Should we raise taxes on Wall Street?
The idea, admits tax lawyer Lee Sheppard, would prompt bankers to “look at you balefully, like you just ran over their dog.”
But advocates for higher taxes on Wall Street trading hope the proposal gets a second hearing--particularly since JPMorgan’s messy loss has raised new questions about the risks that big banks are still taking. They argue that a tax on trading would not only raise needed revenue, but also help curb some of the speculative, risky activities that make the markets so volatile--preventing, perhaps, the next “London Whale.”
The most popular proposal has been the Financial Transactions Tax, popularly known as the “Robin Hood Tax.” It’s already been implemented in 11 European countries--Britain, for example, has taxed stock trading since 1986--and the European Union is deliberating whether to impose it across the continent. An alternative proposal from the International Monetary Fund would tax traders’ net profits and wages--known as the Financial Activities Tax, or--oh yes--the FAT.
As it stands now in the U.S., “trading can be too cheap,” Sheppard said, speaking Friday at the Tax Policy Center. “Everything we have done since May 1975 in securities regulation has made trading cheaper and cheaper and cheaper.” Dodd-Frank has tried to restrict speculation and systemically risky trading through new rules, but taxes on trading aren’t part of the legislation.
Advocates are now reviving their support for a bill that Sen. Tom Harkin (D-Iowa) and Rep. Pete DeFazio (D-Ore.) introduced last November, which would impose a 0.03 percent tax on financial transactions. Congress’s Joint Committee on Taxation, a nonpartisan group, estimated that their financial transactions tax would raise $350 billion over 10 years.
That’s the other key argument for the tax--a much-needed source of revenue at a time when legislators are already grappling with the budget dilemma known as “taxmaggedon.” “There’s not enough revenue in the U.S. to pay the price of civilization,” Damon Silver, a policy director at the AFL-CIO, said at Tax Policy Center’s event. By comparison, President Obama’s latest proposal to reform Medicare to generate new revenue would raise $300 billion over 10 years.
The Obama administration, however, isn’t a fan of the financial transactions tax. The White House believes it would be easy to evade, could hamper economic growth, and might make markets more volatile, not less so. Instead, Obama has proposed a new “financial crisis responsibility fee” on big banks, which would raise about $61 billion.
Even if there were the political will, it’s unclear whether that such a tax would actually rein in risky derivatives traders like JPMorgan’s London Whale. Britain, for instance, doesn’t tax derivatives and still opposes proposals to do so. And given the potential profit, a miniscule 0.03 percent tax might not be enough of a deterrent.
An earlier version of this story misstated the amount of the proposed financial transactions tax. The story has been corrected.