Bob Hennelly

A Wall Street tax that could lift many out of poverty already exists. It's just not being collected

Imagine if there were a tiny tax that Wall Street traders were required to pay on every stock trade. Enacting such a thing might sound like a long and difficult political fight against a moneyed caste. Yet astonishingly, it turns out that it already exists in the state of New York — it's just not being collected. To the contrary: Wall Street is being refunded the tax money.

That's particularly ironic right now, when many economists and pundits have astutely noted that Wall Street bankers and investors are making out quite well while the rest of us aren't. The fortunes of billionaires in the United States have increased precipitously in the past eight months, while wages have stagnated for the vast majority and poverty has risen.

The City of New York, the largest and densest in the state, has a particular concentration of poverty that could be alleviated if this peculiar tax rebate were merely reversed. Given that federal relief from the Trump administration has been scant, ending the tax rebate seems like shrewd politics. And progressives are starting to bring attention to it.

The Stock Transfer Tax and its discontents

Since 1981, the State of New York has been rebating back to Wall Street billions of dollars from the state's Stock Transfer Tax, first enacted by Albany Republicans in 1905 who needed to close a budget gap in an era when trust-busting was in the air.

Assemblyman Phil Steck has been leading the charge to stop sending the revenue back to Wall Street from the minuscule transaction tax. Such an act could net the state up to $19 billion a year.

While $19 billion is well shy of the $50 billion in pandemic aid that New York State, New York City, and the Metropolitan Transportation Authority require, progressives say it's a down payment on a long overdue realignment.

"The tax is in sum and substance one quarter of one percent, it's nothing . . . and according to data from Tax and Finance it was $1.6 billion in June alone," Mr. Steck said during a phone interview. "The present circumstances demand it . . .Teachers are being laid off . . .grant-based programs have been withheld. Upstate some of our education funding is all grant-based."

Steck continued: "In the last ten years, we have given up $138 billion. It is the classic race to the bottom. The whole public sector has been starved. It all starts with Reagan and the anti-tax thing and the idea that government is bloated yet huge private corporations have as much bureaucracy as government."

So, just what are the lost opportunity costs of forking over that much tax revenue back to the very same sector of the economy that's been gorging itself for decades even as so many were struggling?

"Most of our great water and sewer infrastructure was built with federal aid," explained Steck. "But as we kept spending more and more on the military that aid stopped and at that point the states had a choice; either the states raised taxes or let it go to hell. What did they do? They let it go to hell, and that's why are infrastructure ratings are so poor in terms of the quality of roads and bridges."

The case for ending the rebating of the stock transaction tax back to Wall Street got much stronger with the October 22 report for New York State Comptroller Tom DiNapoli, which noted that the "securities industry saw its pretax profits reach $27.6 billion in the first six months of 2020, an 82 percent increase over the same period last year."

James Henry is a New York based economist and lawyer who is a senior advisor with the international Tax Justice Network. Henry says that if the rebate ends, the stock transfer tax would greatly help abate the poverty caused by the pandemic.

"New York has a chance to set an example for the world and that is a very painless tax that is highly concentrated a very, very wealthy people and institutions that can be used for many ongoing needs," Henry told Salon. "Now, we have an emergency that is affecting everybody and we are acutely aware of the fiscal crisis — and that I think is going to make it finally possible to get lots of different jurisdictions to work together and to implement such a thing — but even then it is not a done deal because Wall Street is fiercely opposed to setting this precedent."

Henry said such taxes on financial transactions are very common around the world. "Two weeks ago, Spain implemented a stock transfer tax. The EU [European Union] is about to adopt a tax between 0.1 and 0.2 percent. They are debating this on all European exchanges. Even Kenya has adopted a financial transaction tax…and they are raising more money than they expected."

If not now, when?

"At no other time in recent history would there be less of a basis for opposition to a stock transfer tax when the mass of the population, so called Main Street, is in such deep economic difficulty with very little prospect of getting out of it soon and a major likelihood it is about to get worse," says Richard D. Wolff, a professor emeritus of Economics at the University of Massachusetts Amherst.

