Senator Tom Harkin of Iowa and Representative Peter DeFazio of Oregon have each introduced a bill in their respective chambers of congress (S.1787 and H.R. 3313) that will impose a financial transaction tax similar to the one proposed by Hg which is discussed further in The One-Penny Solution. The bill has strong union support, see this AFL-CIO link. The EU is also considering a financial transaction tax.
The idea is that the tax is small enough so that it doesn’t penalize long term investments very much. The tax would have a more substantial impact on the high frequency speculative trading that flips stock and commodity investments in very short time frames, hours or even minutes, for small percentage but very fast profit. These are the types of investments that many blame for high gas prices. They contribute nothing in the way of real goods or services and they don’t help business raise capital. All they do is make a fast paper profit for the investors. As Congressman Defazio said, these rapid traders “don’t make things, they don’t feed people — they churn”.
The transaction tax would reduce market volume. Whether or not that’s a good thing depends on your point of few. People who make money skimming commissions off trades obviously will be against anything that reduces volume. GOP politicians are against it too. On the other hand, many believe this type of trading destabilizes the markets and diverts investment dollars away from productive investments. Many blame the May 6, 2010 “flash crash” on these speculative investments.
Hg spells out one point I haven’t seen mentioned elsewhere. The revenue generated by the transaction tax should be used exclusively to pay down the national debt. Ongoing expenditures should continue to be paid for with the existing structure, or better yet congress should eliminate needless expenditures and then raise taxes enough to cover all of what’s left. Cutting much of the worthless spending on military hardware (not troop payroll) and letting the Bush tax cuts expire would go a long way toward balancing the annual budget – a tremendous first step. But the transaction tax should not be used to pay for items in the annual budget. It should be used exclusively to pay down the debt.
The Harkin/Defazio bill proposes a 0.03% surtax on financial transactions. This is a very small amount, mainly symbolic but it will discourage high frequency trading somewhat. The European proposal looks to be shaping up to be about 0.1%, over three times bigger. That’s supposed to be enough to strongly discourage high frequency trading and maybe help dig some of the EU coutries out of the financial hole they’re in.
Hg’s plan is more like heavy artillary. It proposes a 1% surcharge and not just on investments but on all transactions, including consumer spending. It’s a serious resolution designed to vigorously address the national debt. It discourages high frequency trading as a side effect. I think of it as an alternative to the austerity measures that have been implemented in other countries; a fairer alternative which spreads the burden evenly. I would hope that Hg’s plan would be temporary, maybe a couple of years. That shouldn’t be hard, it’s a plan that will act fast.
Unfortunately there is no chance that any sort of this type of legislation will ever get through congress as long as the house is in republican hands. They hate the idea of any sort of financial transaction tax and their bosses in the 1% hate it more. In fact, Rep. Chaka Fattah of PA. has been discussing a bill of this sort since 2004 and it has become grist for right wing disinformation and muckraking ever since. They might go for some artificial alternative that imposes a transaction tax on consumers (kinda like Cain’s 999) but spares the big investors. That’s worse than useless. Something like that already happened with healthcare reform. Instead of taking the huge insurance overhead out of the healthcare system, it wound up guaranteeing insurance companies that everybody would buy insurance from them. Yes, everybody will be covered, but we still have the tremendous overhead of insurance company administrative costs and profits.
There are plenty of proposals that offer plausible solutions to the countries financial problems. Before we can get anywhere with any of them we have to take control of congress away from the GOP.
Take back the house! #occupycongress #occupyelections !!