Let’s put a sales tax on Wall Street
I learned of a petition at the presidents site, that one where anyone can start a petition and have it addressed if you reach 100,000 signatures. We the People it’s called. The petition is sponsored by United Front Against Austerity which also goes by the name Against Austerity.org I know nothing about this organization, though I have looked. Thus, I’m remaining without opinion. But, I do like this one idea of theirs and the idea needs push.
The petition is to have a sales tax placed on Wall Street’s transactions. I think this is a grand idea. After all, Wall Street and the banks have always referred to their stuff as “products”. Finance accounts for over 8% of our GDP, over 30% of corporate profits. But, mostly financial transactions are so numerous that the total dollar value makes our GDP look puny. Our GDP represents 1.9% of the total of the financial sales. Of course, not all items would be taxable. It’ like food. We don’t tax that.
Many would call this a transaction tax but, this is the wrong terminology. Wall Street has made it’s self into a producer within our economy. To paraphrase the infamous words of Larry the Liquidator, they “make you money”. Odd as it is, money is what they sell to the consumer. They’re a regular “retail” establishment. At least that’s how they view themselves. So, we should welcome them to such a status by making them collect and submit biweekly sales tax.
Sales tax is one of the major methods by which we raise revenue. Everyone knows about sales taxes. It’s the tax that is not mentioned when the conservative bitches about those people who don’t pay taxes. Well, here’s an entire group who truly does not pay the tax every other person pays when they buy something.
President Obama should love this tax. He and (too many) other Democrates seem to want a balanced approach with his deficit reduction plan. A 2 to 1 tax to revenue is often mentioned. Well, considering sales taxes take up 5 to 7% of the lowest 60% of our population’s income (the bottom 20% pay 7%) and the top 1% pays about 0.5%, it seems to me the concept of balancing needs to look here.
The total sales are estimated to be $5 qaudrillion per year. That’s some gross revenue there. That means some major coin in sales tax.
According to UFAA:
The Wall Street sales tax is very much in the mainstream. HR-6411, introduced by Congressman Keith Ellison (MN), is gaining support in the US Congress and Vermont Senator Bernie Sanders has pledged to introduce such a bill in the US Senate.
Dean Baker wrote about a sales tax in February.
So, please go over to the presidents site and sign the petition. It’s only good until April 10th. The petition needs another 90,000 signatures. Let’s make Obama address this. Spread the word.
Signed and posted to FB and tweeted!!!
Ah, no, I see the flaw here.
“The total sales are estimated to be $5 qaudrillion per year. That’s some gross revenue there. That means some major coin in sales tax. “
A sales tax is levied on sales to final consumers. Company to company transactions do not pay sales tax (you just put your Fed Corporate ID number on the documents and no sales tax is payable).
The vast majority of those “sales” in finance are corporate to corporate. Thus there would be no sales tax.
The idea of putting sales tax on finance sales to final consumers is just fine of course.
However, if you put it onto corporate to corporate transactions then it isn’t a sales tax any more. It’s a transactions tax. And they’re a very bad idea indeed. It would shrink the economy quite significantly for example. The EU modelled out the effect of a 0.1% transactions tax on equities and bonds, 0.01% on options and futures and said that the economy would decline in size by an average (ie, mid point between high and low estimates) of 1.76%.
They also said that such a tax would collect perhaps 0.1% of GDP. But, and here’s the kicker, government collects some 35 to 45 % of marginal GDP. GDP goes up by $1, government revenues go up by 35 to 45 cents (depends a little on US or Europe, but that’s roughly right). GDP goes down by 1.76% from where it would otherwise have been and government revenues decline by 1.76 x .35……that’s down by 0.6% of GDP.
Which is a problem, no? Ravenues down by 0.6% of GDP, revenue collected in the new tax up by 0.1% of GDP. That’s a net loss of tax revenue.
It doesn’t work, does it?
A sales tax on final financial transactions, yes, sure, why not? But not a transactions tax.
