FacebookTwitterGoogle+RedditEmail

Fix the Debt’s Blind Spot

by DEAN BAKER

At this point everyone knows about Fix the Debt. It is a collection of corporate CEOs put together by Peter Peterson, the Wall Street private equity mogul. Ostensibly they want to reduce budget deficits and the national debt, but for some reason their attention always seems focused on cutting Social Security and Medicare. While some in this group will allow for minor tax increases, budget cuts are explicitly a priority, with these two programs firmly in their crosshairs.

Given that the stated goal of this group is to reduce budget deficits, it is worth asking why taxes don’t figure more prominently on their agenda. After all, the United States ranks near the bottom of wealthy countries in its tax take as a share of GDP. It is also worth asking why one tax in particular, a financial transactions tax, never seems to get mentioned in anything the group or its members do.

This omission is striking because so many others in budget debates in the United States and around the world regularly suggest such a tax. There is a long list of highly respected economists who have advocated such taxes, starting with John Maynard Keynes. The list includes many Nobel Prize winners, most notably James Tobin who wrote several papers arguing for such a tax as a way to both raise revenue and slow speculative trading.

Financial transactions taxes are hardly new. The United Kingdom has had a tax on stock trades in place since 1694. It still imposes a tax of 0.5 percent on trades. Relative to the size of its economy the tax raises the equivalent of $30-40 billion a year in the United States. Many other countries, including India and China, have financial transactions taxes. The United States used to have a tax of 0.04 percent on stock trades until 1966 and still has a very small tax that is used to finance the Securities and Exchange Commission.

In the wake of the financial crisis there has been renewed interest in a financial speculation tax. The European Union recently decided to move ahead with implementing a tax which will first be imposed in 2015 or 2016. There is also considerable interest in the United States. While financial speculation taxes have been included as a funding mechanism in many bills there were two standalone bills introduced in Congress last year.

A bill introduced by Tom Harkin in the Senate and Peter DeFazio in the house would apply a tax rate of 0.03 percent (that is 3 cents on $100 dollars) on trades of stocks, bonds and derivatives. The Congressional Joint Tax Committee projected that the tax would raise close to $40 billion a year. That would come to $400 billion over a decade. Minnesota Representative Keith Ellison introduced a bill that would scale the tax rate by asset, starting with the same 0.5 percent rate the U.K. imposes stock trades. This bill could raise as much as $180 billion a year.

The concept of a transactions tax has received considerable support from grassroots groups around the country. It has also been endorsed by many unions, including the National Nurses United, SEIU, and the AFL-CIO.

Given all the interest in a financial speculation tax it is striking that the Fix the Debt crew never even mention it when discussing their efforts at deficit reduction. That seems to cry out for an explanation.

One possibility is that they haven’t heard of it. That one is too out in space to take seriously. Even the IMF has written on financial transactions taxes and in fact advocated increasing taxes on the financial sector. How could the Debt Fixers not know about the proposals for financial transactions taxes?

It is possible that they have a slam dunk argument that a financial speculation tax would just be bad news for the economy or really wouldn’t raise any revenue. If so, it would be nice if they could share it with the rest of us so that we didn’t waste our time giving FSTs further consideration. After all, in addition to all the politicians and policy types to who have been devoting time to the issue, most of the European Union is about to put a tax into law in 2-3 years. If the Debt Fixers know of some horrible problem that all the researchers, including the IMF, have missed they would do us an enormous favor by setting us straight.

Then there is possibility number three. Many of the debt fixers, such as Morgan Stanley director Erskine Bowles and Peter Peterson, the master debt fixer himself, have longstanding ties to the financial industry. They may not be interested in a financial speculation tax for the simple reason that it could eat into their bread and butter. We should no more expect the Debt Fixers to support a FST than we would expect a farmers’ lobby to support an end to farm subsidies.

On the plausibility scale, explanation number three would seem to be the most credible. We have a group of rich finance types using their wealth to advance their agenda. There’s nothing new in this story, that’s the way Washington politics has always worked. The question we should then ask is, why do the Washington Post, National Public Radio, and the Sunday morning talk shows take these people seriously?

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.

This article originally appeared on the Huffington Post.

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

More articles by:

CounterPunch Magazine

minimag-edit

Weekend Edition
September 23, 2016
Friday - Sunday
Andrew Levine
The Meaning of the Trump Surge
Jeffrey St. Clair
Roaming Charges: More Pricks Than Kicks
Mike Whitney
Oh, Say Can You See the Carnage? Why Stand for a Country That Can Gun You Down in Cold Blood?
Chris Welzenbach
The Diminution of Chris Hayes
Vincent Emanuele
The Riots Will Continue
Rob Urie
A Scam Too Far
Pepe Escobar
Les Deplorables
Patrick Cockburn
Airstrikes, Obfuscation and Propaganda in Syria
Timothy Braatz
The Quarterback and the Propaganda
Sheldon Richman
Obama Rewards Israel’s Bad Behavior
Libby Lunstrum - Patrick Bond
Militarizing Game Parks and Marketing Wildlife are Unsustainable Strategies
Andy Thayer
More Cops Will Worsen, Not Help, Chicago’s Violence Problem
Louis Yako
Can Westerners Help Refugees from War-torn Countries?
David Rosen
Rudy Giuliani & Trump’s Possible Cabinet
Joyce Nelson
TISA and the Privatization of Public Services
Pete Dolack
Global Warming Will Accelerate as Oceans Reach Limits of Remediation
Franklin Lamb
34 Years After the Sabra-Shatila Massacre
Cesar Chelala
How One Man Held off Nuclear War
Norman Pollack
Sovereign Immunity, War Crimes, and Compensation to 9/11 Families
Lamont Lilly
Standing Rock Stakes Claim for Sovereignty: Eyewitness Report From North Dakota
Barbara G. Ellis
A Sandernista Priority: Push Bernie’s Planks!
Hiroyuki Hamada
How Do We Dream the Dream of Peace Together?
Russell Mokhiber
From Rags and Robes to Speedos and Thongs: Why Trump is Crushing Clinton in WV
Julian Vigo
Living La Vida Loca
Aidan O'Brien
Where is Europe’s Duterte? 
Abel Cohen
Russia’s Improbable Role in Everything
Ron Jacobs
A Change Has Gotta’ Come
Uri Avnery
Shimon Peres and the Saga of Sisyphus
Graham Peebles
Ethiopian’s Crying out for Freedom and Justice
Robert Koehler
Stop the Killing
Thomas Knapp
Election 2016: Of Dog Legs and “Debates”
Yves Engler
The Media’s Biased Perspective
Victor Grossman
Omens From Berlin
Christopher Brauchli
Wells Fargo as Metaphor for the Trump Campaign
Nyla Ali Khan
War of Words Between India and Pakistan at the United Nations
Tom Barnard
Block the Bunker! Historic Victory Against Police Boondoggle in Seattle
James Rothenberg
Bullshit Recognition as Survival Tactic
Ed Rampell
A Tale of Billionaires & Ballot Bandits
Kristine Mattis
Persnickety Publishing Pet-Peeves
Charles R. Larson
Review: Helen Dewitt’s “The Last Samurai”
David Yearsley
Torture Chamber Music
September 22, 2016
Dave Lindorff
Wells Fargo’s Stumpf Leads the Way
Stan Cox
If There’s a World War II-Style Climate Mobilization, It has to Go All the Way—and Then Some
Binoy Kampmark
Source Betrayed: the Washington Post and Edward Snowden
John W. Whitehead
Wards of the Nanny State
FacebookTwitterGoogle+RedditEmail