OCTOBER 12, 2009
Democrats Weigh Tax On Financial Transactions By JOHN D. MCKINNON (WSJ) WASHINGTON -- Taxing financial transactions on Wall Street is gathering support
in high places.
With federal budget deficits soaring, policy makers and other advocates are
eyeing the huge sums that could be raised as a way to cover the costs of new
initiatives.
Labor unions, in particular the AFL-CIO, have proposed a financial-transactions
tax as a way to defray costs of a health-care overhaul.
Lawmakers have discussed
a similar fee as a way to cover the cost of future financial oversight. Liberal
advocates are pushing the tax to pay for new stimulus spending.
This week, the left-leaning Economic Policy Institute floated the idea of a
national transaction tax that would raise $100 billion to $150 billion a year.
The tax, at a rate of 0.1% to 0.25% of the value of the trade, would be levied
on all financial transactions such as stock trades, but not on consumer
transactions such as with credit cards.
The money would be used initially to pay for temporary aid to states, hiring
incentives for public- and private-sector employers and school construction
money.
"We are in a difficult time right now, so people are looking at every
opportunity to
gain some revenue to fund" new initiatives, said Rep. Stephen
Lynch (D., Mass.), a member of the House Financial Services Committee. "Because
I was one of the first to suggest using this to fund [new] regulatory
infrastructure, folks have come to me and said, 'That's a good idea; I've got a
better one: Why don't we use it for stimulus or especially health care?'"
One Democratic aide said the idea is under consideration among House leadership,
though the discussions are preliminary.
A spokeswoman for Republican House leader John Boehner of Ohio criticized the
idea. "How is killing more American jobs by stifling capital investment, further
eroding families' savings and diverting much-needed investment out of the United
States a good idea during a severe economic downturn?" said the spokeswoman,
Antonia Ferrier.
Unnoticed by many, the concept already has found its way into federal law. At
the urging of House Democratic leaders, last year's $700 billion
financial-bailout bill contains a provision requiring the president to submit
legislation to "recoup" from the financial-services industry any eventual
shortfall in the Troubled Asset Relief Program, or TARP.
The provision, inserted during last-minute negotiations, was encouraged by
moderate Democrats who worried that taxpayers would be left footing the bill if
the government investment produced big losses.
Transactions taxes first were proposed in the 1970s for currency trading, to
reduce v
olatility in exchange rates.
The idea later was seized on as a way to
reduce volatility in financial systems.
In an interview Friday, Rep. Barney Frank, chairman of the House Financial
Services Committee, said he supported the legislation's idea of recouping future
losses from the industry.
"I was one of the ones who suggested" the idea for the TARP provision, said the
Massachusetts Democrat. He said he didn't specifically propose a
financial-transactions tax. The provision could be structured as either a tax or
a fee, he said, and could be a one-time provision rather than a permanent tax.
That would make it less likely that parties to financial transactions would seek
to escape the tax by moving activity to another country. He said imposing such a
tax "country by country...would be a problem."
Many economists have argued against a financial-transactions tax on policy
grounds, saying it could have consequences for markets, in part by driving
activity outside the U.S. Critics said it also would throw sand in the gears of
capital markets.
Still, some appear to be changing their minds. "I'm not as hostile as I used to
be," said Len Burman, a Syracuse University professor and former head of the Tax
Policy Center, a venture of the left-of-center Brookings Institution and Urban
Institute. Curbing frequent trading might be a good idea, he said, though he is
"skeptical this is the best way to do it."
Mr. Frank s
aid additional fees might be imposed on financial-industry
participants such as payday lenders in order to pay for a consumer-protection
agency.
Fees to pay for regulatory activities aren't considered a tax under House rules.
The new fees would be relatively minor, he said, adding that details haven't
been worked out. Similar fees already help pay for the operations of some
agencies such as the Securities and Exchange Commission.
A broader question is whether levies on the financial industry might be used to
help establish a rescue fund for future calamities.
In response to a question at a House hearing in September, White House economic
adviser and former Federal Reserve Chairman Paul Volcker said it "might be
interesting" if Congress ordered a study of the idea of a transactions tax. But
he pointed to the problem of driving transactions to other countries. "That's
the No. 1 problem; you'll have to get some consistency internationally," he
said.
Trade unions are backing the idea to reduce government deficits and pay for new
jobs initiatives, among other purposes. Amid their urging, the Group of 20
industrial and developing nations recently pushed the International Monetary
Fund to study the idea, which has drawn endorsements from some leaders in the
U.K. and Germany.