Tim….you are right, it would shrink the economy…..but would it shrink the “real” economy….no…..just the financial sector….so it would be kind of like losing weight and running……yeah you weigh less but the tissue left is muscle…..not bankers…..
“.but would it shrink the “real” economy….no…..just the financial sector..”
Unfortunately not. This is from the official EU report, this isn’t made up by me.
Taxing capital transactions makes capital more expensive for companies. Thus there is some smaller amount of investment made. It is investment which drives the growth of the economy. So, less investment, less growth.
Even if that argument is wrong (and as I say, it’s an official one) that still leaves the other problem. This OP is arguing that it would be a good revenue source. But there will be no additional revenue, there will be a fall in revenue collected.
But, and here’s the kicker, government collects some 35 to 45 % of marginal GDP. GDP goes up by $1, government revenues go up by 35 to 45 cents (depends a little on US or Europe, but that’s roughly right). GDP goes down by 1.76% from where it would otherwise have been and government revenues decline by 1.76 x .35……that’s down by 0.6% of GDP.
Might all be true if the money the government collects did nothing but stayed in a pocket of government. But, government has no pockets. All that money collected stays in play moving the GDP up. The only issue about the money the government collects is the choices made as to the path back into play in the economy.
However, yes. Final sales. That is why sales tax is the proper terminology.
With that, I more for the Automatic Payment Transaction Tax. Simple, efficient and no need for exceptions. Totally progressive as it is completely based on how much money one moves.
Such is a true transaction tax.
Tom, by what mechanism would a transactions tax shrink the real economy any significant amount?
And no, the answer isn’t “more expensive capital”, as this would raise costs of generating capital by trivial amounts and we are awash in it anyway.
I would get selective in what you tax. CDS, naked CDS, and other particular derivatives make up a vast amount of the Financial Services industry. To put this in perspective, the Financial Services Industry share of corporate profits by 2008 grew to ~40% and up from 10% experienced in the eighties. So there is room for a tax. By 2006, the same Financial Services sector grew from 23% of GDP in 1990 to 31%. These are not bank tellers they are adding. http://www.bis.org/speeches/sp081119.htm
If you are going to tax financial transactions be creative about it. Those which are invested to increase labor do not tax and those which do not . . . tax them. Why wouldn’t one just manipulate the capital gains tax to accomplish a similar result?
the “officials” have been telling us that “taxes shrink the economy” for years now. look at the results.
i think we ought to take the risk. certainly if it causes a great recession or something we could always repeal the tax. or something.
The total sales are estimated to be $5 qaudrillion per year.
My concern is lets get this sales tax on file, then we can figure out what to tax.
However, the Automatic Payment Transaction tax, taxes every transaction. The estimated rate by the economist who came up with the idea is 0.3%. That’s not a number that would break anyone or thing.
Who pays sales taxes? Consumers. No different with this plan. In the end, consumers will pay more for credit/banking services.
Why do people believe that higher taxes are a solution?
Good luck with your petition – this idea will never see the light of day.
The EU is going to be the lab for this. They will have a transaction tax in 2014. Watch and listen. You will see how this backfires.
Yes Bruce Krasting,
But this gets at a different set of consumers than the usual 90%.
Yes, let’s tax the rich. Nail em hard, right? Make that 10% pay up the wazoo.
Wrong. It is the 90% that borrow money.
The vast majority of transactions are not about people. The US Government bond market is most of the turnover. Making the government bond market less efficient and more expense for the taxpayer is a bad plan.
In NY and Cali the tax bite is now more than 50% for those making $250k.
You want to add to that. So who are these people? Husband and wife, both working hard – not rich at all with all of those taxes they’re paying.
You want to tax the 1%, not the 90-99%. But if you did that, you would find that it would generate very little revenue at all.
Like I said, good luck.
A note on turnover. That “thing” you want to tax. It is mostly about bond trading. For example, what would you expect the turnover at the Social Security Trust Fund is in a year?
