For Progressives, A Transaction Tax Could Be A Really, Really Big Issue

The other day the president of the European Commission gave a speech before the European Parliament calling for a transaction tax on stock, bond and derivative trades. The very considerable sums generated by such a tax will be needed to help refinance banks after Greece defaults, which just about everyone now understands will happen soon.

The Obama Administration, however, strongly opposes such a transaction tax (also known as a Tobin Tax after the man who originally proposed it) in this country, in spite of our own need for revenues to address huge budget shortfalls. And in spite of Mr. Obama’s recent calls for “the rich to share our economic sacrifices,” which apparently, in his view, does not include the Wall Street rich, who make a ton of money trading stocks, bonds and derivatives.

To understand the politics behind this let-Wall-Street-play-free policy of the White House is to understand something very basic about the Democratic Party. About this party’s present disdain for its progressive populist roots. About its devolution from a party whose main goals were serving the interests of Main Street working people and providing aid to those rendered needy by circumstances beyond their control, to a servant of Wall Street.

It is, of course, totally appropriate that in this country there be a major political party whose primary aim IS to service Wall Street wants and needs. The Republican Party. That the present Democratic Party has adopted this priority as well is not simply shameful, it undermines a greatly needed balance in our national policy setting.

What brought about this sad devolution? The answer is simple and straight forward. In the 1990s the Clinton Administration bonded with The Street, whole-heartedly promoting the so-called American Consensus that gave it free reign to spread its wildly profitable and predictably destructive proclivities worldwide, and in return got huge gobs of campaign cash on which the national Democratic Party still feeds.

Mr, Obama and others in the flagrantly misnamed “centrist wing” of this party continue to adhere greedily to this deal. And this, not the flimsy economic rationales Secretary Geithner employs as excuses to put the kibosh on a Tobin Tax, is why the Obama White House isn’t pushing the idea. (The ever Wall Street-friendly Republican Party, naturally, happily goes along.)

A Tobin Tax on these shores, then, is more than a revenue raiser, more than a way to lessen the influence of the computer-generated flash trading that has so warped markets in recent years. It would be a dramatic assertion that Wall Street doesn’t own the Democratic Party any longer, with all the changed policy priorities that would come in the wake of this assertion.

Wall Street money is already oozing its way back to the Republican Party via contributions to Mitt Romney. And that’s where all of it should go. When it stops oozing to Washington Democrats as well, their party might again deserve the full support of progressives, the respect of independents, and even the grudging admiration of many Tea Partyers who have long been railing against Wall Street crony capitalists.

Listen up progressives! Demanding a Tobin Tax has a huge transformative potential. The power to shake up the Democratic Party the way the anti-any-tax crowd has shaken up the Republican Party.

This tax is the progressive’s wedge issue. Use it.

More from this writer at wallstreetpoet.com

21 Comments

  1. Yeah I’m for a Tobin Tax. Sounds like a good idea.

    I’m also for a capital gains tax increase and a 5% windfall profits tax on every ten thousand dollars of profit made during a days trading.

  2. The Dem’s and Repub’s are all feeding from the same Wall Street trough.

    Only one way to get this changed and that is by amendment to the constitution. Dylan Ratigan has a good idea. Go to this link, check it out and sign up.

    http://www.dylanratigan.com/20.....money-out/

  3. If the Europeans create a transaction tax and if Great Britain were to follow suit then the biggest reason that the people against the transaction tax cite will be gone. Because they claim that the transactions will just go off shore. That will certainly lose some force if it doesn’t happen in Europe as well as eliminating some places that they could “move” to.

  4. “About its devolution from a party whose main goals were serving the interests of Main Street working people and providing aid to those rendered needy by circumstances beyond their control, to a servant of Wall Street.”

    I find it a little funny that the right wing is alarmed at the ideological lunge of the Democratic party, while lamenting the devolution of the Republican party, while at the same time the left is alarmed at the ideological lunge of the Republican party, and lamenting the devolution of the Democratic party.

    Face it: the parties must serve their donors, not their voters.

  5. If this is a rallying issue for the left, then I’d get to work on staging a primary contest straight away. Your presumptive nominee just recently held a $38,000 a plate fundraiser in Manhattan. I doubt it was to pitch the Tobin Tax.

