A Simple Reform Could Save America From Wall Street and Boost the Economy: What’s Washington Waiting For?
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It’s a simple tweak that would reign in an out-of-control financial sector, stimulate jobs, generate billions of revenue, and possibly prevent another heart-wrenching crisis. Nobel Prize-winning economists like Joseph Stiglitz and Paul Krugman want it. Billionaires like Warren Buffett and Bill Gates want it. Polls show the majority of Americans want it. Even the Pope wants it.
We’re talking about a financial transaction tax (FTT) — a tiny tax of, say, less than half a percent: maybe 3 cents per $100 — on Wall Street trading. It’s simple, more than fair, widely supported by the public, and long overdue.
Over the last weeks, Americans have been kept from going to work and the fragile economy has been strained as members of Congress wrangled over another phony budget crisis, even as the deficit is shrinking. Meanwhile, Wall Street has been raking in billions of dollars in profits from financial transactions. And they pay not a penny in taxes on most of them.
Instead of talking about nickel-and-diming seniors by cutting their Social Security and Medicare, letting our infrastructure crumble, and forcing our children to go without proper education or medicine, we could be returning sanity and balance to our financial system. The FTT would put the breaks on the sort of reckless, breakneck-speed computer gambling that helped tank the American economy five years ago. It could raise hundreds of billions annually. Did you hear that, deficit hawks? We’d have enough to close the funding gaps in states that had their budgets destroyed by Wall Street’s risky behavior and predation. We’d even have enough to invest in new jobs.
As Jeremy Scott of Forbes put it: “What is important is that the financial sector, which bears a disproportionate share of the blame for the deep recession that is still affecting employment and growth, share in the costs of insuring against future bailouts and be forced to restructure itself to better insulate the rest of the economy from excessive risk.”
Once upon a time, we had a financial transaction tax in America, and it served us well from 1914 to 1966. Wall Street leaders at the time complained bitterly that the tax would be ruinous, but if you stop and think about those years, you notice that the American economy was actually much healthier than it is today. Income inequality was much lower, and jobs were more secure. After the Wall Street crash of 1987, major politicians, including Senate Majority leader Bob Dole and President H.W. Bush, called for a return of the FTT. Since the Wall Street-driven crash of 2008, renewed support for the tax has surged from every direction — except, of course, from Wall Street and the politicians who rely on their donations.
Because of their outlandish size and undue influence, financial firms have wriggled out of just about every attempt to introduce sane rules of the road since 2008, and they’re more dangerous and concentrated today than they before the crisis. Bankers and financiers left millions of Americans to suffer, and if something is not done soon, they will almost certainly do it again. It’s merely a question of when.
One of the biggest arguments against the FTT is that it will somehow hurt the economy by discouraging Wall Street activity. Of course, what it would actually do is protect Wall Street from itself by reducing the wild volatility of the market and the speculation fever which have prompted ordinary investors to run scared and caused jitters in the overall economy. Over the last decade, speculative activity has skyrocketed 400 percent — and only a miniscule fraction of that actually does anything to build the real economy in goods and services. The vast majority of it is just arbitrage, high-speed trading, casino gambling, and siphoning more money from ordinary people to the super-rich.