In 2011 the SSTF grew by about $60B. But during the year the portfolio was traded back and forth for $2Trillion. From SSA:
The amount bought in 2011 was $1,015 billion, while the amount sold was $946 billion. See investment transactions for more detail and earlier years.
You don’t want to tax this, do you?
I am looking for the source data supporting this 5 quadrillion number. I reposted some other page’s statement about taxing it and am getting flak about it being fake, so I would appreciate knowing the original source for it. I heartily agree with the OP and comments about making these transactions taxable, or applying a fee, even if no one can give me the actual source for that number, either way…
without going into it too deeply, i think it is swell of all those rich people to fight those taxes so the rest of us don’t have to pay.
but frankly, i’d just as soon pay: let them pass on the tax to me in the form of higher prices.
I only quoted the UFAA data. However I also linked Wikepedia on Financialization which notes the relationship of our gdp to the dollar value of financial transactions.
Same old same old. In my post I did not say what to tax. I have been clear in comments that exactly what transactions would get taxed would be left up to discussion. That is related to a “sales tax” which is not the Automatic payment transaction tax which is not the “transaction tax” as in Europe.
As to taxing the upper 10% or that so prescious 1% I’ll just say: 1936.
And, you can stop the drama. You have no idea what I consider “pay up the wazoo”. Though, I think 0.3% of the APT tax more than reasonable. I also find the table of 1936 reasonable. I also find Roosevelt’s “economic royalty” very discriptive.
That’s an easy fix. All transactions between government agencies would be exempt from the tax. No sense in the government taxing itself. Nothing unusual there. Sales taxes are generally applied only to retail sales. Sales between selling agencies, wholesale transactions, are not subject to a sales tax.
Not all company to company sales are excluded from a sales tax. Only where the first purchase is for the purpose of resale of the exact item first purchased is the sale considered wholesale and not subject to a sales tax. If a business buys for its own use, even when that use is for investment, the purchase would be subject to sales tax.
“The amount bought in 2011 was $1,015 billion, while the amount sold was $946 billion. See investment transactions for more detail and earlier years”
Krasting do you have a precise page cite for that ‘quote’ from SSA? Because as the Right never tires of pointing out Special Issues are not ‘marketable’ making the use of ‘bought’ and ‘sold’ a little clumsy for transactions better described as ‘issued’ and ‘redeemed’.
Nor is it at all clear that a transaction tax would ever be levied on say a municipal bond held to maturity. So why dragging in Special Issues that under law are callable at par at any time is some sort of ‘sale’ is debatable anyway even if someone was clumsy enough to use that language.
But maybe we could start with the cite from ‘SSA’
My cite from the Operations section of the 2012 Report.
I see a lot of usage of “purchased” so maybe a point to Krasting, although this seems a reasonable term for “issued in exchange for revenues retained” but no usage of “sold” as opposed to “redeemed”. So I am still curious about the source of Krasting’s ‘quotation’.
Well I found this enlightening. On the other hand you can’t spell ‘analyst’ without ‘anal’. Still it doesn’t much resemble the churn on the bond floor.
“By law, the Department of the Treasury must invest trust fund assets in interest-bearing securities backed by the full faith and credit of the United States Government. Those securities currently held by the OASI Trust Fund are special issues, that is, securities sold only to the trust funds. These special issues are of two types: short-term certificates of indebtedness and longer-term bonds. On a daily basis, the Federal Government issues certificates of indebtedness which mature on the next June 30 following the date of issue. Receipts not required to meet current expenditures are invested in these certificates of indebtedness. The trust fund normally acquires long-term special-issue bonds when special issues of either type mature on June 30. The amount of long-term bonds acquired on June 30 is equal to the amount of special issues maturing (including interest earnings), plus tax receipts for that day, less amounts required to meet expenditures on that day.