Wolff said he first encountered the concept of the stock transfer tax when he was a student getting his doctorate in economics and took a class from James Tobin who championed the concept and went on to win the Nobel Memorial Prize in Economics.

"In Europe it is stilled called the Tobin Tax," said Wolff. "He [James Tobin] was a Kennedy liberal, no radical, not by a long shot. A smidge to the left of Biden."

Today, opponents of ending the rebate raise the specter that Wall Street firms will leave New York.

Back in March of 1905, before the tax was enacted, the New York Times raised the same concern, warning the levy would send the captains of high finance fleeing for Philadelphia and Chicago leaving New York to the fate of "Medieval cities, which fell out of the course of modern commerce."

By July 1905, with the Stock Transfer Tax on the books, the Times was singing a much different tune. Then, they observed that it had "no traceable" impact on Wall Street and was actually working. "It is sad to recall the prophecies thus falsified," opined the Times.

The London Stock Exchange has had such a stock transfer tax since 1694, despite perennial complaints from the investor class.

Stock transfer boosters say the revenue realized from it is only one of many benefits.

"It does discourage day traders," Steck told the Corporate Crime Reporter. "And day trading is not considered beneficial for economic reasons. It's more like gambling. In Hong Kong, for example, they have a financial transaction tax. And as a result, they have less of that type of frequent trading behavior than we have here in this country."

As Henry sees it, resuming the collection of the Stock Transfer Tax in New York is just one item on a tax reform agenda which needs to include addressing nationally the huge Trump-McConnell 2017 tax cut which "basically failed to tax the $2.6 trillion U.S. multinationals had accumulated offshore for 20 years."

Henry continued. "U.S. multinationals have been basically parking their intellectual property, their software, their patents in offshore havens and not paying any taxes on the royalties that they pay themselves tax free.

We're seeing an 'unprecedented loss of small businesses' — and economists fear a major crash looms

As all eyes were fixated on the story of Trump's COVID-19 infection, a number of big economic news stories passed by the public eye. That is unfortunate particularly because those stories, when viewed together, paint a devastating picture of the near-future of the American economy.

First, the Department of Labor's Bureau of Labor Statistics released a jobs report that documented just how economically destructive Trump's COVID denial strategy has been. On Oct. 2, the Bureau of Labor Statistics reported that the country's recovery momentum had slowed last month, with the nation's employers adding only 661,000 jobs — much lower than the 800,000 that Wall Street analysts had expected.

The BLS data also indicated the loss of over 200,000 government jobs, primarily in state and local education — jobs which, in pre-pandemic times, would be ramping up as primary and secondary schools begin their semesters. The September jobs profile also ironically included 34,000 temporary U.S. Census workers, who are about to be terminated as the Census wraps up.

The report tried to spin September's jobs news in a positive light, noting "notable job gains….in leisure and hospitality, in retail trade, in health care and social assistance, and in professional and business services."

There are still tens of millions of unemployed and underemployed Americans on the sidelines as the country appears to be losing the battle with COVID-19. New infections are trending up, meaning further economic fallout is inevitable. The New York Time's daily tracking graph reports there are now 25 states where "new cases are higher and staying high." That's up from 18 states last week.

For James Parrott, an economist with the New School's Center for New York City Affairs, the top line job numbers obscured more troubling indicators. "We saw the Labor Force Participation rate drop to 61.4 percent," Mr. Parrott said in a phone interview. "Over the past year the non-institutional working age population increased by a million, but four million left the work force."

Unlike the unemployment statistics, which are subject to all sorts of complicated political massaging, the labor force participation rate is simple to calculate: you are either working, looking for work, or not in the labor market.

The labor force participation rate was 63.2 percent in January 2019. During Trump's COVID-19 economic collapse it nosedived to 60.2 percent in April, then headed back up to a still-anemic 61.7 percent in August, before dropping again last month to 61.4 percent.

Meanwhile, right-wing stinginess over unemployment assistance will have a further economic ripple effect. Trump and Republican Senate Majority Leader Mitch McConnell refused to extent the supplemental $600 a week pandemic unemployment payments past July 31. Economists say the effects of that decision won't be fully felt until Christmas.

