Senator Tom Harkin (D-IA) and Congressman Peter DeFazio (D-OR) today introduced legislation to place a tax on certain trading activities undertaken by banking and financial firms. If enacted, the measure would not harm ordinary middle-class investors or long-term investing, but instead targets financial trading and complex transactions undertaken by financial and investment firms. In the last Congress, the Congressional Joint Tax Committee scored a similar proposal as raising $352 billion over 10 years.
Joining Harkin and DeFazio in cosponsoring the legislation were Senators Bernie Sanders (I-VT) and Sheldon Whitehouse (D-RI) along with 19 House cosponsors.
“The American people overwhelmingly agree that deficit reduction in this country must come from a balance of spending cuts and necessary revenue increases,” said Harkin. “We need the new revenue that would be generated by this tax in order to reduce deficits and maintain critical investments in education, infrastructure, and job creation. And there is no question that Wall Street can easily bear this modest tax. This Wall Street tax is a simple matter of fairness and fiscal sanity.”
“This Wall Street Speculator Tax should be a no-brainer. It will raise significant revenue that we desperately need and it reins in the excessive speculative activity that has destabilized our financial system. The only way we can meaningfully address our deficit, is by taking a balanced approach that includes revenue raisers and smart, targeted cuts. This bill should be part of that balanced solution,” said DeFazio.
“Both the economic crisis and the deficit crisis are a direct result of the greed, recklessness, and illegal behavior on Wall Street,” said Sanders. “This bill will reduce gambling on Wall Street, encourage the financial sector to invest in the job-creating productive economy, and significantly reduce the deficit. At a time when we have a record-breaking national debt, the very least we can do is demand that Wall Street pay its fair share in taxes.”
“This commonsense proposal will raise billions in new revenue to get rid of the sequester or reduce the deficit while also discouraging the kind of reckless high-volume trading that contributed to the financial crash in 2008. I’m proud to join Senator Harkin in fighting for this reform,” said Whitehouse.
The measure will place a small tax of three basis points (three pennies on $100 in value) on most non-consumer financial trading including stocks, bonds and other debts, except for their initial issuance. For example, if a company receives a loan from a financial company, that transaction would not be taxed. But, if the financial institution traded the debt, the trade would be subject to the tax. The tax would also cover all derivative contracts, options, puts, forward contracts, swaps and other complex instruments at their actual cost. The measure excludes debt that has an original term of less than 100 days.
By setting the tax rate very low, the measure is not likely to impact the decision to engage in productive economic activity. It would, however, reduce certain speculative activities like high-speed computer arbitrage trading. A transaction tax could help to shift Wall Street away from short-term trading. Given the very high volume of financial trading, it will raise considerable funds, badly needed for government services and for reducing deficits.
The proposed tax would take effect after December 31, 2013.
Earlier this year, a group of 11 European governments agreed to implement a financial transaction tax. The action allows for a tax of 10 basis points on stocks and one basis point on derivatives on financial transactions by the following countries: Germany, France, Italy, Spain, Belgium, Austria, Greece, Portugal, Slovakia, Slovenia, and Estonia.
Among the national organizations supporting this effort are: AFL-CIO, Alliance for a Just Society, American Family Voices, American Federation of Government Employees, American Federation of State, County and Municipal Employees (AFSCME), Americans for Financial Reform, Americans for Tax Fairness, Campaign for a Fair Settlement, Campaign for America’s Future, Capital Institute, Catholics United, Center for Effective Government (formerly OMB Watch), Center of Concern, Communications Workers of America, Community Action Partnership, Consumer Action, Consumers Union, CREDO, Demos, Health Care for America Now, International Brotherhood of the Teamsters, International Union, United Automobile, Aerospace and Agricultural Implement Workers of America, UAW, Jobs with Justice, Leadership Center for the Common Good, Main Street Alliance, Maryknoll Office for Global Concerns, MoveOn, National Education Association, National Women’s Law Center, PICO National Network, Public Citizen, Responsible Wealth, SEIU, Tax Justice Network USA, The Center for Media and Democracy, The Government Accountability Project, The Institute for College Access & Success and its Project on Student Debt, The Leadership Conference on Civil and Human Rights, U.S. PIRG, United for a Fair Economy, United Steelworkers, USAction, Working America.