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

bernie-the-sandernistas-cover-344x550

zen economics

Weekend Edition
January 20, 2017
Friday - Sunday
Paul Street
Divide and Rule: Class, Hate, and the 2016 Election
Andrew Levine
When Was America Great?
Jeffrey St. Clair
Roaming Charges: This Ain’t a Dream No More, It’s the Real Thing
Yoav Litvin
Making Israel Greater Again: Justice for Palestinians in the Age of Trump
Linda Pentz Gunter
Nuclear Fiddling While the Planet Burns
Ruth Fowler
Standing With Standing Rock: Of Pipelines and Protests
David Green
Why Trump Won: the 50 Percenters Have Spoken
Dave Lindorff
Imagining a Sanders Presidency Beginning on Jan. 20
Pete Dolack
Eight People Own as Much as Half the World
Roger Harris
Too Many People in the World: Names Named
Steve Horn
Under Tillerson, Exxon Maintained Ties with Saudi Arabia, Despite Dismal Human Rights Record
John Berger
The Nature of Mass Demonstrations
Stephen Zielinski
It’s the End of the World as We Know It
David Swanson
Six Things We Should Do Better As Everything Gets Worse
Alci Rengifo
Trump Rex: Ancient Rome’s Shadow Over the Oval Office
Brian Cloughley
What Money Can Buy: the Quiet British-Israeli Scandal
Mel Gurtov
Donald Trump’s Lies And Team Trump’s Headaches
Kent Paterson
Mexico’s Great Winter of Discontent
Norman Solomon
Trump, the Democrats and the Logan Act
David Macaray
Attention, Feminists
Yves Engler
Demanding More From Our Media
James A Haught
Religious Madness in Ulster
Dean Baker
The Economics of the Affordable Care Act
Patrick Bond
Tripping Up Trumpism Through Global Boycott Divestment Sanctions
Robert Fisk
How a Trump Presidency Could Have Been Avoided
Robert Fantina
Trump: What Changes and What Remains the Same
David Rosen
Globalization vs. Empire: Can Trump Contain the Growing Split?
Elliot Sperber
Dystopia
Dan Bacher
New CA Carbon Trading Legislation Answers Big Oil’s Call to Continue Business As Usual
Wayne Clark
A Reset Button for Political America
Chris Welzenbach
“The Death Ship:” An Allegory for Today’s World
Uri Avnery
Being There
Peter Lee
The Deep State and the Sex Tape: Martin Luther King, J. Edgar Hoover, and Thurgood Marshall
Patrick Hiller
Guns Against Grizzlies at Schools or Peace Education as Resistance?
Randy Shields
The Devil’s Real Estate Dictionary
Ron Jacobs
Singing the Body Electric Across Time
Ann Garrison
Fifty-five Years After Lumumba’s Assassination, Congolese See No Relief
Christopher Brauchli
Swing Low Alabama
Dr. Juan Gómez-Quiñones
La Realidad: the Realities of Anti-Mexicanism
Jon Hochschartner
The Five Least Animal-Friendly Senate Democrats
Pauline Murphy
Fighting Fascism: the Irish at the Battle of Cordoba
Susan Block
#GoBonobos in 2017: Happy Year of the Cock!
Louis Proyect
Is Our Future That of “Sense8” or “Mr. Robot”?
Charles R. Larson
Review: Robert Coover’s “Huck out West”
David Yearsley
Manchester-by-the-Sea and the Present Catastrophe
FacebookTwitterGoogle+RedditEmail