  6. The other day the president of the European Commission gave a speech before the European Parliament calling for a transaction tax on stock, bond and derivative trades.

    OK, first I’ve heard about this, I haven’t read anything on this, so I am unprepared. And I’m also really, really tired and should probably go to bed. But, at first glance, I will say this:

    ZOMG WTF??!!!??!!! #$@#*()@!!

    What an absolutely IDIOTIC idea!

    If you are an investor, even if you are a 401K investor, one of the keys to profiting of the market and increasing your nest egg is by moving funds around. If one investment starts to slack, move your $$ into one that’s better, and then again depending on what’s going on. This is EVERYTHING for developing a nest egg, whether you’re doing it yourself or whether it’s your fund manager doing it for you.

    If you tax that, then all those gains from moving cash around are GONE! Vaporized! Just like if your fund manager charges exhorbitant transaction fees!

    This will convince people to either a) keep their money in one place, which may not be the best place to keep it, b) keep people stuffing money into their mattress because all the gains are snuffed out of the market, or c) MAKE PEOPLE BROKE!!

    Holy crap, I can’t believe anyone (other than an utter communist, and that’s not just an “ad hominem”) dreamed this up!!

  7. This will convince people to either a) keep their money in one place, which may not be the best place to keep it, b) keep people stuffing money into their mattress because all the gains are snuffed out of the market, or c) MAKE PEOPLE BROKE!!

    Don’t be histrionic. Right now most people are charged for trades as we speak. Your broker doesn’t work for free. A lot would have to do with how much it is. If it were based on value or per transaction. To be honest it would make very little difference at low levels and the drop in taxes from capital gains would most likely eliminate any real tax revenue. It would most likely decrease market liquidity and stock prices would fall about 1 to 2 times the expected capitalized value of future tax payments resulting from anticipated trades. Taxes on securities would be stupid because it would just increase the cost of govt borrowing. Without more info it doesn’t seem like a good idea.

    Also it’s not really the Tobin Tax. Tobin proposed a theoretical tax on currency exchange it had nothing to do with other financial transactions and he did not believe it would work in practice, it was theory only.

  8. Barky, do you have any idea how the system really works nowadays? 70% of market transactions are done by purely automated systems that have no purpose except to make the firms that make them money. They have nothing to do with typical investors. They have nothing to do with the analysis of how companies are doing or any of the other classic reasons for buying and selling, just algorithms that monitor the flow of cash and stock values for whatever reason. And the transaction tax is not nearly large enough to affect typical investors. In fact they do not move funds around often enough and in large enough amounts for a tax like this to hurt them.

  9. The EU will pass a transaction tax. It is the only way they can save the EU without the natives getting restless.

  10. It is the only way they can save the EU without the natives getting restless.

    If anyone thinks something like this will “save” them they are nuts. This, or the Tobin Tax, was not supposed to be about revenue but limiting market volatility. People have experimented with a trade tax, Sweden in particular I believe, but it has not been a money maker for anyone. If anyone has come up with a reason it will work now I haven’t heard anything. There may be some benefits, retarding market volatility, reducing speculation, and other things but that will come at a cost of liquidity and income. Passing a tax like this for income purposes without some new tactic is stupid.

  11. Right now most people are charged for trades as we speak.

    Absolutely, and although in some cases that’s been egregious, that’s to be expected. But to tax on top of that? Utter, utter rubbish (and I’m well rested now).

    People in this country are soon to be completely on their own for their retirement thanks to the failure of our government. Retiring with any sort of decent lifestyle is going to be a tremendous challenge. for 80% of the population. virtually no safety net, and most of us aren’t saving enough for a net-free retirement. There is big trouble on the horizon. You think retirees eat dog food now to survive, you ain’t seen NUTTIN’ yet!

    A government tax to make retirement saving even harder would be devastating.

    70% of market transactions are done by purely automated systems that have no purpose except to make the firms that make them money. They have nothing to do with typical investors.

    You have no idea how markets work. Do you know how your very own 401K mutual fund works? With automated trading designed to make you money in exactly the way you described.

    The vast majority of 401K investors are invested through mutual funds, and unless you’ve got some schmuck in a plaid jacket doing manual trades for you (and good luck if you do), your mutual funds are managed through an automated system behind-the-scenes.