Section 201(d) of the Social Security Act provides that the obligations issued for purchase by the OASI and DI Trust Funds shall have maturities fixed with due regard for the needs of the funds. The usual practice has been to spread the holdings of special issues, as of each June 30, so that the amounts maturing in each of the next 15 years are approximately equal. Accordingly, the Department of the Treasury, in consultation with the Chief Actuary of the Social Security Administration, selected the amounts and maturity dates of the special-issue bonds purchased on June 30, 2011, so that the maturity dates of the total portfolio of special issues were spread evenly over the 15‑year period 2012‑26. The bonds purchased had an interest rate of 2.5 percent. Table III.A7 shows additional details on the investment transactions during 2011, including the amounts of bonds purchased on June 30, 2011.”
I suppose one could apply the proposed transaction tax on each acquisition of daily ‘certificates of indebtedness’ and then again on the conversion of all those to Special Issues on June 30th but I am thinking it would be dwarfed by the daily surges of computer driven buys and sales even of regular Treasuries not to mention the derivatives based thereon. Even if those assessments were lost to the Trust Funds we are talking flea-bites
I value your scholarship and analysis.
But I think you once again give too much to the liars by accepting their words… with the connotations that come with them… as something like the word from the mouth of God.
Purchase in the case of Social Security special treasuries is not the same thing as purchase on the open market.
I feel I am putting this rather clumsily, but you were right in your first reply to Krasting, and the suggestion that you might have been “wrong” because the Trustees used the WORD “purchase” troubles me as an example of word-worship, when the “thing itself”, the thing that matters, is not the word.
Webb, After all these years and you still don’t trust me…sad.
The quote is from the SSA FAQ:
I provided this information to make a point.
To manage a bond portfolio as “simple” as the SSTF still requires a turnover of close to 100% of the total in the course of a year. In the real world, a bond portfolio turns over 5-10Xs principal in a year.
The huge % of your quadrillions is just daylight roll-overs, and repo’s. It’s the nuts and bolts of how the system works.
Again, SSTF as an example. Go to this link and look up the transactions in June of 2012 – the buys and sells total 3/4 Trillion in just one month.
Every bond fund has this type of activity. Fidelity etc. It’s just moving stuff back and forth. It’s necessary.
So I say you’re wrong when you see numbers measured in the quadrillions and you see an opportunity for a tax that will raise large amounts of revenue. I don’t think you understand how the system works.
Bruce, both of you,
The citation is irrelevant. Transactions between government agencies would not be subject to a sales tax. So why the argument? Is there any form of intra-agency government financial transaction that has ever been subject to any form of taxation? On the other hand private business transactions carried out for the purpose of profiting from the transaction are often taxed. So why not a tax on such financial transactions? The point is not what percentage of the public is affected by the tax, but rather the financial value of such transactions. If a small percentage of people are participants in such financial transactions and those transactions represent a disproportionate value relative to the number of people benefiting from those transactions then the financial effect on any of the individual participants will be small. Sounds like a winning idea to me.
Coberly: “irony is pretty ironic sometimes”
Jack: wrestling with a pig often requires getting right down in the mud. But can be amusing for all that. You just have to take a shower after.
Krasting: you picked out June 2012 and extrapolated. Hmm. Did you even read this?
“On a daily basis, the Federal Government issues certificates of indebtedness which mature on the next June 30 following the date of issue. Receipts not required to meet current expenditures are invested in these certificates of indebtedness. The trust fund normally acquires long-term special-issue bonds when special issues of either type mature on June 30. The amount of long-term bonds acquired on June 30 is equal to the amount of special issues maturing (including interest earnings), plus tax receipts for that day, less amounts required to meet expenditures on that day.”
