SOURCE: AP/ Yves Logghe
Progressive America Rising via Center for American Progress
Campaigners and European trade unions dress as Robin Hood while calling on European Union leaders to go ahead with a financial transaction tax to mobilize money to help poor people hit by the economic crisis, in front of the European Council building in Brussels on May 23, 2012.
Feb 25, 2013 - It has been more than 70 years since John Maynard Keynes wrote about the value of a financial transaction tax in “mitigating the predominance of speculation over enterprise in the United States.”
A financial transaction tax works by levying a miniscule fee on the estimated $2.9 trillion of daily financial activity through the trading of stocks, bonds, and derivatives in U.S. financial markets, based on our analysis. The tiny tax makes some of the most speculative unproductive trading unprofitable, thus steadying markets and promoting real investment while raising much-needed revenues. Though many countries around the world already have a financial transaction tax in place, the United States does not yet levy such a fee on trading.
While the idea of a modest financial transaction tax—or FTT, as it is often known—has been around for a long time, with budget balances and economic growth strained in the aftermath of the Great Recession policymakers around the world are taking a new look at the tax.
Below are five reasons why the world is catching on to the financial transaction tax as a smart policy tool.
A financial transaction tax would bring in much-needed revenue
The U.S. government is currently operating at its lowest level of revenues in more than 60 years. A 2010 report from the International Monetary Fund identifies the financial sector of the economy—particularly in the United States—as substantially undertaxed.
Even a tiny financial transaction tax would raise tens of billions of dollars in much-needed revenue. A tax applied at a very low rate—for example, a 0.117 percent tax on stocks and stock-options trading, a 0.002 percent tax for bonds, and a 0.005 percent tax for futures, swaps, and other derivatives trading—would raise an estimated $50 billion a year, according to our calculations. To put that amount into perspective, $50 billion in essence pays for all of America’s veterans health services, which ran to $50.6 billion in 2012. Historical evidence and economic theory show that financial transaction taxes have the potential to raise substantial revenues without impeding the function of capital markets. By keeping constant the relative transaction costs of trading in different markets, a financial transaction tax can raise revenues without distorting market behavior.