Three Reasons Why a Tax on Wall Street Trades Can Be a Good Idea

wall street tax

One of Bernie Sanders’s most important proposals didn’t receive enough attention and should become a law even without a president Sanders. Hillary Clinton should adopt it for her campaign.

It’s a tax on financial transactions.

Putting a small tax on financial transactions would:

1. Reduce incentives for high speed trading, insider deal making and short term financial betting. Buying and selling stocks and bonds in order to beat others who are buying stocks and bonds is a giant zero sum game. It wastes countless resources, uses up the talents of some of the nation’s best and brightest and subjects financial markets to unnecessary risk.

2. Generate lots of revenue. Even a one tenth of 1% transaction tax would raise $185 billion over 10 years according to the non-partisan Tax Policy Center. It could thereby finance public investments that enlarge the economic pie rather than merely rearranging its slices. Investments like better schools and access to college.

3. It’s fair. After all, Americans pay sales taxes on all sorts of goods and services, yet Wall Street traders pay no sales tax on the stocks and bonds they buy, which helps explain why the financial industry generates about 30% of America’s corporate profits, but pays only about 18% of corporate taxes.

Wall Street’s objections are baloney

Wall Street says even a small transaction tax on financial transactions would drive trading overseas since financial trades can easily be done elsewhere.

Baloney. The U.K. has had attacks on stock trades for decades, yet remains one of the world’s financial powerhouses. Incidentally, that tax raises about 3 billion pounds yearly. That’s the equivalent of 30 billion in an economy the size of the United States, which is a big help for Britain’s budget. At least 28 other countries also have such a tax and the European Union is well on the way to implementing one.

Wall Street also claims that the tax would burden small investors such as as retirees, business owners and average savers.

Wrong again. The tax wouldn’t be a burden if it reduces the volume and frequency of trading, which is the whole point. In fact, the tax is highly progressive. The Tax Policy Center estimates that 75% of it would be paid by the richest 5th of taxpayers and 40% by the top 1%.

So, why aren’t politicians of all stripes supporting it? Because the financial transactions tax directly threatens a major source of Wall Street’s revenue. And if you hadn’t noticed, the Street uses a portion of its vast revenues to gain political clout, which, may be one of the best reasons for enacting it.

About Robert Reich 545 Articles

Robert Reich is the nation's 22nd Secretary of Labor and a professor at the University of California at Berkeley.

He has served as labor secretary in the Clinton administration, as an assistant to the solicitor general in the Ford administration and as head of the Federal Trade Commission's policy planning staff during the Carter administration.

He has written eleven books, including The Work of Nations, which has been translated into 22 languages; the best-sellers The Future of Success and Locked in the Cabinet, and his most recent book, Supercapitalism. His articles have appeared in the New Yorker, Atlantic Monthly, New York Times, Washington Post, and Wall Street Journal. Mr. Reich is co-founding editor of The American Prospect magazine. His weekly commentaries on public radio’s "Marketplace" are heard by nearly five million people.

In 2003, Mr. Reich was awarded the prestigious Vaclev Havel Foundation Prize, by the former Czech president, for his pioneering work in economic and social thought. In 2005, his play, Public Exposure, broke box office records at its world premiere on Cape Cod.

Mr. Reich has been a member of the faculties of Harvard’s John F. Kennedy School of Government and of Brandeis University. He received his B.A. from Dartmouth College, his M.A. from Oxford University, where he was a Rhodes Scholar, and his J.D. from Yale Law School.

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