"We also see that personal income data showed a decline in household income in August because of the loss of the $600 pandemic supplemental unemployment, which will result in a decline in consumer spending that should hit leading up into the holidays," Parrott noted.

The New School economist expressed concerns the national statistics were failing to capture the "unprecedented loss of small businesses" that "we don't see in a normal recession."

A divergent economic situation is now accelerating U.S. wealth concentration on a scale not seen since the eve of the last Great Depression. As CNN reported, America's billionaires have seen their cumulative fortunes rise by $845 billion since the pandemic began.

Joseph Wilson, a labor historian and union consultant, observed that "the American pandemic recovery model is speeding down the wrong track: the Treasury Department's vault is wide open to the tune of trillions for the largest corporations, bond holders and hedge funds, while the $600 dollar per week Federal Pandemic Unemployment Compensation funds have vanished."

Wilson continues: "This will inevitably result in an even more bifurcated economy, with a full recovery for those on top, and pain, suffering, unemployment and increased poverty for the working class. Public service and front-line workers will get shafted, and the top one percent will get yachts and caviar. That's why the European recovery model, in which workers wages are maintained by governmental subsidies, will lead to a more comprehensive, sustainable and socially equitable recovery. The political economies of Europe and the United States stand in sharp contrast."

As Trump was holed up in the hospital over the weekend, negotiations continued between House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin over Pelosi's last and final attempt to get some barebones economic relief to cities, counties and state governments.

But Richard Wolff, professor emeritus of economics at the University of Massachusetts–Amherst,

predicts these measures will come up short because their architects failed to appreciate just how much damage has already been done.

"The 'stimulus' plans being discussed between Pelosi and Mnuchin strikes me more installments of the 'too little too late' sort," Wolff wrote in an email. "We are living through a staggering depression unmatched for the speed and depth and extent of economic collapse, microeconomic as well as macroeconomic. Investments are being abandoned or postponed because of demand constraints, and that will slow productivity growth and, in turn, competitiveness of US corporations."

Wolff continues: "Vast sectors of the economy are not being paid and will soon enter into litigations taking years to resolve. Educations are being downgraded, to say the least, with long-run consequences that are negative on multiple levels. And all of these dimensions of the current depression argue for not only massive fiscal stimuli far larger than anything Pelosi and Mnuchin debate, but also structural transformations neither major party dares to imagine let alone discuss."

In short, neither Trump nor the Democrats seem prepared to acknowledge let alone address the depth of our economic morass.

"Chief among these are the problem of a private capitalist sector that rests on financial life-support provided by the Federal Reserve as well as the US Treasury, and the problem of a private sector governed by profit-driven employers making all enterprise decisions," reasoned Wolff.

Odds have improved that the convergence of the Trump's hospitalization, the looming election and the rising infection rate will produce a bipartisan deal to stave off economic disaster. Oct. 1 also marked the end of the federal program that paid the nation's airline industry to maintain their payrolls while passenger traffic dropped by 95 percent.

The airlines are now in the process of laying off tens of thousands, with the justification that air travel is still just 30 percent of what it was were before the pandemic hit.

John Samuelsen, president of the International Transportation Workers Union, which represents tens of thousands of airline and mass transit workers said Washington had "no choice" but to quickly pass Pelosi's slimmed-down HEROES Act.

"It is a simple equation," Mr. Samuelsen said. "The Republicans have successfully dragged their feet, hemmed and hawed and refused to bail out the American workers, small businesses, the economy, public transit systems, industries—essentially everything. They have left the American people at the mercy of the pandemic."

Samuelsen continued: "If this doesn't happen in the next several days there will be directly tens of thousands of layoffs, and that will ultimately get to hundreds of thousands of jobs when you factor in the impact on the workers in the businesses dependent on all the airports around the country. And the way the airline industry will do this is by cutting seating capacity, just like what we will see with mass transit when they will cut service" if there is not any aid from Washington.

"The nation is crying out for it and the economy is crying out for it. We have seen the disconnect between Wall Street and Main Street, but if they fail to extend the CARES Act it won't be long before this decline crashes into every aspect of daily life," Samuelsen said.

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