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Home Publications Blogs Beat the Press The Reason We Need a Financial Transactions Tax

The Reason We Need a Financial Transactions Tax

Tuesday, 11 June 2013 05:09

Bruce Bartlett has a nice column showing both the explosion in the size of the financial sector and the evidence that it has become both a major drag on economic growth and generator of inequality over the last three decades. That would seem to be a pretty good argument for a financial transactions tax like the one they have had on stock trades in the UK for the last three centuries. Of course this sort of tax on the sector faces an uphill battle in Washington because, in addition to being a major drag on economic growth and generator of inequality, the financial sector is also a major source of campaign contributions.

Comments (8)Add Comment
written by Last Mover, June 11, 2013 6:09

From the article:
They cite research by Thomas Philippon of New York University and Ariell Reshef of the University of Virginia that compensation in the financial services industry was comparable to that in other industries until 1980. But since then, it has increased sharply and those working in financial services now make 70 percent more on average.

In America only economic predators get a raise anymore.

While a financial transactions tax may blunt some of the predators, the broader question is should the structure of the industry be allowed to prevail given the tax?

The only reason would be one of efficiency, but too-big-to-fail is not necessary for that reason. They need to be busted up and forced to compete, then ask the question again on the role and effectiveness of a tax.
..., Low-rated comment [Show]
written by watermelonpunch, June 11, 2013 8:27
Is the structure of the industry a result of voluntary decision making?
Or is a natural result of outside forces?
You know, like you have 3 routes to travel, one has a bridge out, and another is twice as long... that you choose the shorter one with no impasse, is hardly what I'd call a choice at all.
Who is the decider?
written by Beshara, June 11, 2013 10:41
... it used to be Bush.

written by JSeydl, June 11, 2013 7:33
Last Mover: If the structure of the industry is a result of voluntary decision making, what's the problem?

The entire Soviet economy was the result of voluntary decision making, made by the politburo. Back in the Gilded Age and the Robber Baron era, pseudomonopolies were made by voluntary decisions let loose under an unregulated market. Similarly, in these days of megabanks (and ever thus have they been), the big shots make and take the decisions. They absorb any up and coming competitors when they're too small for the weakened anti-trust laws to kick in. Meanwhile, we of little wealth (and, supposedly, understanding) must involuntarily pay for the consequences of these voluntary 'free' decisions, yet we are told we will profit thereby. When?
written by Bob, June 11, 2013 10:41
This is a good idea for these reasons:

The tax is easy to collect because the taxable transactions are electronic bank and broker transactions. Taxes which cost less to collect are better.

The tax is fair. It will protects the public against otherwise unregulated speculative risk taking in the capital markets. The tax can protect investors too by creating an insurance pool.

Because of the high volume of trades, the tax rate may be low and still be effective in raising the funds required for public uses.

Tell your friends, and your elected officials. Here is a reform all Americans can get behind.
Decisions? You don't know what a Decision is, JSeydl !?
written by squeezed turnip, June 11, 2013 11:00
What watermelonpunch said.

We know how cancer works right? Unregulated cell growth. This every-burgeoning population of cells then sucks out increasing amounts of energy that would otherwise go toward productive bodily functions; the cancer begins to tax the body's system for one thing because there's less and less to share with the useful organs that support the body whole (and the immune system works hopelessly against it). Eventually something else that is necessary gives. The patient wonders why they are not feeling so well? Why are they not recovering from that bad flu they got 5 years ago yet? Because of the cancer. The cancer, shortsightedly, is not concerned with its host; when the host dies, so does the cancer.

i think that's a perfect analogy for what is now going on. Why can't the economy recover or employment recover? Too much going into the financial sector and the upper 1%, when productive use of resources is needed But what do they care? It's all gravy! They gain whether anybody else gains or loses. And, hey, they're multiplying like rabbits ... or like cancer. They'll smother this wonderful system to death unless people, through government, stop them.
of course there should be a financial transactions tax
written by mel in oregon, June 11, 2013 11:19
And it should be huge, not some 1/2 percent or some other mealy-mouthed proposal. The bank industry has destoyed the American economy & should be made to suffer for what they have done. Of course anyone thinking even a tiny ft is suffering from deep delusional malfunction. We live in an Orwellian state whereby financial powers control the government, the economy, the media, everything. The latest reaction against a coureagous whistleblower tells it like it is. Just as the government at all levels went after Occupy with all force necessary to shut them down, our controlled by financial interests government will stop at nothing to silence any opposition or rational thought. Worse times will keep on comin'.
While we need a financial transactions tax, there is ample evidence it won't happen
written by John Wright, June 11, 2013 10:49
At http://www.commondreams.org/headline/2013/06/11-7 one will find that the Obama administration is quietly firing Gary Gensler, head of the Commodity Futures trading Commission.

Gensler was known to be sympathetic toward extending regulation of financial swaps to any transactions involving US parties.

And Obama has appointed Amanda Renteria, who has little financial oversight experience, just before Gensler was to meet with European Regulators on June 20.

Actions like this make it unlikely Obama will propose and actively pursue a financial transactions tax.

As Ben Bernanke said in his recent Princeton commencement address: "I try to be cynical, but I just can't keep up."

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.