A Simple Reform Could Save America From Wall Street and Boost the Economy: What’s Washington Waiting For?
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.
Another argument you hear is that regular folks would be hurt when they do things like make transactions on their 401(k)s or use a debit card. But this is nonsense. The tax would not apply to normal consumer activities, and traders could also be legally blocked from dumping costs onto consumers. The FTT is about giant banks and investment firms — behemoth companies like Bank of America, Citigroup, JPMorgan, and Goldman Sachs. Not you and me. Some huff that high-frequency traders will simply leave the country if we slow them down. Here’s an idea: can we help you pack? Seriously, don’t let the door hit you on the way out.
Many industrial nations already have some form of FTT, including Hong Kong and Singapore. Some members of the European Union have tried to push ahead with an FTT, but it has gotten caught in the complicated web of the European legal framework. Naturally, the big financial firms have lobbied relentlessly to block it and convince the media (much of which relies on advertising dollars from Big Finance) that it’s a bad idea. They’ve succeeded in getting the tax’s effective date pushed into the middle of 2014.
Over on this side of the Atlantic, you may have heard that bank CEOs having been meeting with the president during the shutdown. It’s not hard to imagine what they had to say: Just carve another pound of flesh from the American populace in the form of cuts to Medicare and Social Security, and leave us to make our billions at their expense. Protect Big Finance at any cost. So far, Obama has done pretty much just that. He has surrounded himself with economic advisors, like Timothy Geithner and Larry Summers who have played Santa Claus to bankers and oppose the FTT. Current Treasury Secretary Jacob Lew is against the tax and gives us the official White House position: "The administration has consistently opposed a financial transaction tax on the grounds that it would be vulnerable to evasion, create incentives for financial re-engineering and burden retail investors.” Which is all a big pile of baloney.
So is there any hope? Much of Congress, attentive only to the drumbeat from Wall Street, has turned a deaf ear to the idea, despite a recent proposal from Sen. Tom Harkin and Rep. Peter DeFazio. The bottom line is that we need people in Washington willing to challenge banks. You could take Elizabeth Warren’s election to the Senate as a sign that we might finally be getting somewhere. She is a very popular politician, and if she were to get behind the FTT, there could actually be a chance of getting it passed.
In the meantime, we really need to mob our representatives with messages of support for the FTT. Flood them with letters, emails, and phone calls. Make noise. Tell them that if they are not willing to champion the public good, they will not get your vote.
And if the President dares to move forward with cuts to social programs, public services, Medicare, and Social Security while such a strong, sane idea as the FTT is supported by the population, well, maybe it’s time to take to the streets.