    Only individual stock traders would probably not be unduly harmed by this tax. But it takes a very special skill and lots of research to do such on-point investing properly. For most of us without the time or the skill set or the inclination (although we really should GET the inclination), we rely on mutual funds and, yes, automatic trading.

    Gads, this is SUCH a terrible idea!!!

  12. Apologies to readers of this post. I guess my writing here wasn’t very clear.

    This wasn’t supposed to be an ECONOMIC post that addressed the economic merits of a transaction tax in this country. It was intended to be a POLITICAL post suggesting how progressives could ween the party they long have so vigorously supported — the Democratic Party — from an unhealthy alliance with Wall Street.

    One way to do this, I aimed to make clear, was to force said Democrats to support a transaction tax, which would drive Wall Street back to its traditional and appropriate political godfather, the Republican Party.

    One of the people who commented above noted a $38,000 per plate Wall Street fund-raiser Mr. Obama recently attended. That’s what has to stop if there is ever to be a balanced national policy toward The Street. You takes their money, they owns you.

    A Democrat-supported transaction tax would drive Wall Street and its money back to where it should be. Te Republican Party. And put the Democratic Party back where it should be: the protector of the American people from a misguided and increasingly predatory Wall Street crony capitalism.

  13. So here’s my political point: this wouldn’t drive Wall Street to the GOP, it would drive THE PEOPLE to the GOP.

    Threatening people’s retirement savings is NOT where the Dems, or anyone else for that matter, should go.

  14. It was intended to be a POLITICAL post suggesting how progressives could ween the party they long have so vigorously supported — the Democratic Party — from an unhealthy alliance with Wall Street.

    This is bizarre. So you are advocating a policy that could have grave economic effects and at the very least has never been shown to be the least effective not for any direct benefit from that policy but rather because it will piss a small segment of the population off so bad they will not want to have anything to do with Dem’s? Seems the long way around and a bit none to spite the face kind of thing don’t you think? Not to mention it wouldn’t do what you want anyway. The big players would just keep lobbying away looking for any advantage and hedging bets. The only groups that don’t spread the slop are unions. They go 99% Dem but everyone else will keep giving to both sides.

  15. Hi EEllis,

    No. A transaction tax would NOT have grave economic consequences. It would have positive economic consequences. It would generate badly needed revenue, thus easing the pressure for program cuts that would have truly grave economic (as well as human) consequences, and cut down on computerized program trading, which has distorted markets to an unseemly and unhealthy extent in recent years.

    I’ve written about these things often in past posts so didn’t want to beat this drum very hard in this one. Rather, I wanted to point out to the growing number of protesters on the streets around the country a possible wedge issue to force the Democratic Party toward a more progressive agenda that doesn’t pander as much to to Wall Street.

    Will it work? Who knows. You just gotta try and hope for the best.

    Thanks for taking the time to comment on my post.
    Mike

  16. Yes Michael,

    A transaction tax would work exactly the same way other taxes on corporations work, by driving activity away from the place with the tax.

    As for “program cuts”, are you seriously arguing that the anyone in the government has proposed reducing spending (spending in actual dollars that is)? Do you seriously believe that a reduction in every $10 billion of the $3.7 trillion the Federal government spends would have “grave economic (as well as human) consequences”?

    Can you demonstrate that program trading has distorted markets and has been unhealthy for the market?

    On the merits, the tax would be a disaster unless it were implemented globally. Do you have any evidence that global implementation is in the cards? If not, do you have any basis for the belief that transactions would not move to places where they are not taxed?

    Your posts are always fascinating. Thanks for keeping them coming.

  17. Hi Steve,

    Thanks for getting in touch. And thanks for the nice comment about my posts. Allow me to address some points you make here.

    You suggest a transaction tax would drive those playing at flash, computer-based trading abroad. In the immortal word of Dick Cheney, “So.”

    There is no value to this trading. No useful end product. It isn’t based on factors that should move a market. It’s a computer game, a giant securities churn. If its done in Botswana instead of downtown Manhattan, what exactly do you think this country will have lost? This is exactly the kind of “business” the U.S. should not be encouraging or protecting.

