A financial transactions tax could raise more than $105 billion annually and curb income inequality, according to a report written by the left-leaning Center for Economic and Policy Research.
“Financial transactions taxes (FTTs)—levies on a nation’s monetary transactions, such as securities trading—can be an effective way to raise large amounts of revenue,” author Dean Baker, who is co-director of CEPR, wrote in the 35-page report. “And they can do so without harming the workings of financial markets.”
Democrats called for a financial transactions tax in their platform, although the language is not specific about its parameters. Hillary Clinton has advocated for a tax on high-frequency trading — the rapid-fire Wall Street transactions of “Flash Boys” fame — while progressives such as Sen. Bernie Sanders (I-Vt.) have called for a broader tax. The platform notes there is “room within our party for a diversity of views on a broader financial transactions tax.”
Financial transaction taxes have been prompted by calls to raise revenue, make the financial sector more efficient by reducing waste, rein in short-term trading to calm volatile markets and force the financial industry to focus on the long term, Baker says.
“The argument is that by lengthening the time horizon of actors in financial markets, FTTs would also lengthen the time horizon of corporate management, leading to better management decisions,” he writes in the report published by the Bernard L. Schwartz Rediscovering Government Initiative at The Century Foundation.
The analysis, which puts the proposed tax on stock trades at 0.2 percent, bond trades at 0.1 percent and derivative trades at 0.002 percent of their nominal value, says the financial industry, not traders, would bear the costs of a tax on trading, and that transaction costs would remain lower than they were two decades ago due to recent sharp decreases in costs.
The tax would also offset the high costs of college education, the report says, echoing a Sanders campaign mantra.
The tax would more than cover Sanders’ $75 billion a year price tag for free college education at public institutions, Baker says. However, Baker offers two caveats: The tax would not be sufficient to cover tuition costs if the price of college education keeps outpacing inflation, and eliminating tuition would raise enrollment demand at public colleges.