A Wall Street tax can help pay for bold policy solutions

Too many Americans are forced to go without health care because they can’t afford it, students are saddled with unmanageable amounts of debt, and as the recent national protests have underlined, the climate crisis requires immediate action to curb its worst impacts. To meaningfully address these problems, we need bold solutions such as Medicare for All, student debt forgiveness and a Green New Deal.

The public strongly supports paying for these ambitious and increasingly popular proposals by taxing the rich, and there’s a way to do so that deserves far greater attention: taxing Wall Street trades.

The Wall Street Tax Act (H.R. 1516 / S. 647) would implement a fee of 0.1 percent (equivalent to 10 cents per $100 traded) on the purchase of stocks, bonds and derivatives. The Joint Committee on Taxation estimates that taxing financial transactions at this rate would bring in nearly $777 billion in new revenue over a decade.

Since the bill’s introduction six months ago, industry trade groups have been busy churning out hit pieces claiming that the proposal would harm middle-class retirement savers. But most of these “studies” don’t reveal their methods or show their math.

So, my colleagues and I at Public Citizen decided to crunch the numbers for ourselves. What we found in our report “A Progressive Tax With Beneficial Effects” was not surprising: The vast majority of the costs fall on the very wealthy.

The first thing to note is that only about half of all American families hold any stocks at all, including in retirement accounts like a mutual fund. That means tens of millions of families would see zero costs, while they would benefit from greater revenues invested in priorities such as lower prescription drug prices or more affordable clean energy.

Middle-income families that do have retirement savings accounts would pay $13 a year on average. Even the very rich – families in the top 10 percent with median annual incomes over $260,000 – would end up paying $155 a year on average for their retirement investments.

Today, many investment funds are overmanaged, trading far more often than they need to. Every time trades are made, other, much higher fees than an FTT are charged to investors. A tax on trades would discourage unnecessary trading, so it’s possible that the reduced volume of trading of savers’ funds might completely offset the above costs.

Another benefit for investors – and for the wider economy – is that a financial transaction tax would curb, if not entirely eliminate, high-frequency trading.

High-speed trading algorithms harm the market – both by jumping in front of larger, slower moving funds and by exacerbating volatility in the markets. Already markets are swinging wildly at every Trump tweet. There’s no reason to let high-frequency lemmings push retirement savers’ nest eggs off a cliff.

Since the high-frequency trading profit model is based on volume born from speed, a tiny Wall Street sales tax might put these types of traders out of business. That would be a very good thing.

Instead of short-term profiteering and speculation, markets would refocus on long-term investments like brick and mortar companies: the kind that create good-paying jobs and careers, generating more investment overall. And, of course, reinvesting those hundreds of billions in revenue over the next decade back into our communities will help our economy and create new jobs, too. Talk about a win-win proposal.

As people all across our country take a stand demanding bold policies to fix America’s most pressing problems, it’s time for more people to be talking about taxing Wall Street trades as part of how we pay for the solutions of the future that our nation so desperately needs.

Harley is the deputy director of Public Citizen’s Congress Watch division.

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