Financial Speculation Taxes
OMB Watch points us to the idea that:
Financial Taxes Can Raise Revenues, May Help Stabilize Markets
The congressional Super Committee, tasked with forging a $1.2 trillion deficit reduction package by Thanksgiving, is currently deliberating on which revenues — if any — to raise and to include in its plan. With Wall Street at the center of the 2008 economic collapse, the committee should look to a pair of revenue options that would fulfill the dual roles of addressing risks to the economy posed by Wall Street and raising much needed revenue: a financial speculation tax and a financial crisis responsibility fee on large financial institutions.
The responsibility fee is misnamed. What it actually is is an insurance premium for the implict insurance that the too big to fail banks get. It’s also a damn good idea. Being imposed in London and I thought you were already doing it over there.
The FTT however is entirely nonsense. The incidence of the tax is on everyone who uses anything at all produced with hte aid of the financial system: so that’s everything used by everyone. The incidence is likely to be larger than the revenues raised as well. There is little to no empirical evidence (there’s a lot of theorising but no empirical evidence) that speculation increases price volatility and a lot that insists that it reduces it. Then there’s Diamond and Mirrlees, you don’t want to have transactions taxes on intermediates if there are other ways of getting the same thing.
And finally, the EU studied this and concluded that the tax wouldn’t in fact raise any money overall. Yes, there would be reenue from the tax but the economy would also shrink, reducing other revenues by more than the revenue from this tax.
So, not banks or bankers paying it, but general consumers, those consumers paying more than the revenues raised, it increases price volatility and more than that, there’s no net revenue gained and the economy shrinks.
Just doesn’t sound like a good idea really.
you may have expert knowledge here, and I don’t. but I get very suspicious when someone says..”taxes will shrink the economy.” maybe the will. probably they won’t. but if they do it’s no more than just another “economic” trade off. we may buy things with the taxes we need more than whatever it is the booming economy is providing for us.
and just in case the Super Committee is scanning the country looking for good ideas about revenues to raise..
they could raise the payroll tax one percent over the next ten years and no one would notice, but it would “solve” the “social security problem” for about half of the “actuarial deficit.” doing it again, ten years from now, would solve the actuarial deficit for the next 75 years.
“Being imposed in London and I thought you were already doing it over there.”
We are, In April the FDIC adjusted its insurance premium base from deposits to assets.
“The new FDIC assessment regime does not raise much more money than the old rule, but the burden is now carried more proportionately by the big banks. This pound of flesh was extracted from Congress by the community bankers to win approval of Dodd-Frank. The other was a future “special assessment” by FDIC on the largest banks to push the insurance fund well above pre-crisis levels. Stay tuned on that count.”
If the rates are too low then the FDIC should raise them (though the premiums are already at cross purposes with the low Fed Funds rate.) but it seems kind of foolish to add another asset tax over and above the one just added in April.
If Congress is going to a levy financial transaction tax on the casino economy, they should use it to fund an across the board tax cut for the real economy. I know Tim and his EU confederates think everyone plays in the casino, but that’s not actually true.
“Advocates of a financial transactions fee generally propose a tax of between 0.1 and 0.5 percent on stock and stock options trading, and much smaller taxes – between 0.002 and 0.005 percent – on other transactions.”
Of course this is a no brainer.The US Financial markets were once the envy of the world, and a primary reason for doing business with US companies. The oligarchs’ cashed in, taking advantage of this “trust” to succeed at relieving the “Middle Class” of it’s retirement savings.
Angry Bear is like the Washington Post, dancing around the issues, trying not to get in trouble. My heritage comments which have gotten me banned from more than one website, are now mainstream.
WTF are we still wondering whether the “speculators” are a primary cause of the problem. We actually have the “smoking gun”. Yes they are. Put a freaking tax on financial trading. For goodness sake, the fact that the TBTF banks make 80% of their so called profits are proprietary trading. It has morphed into High Frequency Trading Platforms that obviously push and pull (previously called market manipulation). How is that consistent with “market efficiency” ?
The world’s greatest nonlinear devlaution of valuations of equities and commodities(except US debt instruments) is immediately in the ante room.
14 October 2011 was the final high for Google (for some years). It occurred in a spectacular blow-off with heavy volume showing a very large population of (mislead buying) speculators.
4.8 billion dollars worth of Google equity exchanged hands on that one day.
( A 0.1 percent speculator trading exchange tax would have generated 4.8 million dollars in one day for one stock for the common citizens). Google’s 8 August -14 October 2011 Final Run: 10/24/17 days; Google’s final 3rd Fractal a 17 day Fibonacci of the 1o day base and a reflexic x/2.5x/2.5x :: 3/8/8 day blow-off
Why is this relevant?
Because the former reasonable and good rules of the Roosevelt- Eisenhower- Volcker financial-monetary-political system have been Frankensteined via political payments for rule changes morphing the system into the Financial Elite’s 1980-2010 speculator and leverage political-financial industry-central banking system black box.
In Europe, the disconnection between speculation and safe monetary policy is so great that a currency of 500 million people has serious survival risk.
This leveraged system will be later understood to have fostered such 8 day blow-offs with a final gapped day higher – just antecedent to the greatest equity devaluation in the history of the world.
The Frankenstein rules now so completely favor – even force – speculation over traditional saving.
It is these bad rules that cause the blow-offs like the one GOOGLE had on 14 October – good for the sellers on that day; catastrophic for the buyers who need gambling disincentives and a fair alternative.
The world citizenry is coming to a common understanding that the global monetary system is a playground for the financial industry and the wealthy who rnake money from gaming, betting, distorting, manipulating and leveraging computer ones and zeros – money created via base fraud that is worth exactly the same as that money earned by those providing real services and goods.
oh, and this way the people who are going to get the benefits would pay for them.
and just for Andy Biggs, who worries about these things, doing it two more times would solve Social Security finance over the infinite horizon.