Much ink has been spilled over the GameStop/Reddit fiasco and certainly more is to come — in the form of congressional investigations and regulatory oversight. The world is being treated to a real-life Twitch watch party with avatars like Roaring Kitty supposedly slaying hedge fund short sellers and whipsawing markets on a whim, while well-meaning investors trying to ride the tsunami are ultimately going to pay the price.
Certainly, Wall Street is an easy villain, bloated on record profits as our nation suffers unprecedented simultaneous tragedies. It is easy to see why Redditors aimed their Robinhood quivers in its direction.
But, if you were to ask me anything, I would say: Why is anyone surprised? Wall Street may be glorified, but it’s a casino nonetheless. Instead of hoping your investment grows over time — the form the gamble used to take — now it is often high-frequency trading computer algorithms racing each other, each hoping to win a fraction off the next guy. WallStreetBets’ online traders taking on the house may be a compelling narrative, but I suggest that instead of buying into bubbles invariably meant to burst, Americans unite behind the idea of using the tax code to take on Wall Street.
“Sin taxes” are meant to make a societally deemed harmful behavior less attractive, even if they don’t stop people from engaging in the activity. This seems like a perfect time to employ such a tax on Wall Street gambling. A tax of 0.1 percent (ten cents per $100 traded), as proposed by U.S. Representative Peter DeFazio (D-Ore.), would be barely felt by average investors but would create nearly $777 billion over the next decade that could be invested in any number of worthy ways from rebuilding our roads and bridges to making college more affordable. Each time the marble on the roulette wheel of meme investing moves on to the next spot, Uncle Sam should be cashing in.
The Nobel prize-winning economist James Tobin proposed taxing currency speculation as a way to “throw sand” in the gears and slow down trading. For that reason, a financial transaction tax, like the version proposed in DeFazio’s Wall Street Tax Act, or in Sen. Bernie Sanders (I-Vt.) and Congresswoman Barbara Lee’s (D-Calif.) Inclusive Prosperity Act, is often called a “Tobin tax.” Ironically, these taxes also have the nickname “Robin Hood tax.”
While the moniker is meant to convey the image of a jaunty redistribution of wealth — financial transaction taxes are extremely progressive given who owns stock — it may be indeed the case that a Robin Hood tax takes out its homonym trading platform. Not simply because a tax would cause the company’s trading to no longer be “free,” but because the high-frequency trading firms that pay Robinhood to route their orders may become obsolete since using speed to make huge volumes of trades to feel out price points would no longer be profitable. That’s why markets in areas like Hong Kong, where there is a financial transaction tax in place, see very little high-frequency trading.
High-frequency trading has been acting as a “tax” by increasing costs for investors, with an estimated yearly global price tag of $5 billion. Instead of having that go into Wall Street’s pockets, we should put a real tax on trades so that we can reinvest the more than three-quarters of a trillion dollars it would generate over the next 10 years into activities that help our economy — like creating jobs in clean energy.
While it’s great to see champions like Reps. Ilhan Omar (D-Minn.) and Ro Khanna (D-Calif.) using this moment to call for a financial transaction tax, all members of Congress should be joining the call to tax Wall Street speculation. It will take stiff spines to stand up to the tax’s corporate opponents that will bear its brunt, especially in the face of their coordinated PR campaign to malign the policy. But, as the “stick it to Wall Street” betting playbook continues on to the next fad investment opportunity, let’s hope that the U.S. government wises up and stakes its claim on a portion of the kitty.
I will happily pay my sin tax on a bottle of bubbly to cheers Wall Street finally having to start to pay its fair share of taxes.
Susan Harley is the managing director for Public Citizen’s Congress Watch division and specializes in tax issues, financial reform and open government initiatives.
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