It's Time to Tax Wall Street's Risky Behavior
By Robert Weissman, president, Public Citizen
Americans have a right to expect Wall Street to pay. Wall Street should pay for the trillions of dollars of public supports it has received to continue operation, and it should pay for the massive damage it has inflicted on the national and global economy.
A speculation tax – a sales tax applied to stocks, derivatives and other financial instruments – is an ideal way to make this happen.
A speculation tax has at least three distinct benefits.
First, it can slow the churning of stocks and financial instruments on Wall Street. Too much of Wall Street’s business is based on lightning trades to capture very small margins. This business contributes little or no social value. Because it relies on high degrees of leverage, it puts financial institutions at risk – and, worse, endangers the entire financial system.
Second, a modest speculation tax can raise very substantial revenues. A quarter percent tax on stock trades, and a commensurate rate tax on other instruments, could raise $150 billion a year. That’s still a lot of money, even in Washington. There are many good purposes to which it could be allocated.
Third, the speculation tax will be extremely progressive. It is self-evident that it is the richest Americans who trade stocks the most. The richest 1 percent of Americans own about 40 percent of the stocks; the top 10 percent own about 80 percent.
Public Citizen today thanks U.S. Rep. Peter DeFazio (D-Ore.) for his leadership in introducing a bill to establish a speculation tax on the trade in stocks, derivatives and other financial instruments. Rep. DeFazio’s “Let Wall Street Pay for the Restoration of Main Street Act” is co-sponsored by Reps. Mike Arcuri (D-N.Y.), Ed Perlmutter (D-Colo.), Bruce Braley (D-Iowa), Betty Sutton (D-Ohio) and Bob Filner (D-Calif.). It would allocate the raised funds for the purposes of job creation and deficit reduction. The speculation tax is an idea whose time has come. We expect it to gain traction in Congress quickly, and we are committed to working to help it become law.
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"Too much of Wall Street’s business is based on lightning trades to capture very small margins. This business contributes little or no social value."
Says who??? If you want to tax "risky behavior" then at least offer an objective rationalization for what counts as too risky. Investors should have the right to do such things at their own risk, taxing it only exacerbates the problem at hand.
RE: "Because it relies on high degrees of leverage, it puts financial institutions at risk"
A patently false claim. The use of margin is strict, highly regulated, and heavily enforced. A minimum of 50% of the trade MUST be on deposit to execute the trade. If the stock drops in value, what's known as a "margin call" will result and the brokerage will sell the stock so all loses are born by the individual investor, not the brokerage.
Short term capital gains are already heavily taxed.
Furthermore, in excess of 80% of short term traders lose money in the market. Incredibly, what is being proposed is to tax people for losing money in the stock market .
I don't know where these guys get their numbers on stock ownership, but on its face, the numbers cited appear to be as bogus as the leverage claim. The amount of stock held by average individuals indirectly through retirement accounts, insurance policies, and directly through mutual funds, etc. is huge.
Even if the numbers are close when taking into consideration stock held by insider corporate officers, corporate officers are NOT day traders. Insider held stock is subject to fantastically strict limits on how, when and how much can be sold. Even for those who subscribe to the welfare mentality that anyone who has money should hand it over to anyone too lazy to work for it, none of those large blocks of stock held by rich insiders would be taxed to any meaningful extent in this situation.
So, who would really be getting hit with this proposed new tax? Across the board, the only people affected would be poor day traders and anyone with managed retirement accounts, insurance policies, or mutual funds. Everytime the portfolio was balanced, a bite would be taken out of the little guys who can barely afford groceries as it is.
For the retired, newly unemployed, foreclosed, debt burdened, union, and working poor in districts represented by Mike Arcuri (D-N.Y.), Ed Perlmutter (D-Colo.), Bruce Braley (D- Iowa ), Betty Sutton (D-Ohio) and Bob Filner (D-Calif.), it would be in your best interest to vote these lying, theiving scumbags out of office at the earliest opportunity.