What part of “mature on the next June 30” “mature on June 30” “acquired on June 30” referring to once a year transactions did you gloss over when picking June 2012 as a typical month representing “moving stuff back and forth”. Social Security “purchases” certificates of indebtedness on a daily basis in an amount normally equivalent to its surplus and then exchanges those certificates once a year for “Special Issues”. This doesn’t quite resemble computer driven buy and sell transactions designed to capture litterally momentary arbitrage advantages. Which is how you get the billions of dollar transactions in Social Security, which represents a large fraction of Real GDP turning into quadrillions of dollars worth of churned money driven by incredibly complex formulae designed by “quants”.
It is the difference between charging a nickel every June 30 and charging a nickel every few seconds. Quite apart from the volumes involved.
As to ‘trust’. Well as a no doubt hero of yours once said “Trust, but Verify”. Good enough for St. Ronnie, proven practice for me.
Tobin tax or sales tax?
Tax the world: EU’s controversial ‘Tobin’ tax might take effect in 2014
February 15, 2013
Believe we’d be looking at a somewhat higher percent than the EU’s 0.1
Other hand, I don’t believe a transactions tax [or ‘Tobin tax’] can be effective unless global, [better put, fully international] and, given levels of competition, this is a ‘no go’ other than at theoretic level.
Thus the Automatic Payment Transaction tax. It happens right at the point of electronic transaction through a bank. Somewhere along the line the US dollar passes through a US bank, even the laundered money.
Juan as to effectiveness why would anyone outside NYC (and most inside) care if a transaction tax drove this particular category of computer driven trading overseas? Is the theoretical liquidity they are adding worth the actual rents they are extracting? Ultimately from other peoples productivity?
Plus the whole ‘Going Galt’ thing is hooey. Rich people like to be around other rich people where they can do the full range of rich people things. Which varies some: rich people things in Dallas are different somewhat from rich people things in Santa Monica which are somewhat different from rich people things on the Cote d’Azur. Which is why really, rich people have houses in each.
But even the handful of really rich people who live in places like Omaha (Buffett), Boise (Simplott) and Benton (Some Walton’s) do so because they are from there, you are not going to catch some Wall Street trading co exec willingly moving to Minot, North Dakota no matter how fancy the data center they set up.
I am sure many a dressmaker, jeweler and wine merchant cast many a bitter tear in Paris in 1789 as their customer base took those tumbrills rides. But it is hard to argue that France really lost by loss of that luxury expenditure, those kind of multipliers don’t in fact ripple out to the periphery but seem to reflect back and get damped out. In the case of computer driven trades within miles of lower Manhatten and the Hamptons.
missed the irony, but agree with the point.
I don’t think it matters that those Quadrillion transactions are “normal business”, it looks like a good place to put a tax: easy to see. easy to collect.
as for offshoring… well, we don’t have the tax now, so what would be losing? i’m all in favor of an import tax… protect our infant industries.
“In NY and Cali the tax bite is now more than 50% for those making $250k.
You want to add to that. So who are these people? Husband and wife, both working hard – not rich at all with all of those taxes they’re paying.”
Depends on how you look at it. If you were working hard making 30 to 40 k per year, and a well dressed man came up to you and said, “I can provide a service that will enable you to make a quarter million… but you’re going to have to pay me half of that,” would you take the deal?
I think you would, and count yourself lucky. Until, of course, you got greedy and started thinking of ways to cheat him out of his share.
Meanwhile, spare me the “working hard” and “not rich at all.” We all work hard and most of us are a good deal more “not rich” than you are. And to the extent we are sane, we don’t mind that. What we get tired of is your preposterous self-pity and sense of entitlement.
First off the 50% on a couple earning $250,000 is bull. I live in NY. I’m married and my wife and I have neared that level. After the smoke clears: Federal is about 20%, state and city come to about 15%. I’d like to pay less, but as long as the real money people, the $500,000 plus people,don’t pay their fair share I, and others like me, will be paying what we do because we don’t have much clout. We can live a good life with what we earn. The issue is that too many others who earn so much more are not making the same contribution. Remember that capital gains and dividends are 15% before the accountants waive their magic wands. Worse yet the carried interest bull shit shelters enormous incomes from being taxed as earned income.