Financial Transactions Taxes Would Raise Billions in Revenue
December 21, 2009
For Immediate Release: December 21, 2009
Contact: Alan Barber, (202) 486-6180
Washington, DC- There is growing interest in new revenue sources to cover the cost of a major jobs program and/or as a route to long-term deficit reduction. One often discussed revenue source is a tax on all financial transactions occurring within U.S. financial markets. A new set of calculations from the Center for Economic and Policy Research (CEPR) and the Political Economy Research Institute (PERI) at the University of Massachusetts shows that a transactions tax applied to U.S. financial markets would raise a substantial amount of revenue for the federal government.
“A calibrated set of taxes applied to trades of stocks, options, credit default swaps, and other assets could raise more than $170 billion a year, even assuming large reductions in trading volume” said CEPR Co-Director Dean Baker, an author of the study. “Such a tax could have the added benefit of effectively reducing the size of financial trading relative to the economy’s level of productive activity.”
“A financial transaction tax is a proven policy tool for both raising large amounts of revenue and counteracting the types of speculative excesses that produced the economic crisis of 2008-09,” said PERI Co-Director Robert Pollin, another author of the study.
The report, “The Potential Revenue from Financial Transactions Taxes,” analyzed the potential revenue generated by financial transactions taxes across a range of financial assets. The authors of the study calculated revenue under scenarios in which there was no decrease in trading volume, a 25 percent decrease in trading volume, and a 50 percent decrease in trading volume. The study updates the calculations from an earlier study that appeared in the Eastern Economic Review in 2003.
Applied to several different financial assets and under a scenario in which there is no change in trade volume, potential revenue from a financial transactions tax would come to $354 billion annually. Under a scenario assuming a 25 percent decrease in trade volume, potential revenue would total $265 billion annually. And under a scenario in which there is a 50 percent decrease in trading as a result of a financial transactions tax, potential revenue would come to $177 billion dollars a year.
Policymakers attempting to raise revenue to finance a recovery program and to deal with the long-term deficit problem may find a financial transactions tax to be a very valuable policy tool. It also has the additional benefit of reducing the volume of speculation in a seriously bloated financial sector.