio (D-Oregon) has introduced HR 4191, the "Let Wall Street Pay for the Restoration of Main Street Act." Senator Tom Harkin (D-Iowa) has introduced S 2927, the "Wall Street Fair Share Act." Under these bills, half the funds would be deposited in a job creation reserve fund to put Americans back to work and half would be designated to reduce the deficit. The bills were designed this way to have broad bipartisan appeal in Congress. Eventually there may be multiple FST vehicles in Congress.