    I mention “program cuts” and you throw out a silly number that’s supposed to make it seem like such cuts are barely happening. Haven’t you noticed the programs being cut in the city/state where you live? Don’t you know the federal cuts we’ve already seen are as nothing to what are coming soon? Don’t you read the papers about what government austerity is doing to those who live in Greece, Ireland, Spain, et. al? Haven’t you heard about fast spreading poverty in this country, and the certainty that it will get worse soon when all kinds of federal cut backs and continued state and local cutbacks take greater hold?

    Maybe some or all of these things can’t be helped. But to deny their reality is, well, unreal.

    You know, along with being a bleeding heart liberal, I am also deeply worried about American capitalism. It isn’t doing what its supposed to do — funnel needed capital to worthwhile, jobs-producing enterprises. Too much of it is being wasted in cunning churning games and derivatives designed to insure other derivatives that insure other derivatives.

    We’ve always had crony capitalism in this country. The big problem now is that the cronies’ wealth comes at the expense of others, rather than along with others. That kind of financial house must be reformed…

  18. Michael,

    Thanks for not answering any of my questions. I wasn’t actually surprised but confirming evidence is always useful.

    Can you give me an example of a Federal program cut in the US where cut means reduction in the amount of money spent as opposed to reduction in the rate of increase?

    As to trading, all the trading will move if the electronic trading moves as there is no reason to separate them. You see no value in it which is certainly fine by me. That said, you won’t raise any money with such a tax rendering it pretty much useless from a budgetary perspective.

  19. Hi Steve,

    What can I say?

    If you believe that while polls show that 90 percent of the American people think the economy stinks, but markets in which a certain type of quick buck-seeking trading dominates only deign to reflect this view when a day’s news is so ghastly that embarrassment prevents them from soaring, if you truly believe this is a healthy state of affairs, what can I say?

    And if the reality of rapidly spreading austerity here and abroad is a focus you chose to ignore while looking instead at whether spending here, there or somewhere has either gone up or down, what can I say?

    Our capital system has to be profoundly reformed to assure its future viability and value to the people (all of us) who depend upon it. For a long time its gotten away with behaving like a nasty drunk. Is time for an intervention.

    If this patient is allowed to kill itself, what emerges from the ashes will be much, much worse.

  20. You know, I find myself REALLY, REALLLY wanting Progressives in particular to seriously propose this.

    Maybe even pass it.

    Maybe for christmas? (oops, supposed to say “Xmas” or “WInter holiday”, right?)

    and here’s why: on the evening before the tax is put into effect, I’ll empty my 401k and close it, and dump all of it into Asian markets and funds that don’t have it.

    Because on opening day of the first day with the new tax, I’ll make a bloody killing.
    The following day, I’ll be able to buy up distressed stocks on American exchanges for fractions of a penny to the dollar vs. what they were before the tax went into effect. The profits from the previous trades would likely easily cover the new prices, plus the tax, after which, I can camp on it until the day after the NEXT congress and president are sworn in, whom will do the rather wiser thing, and repeal the fapping tax.

    at which point, my investment portfolio will be worth considerably more than the 401(k) I cashed out (early, and with penalties no less), and I can quit my job and join the latte-sipping Prius-driving elitist Progressive Snobs in lamenting the death of such a progressive and clever programme.

  21. Hi Cannonshop,

    Sorry its taken awhile to get back to you. I was so busy finding a parking spot for my Prius, and so wired on my third morning latte, I fell behind a bit.

    Hmmm. Let’s see about your comments. The one-quarter of one percent transaction tax progressives like myself get passed by congress (or we’ll fail to raise the debt ceiling, you know how crazy we progressives are), this will cause our own stock markets to plunge whie those in Asia (where you have cunningly moved your life savings) to soar. And then you can buy your own Prius and drink lots of lattes, too. Interesting.

    And just to make sure I understand you correctly, the reason this tax will cause a domestic stock disaster is because the traders who now trade every 11 seconds or so only because of pre-programmed stock movement parameters that have nothing to do with the intrinsic worth of the securities they are trading, will have to pay a tax every time they get in and out of a security — which, if I understand you correctly, is how healthy markets are supposed to operate.

    Hmmm. Very interesting. However…

    I don’t usually offer personal finance stock market advice. But if I did, here’s what it would be. Invest long-term (not by the second) in good companies that provide goods and services people will want to buy. Then forget Wall Street casino games and focus on living real life. Good companies will carry you through. Wall Street gaming is destructive twaddle.

    Thanks for getting in touch,
    Mike

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