Tax the Speculators: How to Lighten the Income Tax Load on the American Worker

Discussion in 'Economics' started by walter4, Feb 18, 2009.


    Let's start with a fairness point. Why should you pay a 5 to 6 percent sales tax for buying the necessities of life, when tomorrow, some speculator on Wall Street can buy $100 million worth of Exxon derivatives and not pay one penny in sales tax?

    Let's further add a point of common sense. The basic premise of taxation should be to first tax what society likes the least or dislikes the most, before it taxes honest labor or human needs.

    In that way, revenues can be raised at the same time as the taxes discourage those activities which are least valued, such as the most speculative stock market trades, pollution (a carbon tax), gambling, and the addictive industries that sicken or destroy health and amass large costs.

    So, your member of Congress, who is grappling these days with gigantic deficits on the backs of your children at the same time as that deep recession and tax cuts reduce revenues and increase torrents of red ink, should be championing such transaction taxes.

    Yet apart from a small number of legislators, most notably Congressman Peter Welch (Dem. VT) and Peter DeFazio (Dem. OR), the biggest revenue producer of all--a tax on stock derivative transactions--essentially bets on bets--and other mystifying gambles by casino capitalism--is at best corridor talk on Capitol Hill.

    There are differing estimates of how much such Wall Street transaction taxes can raise each year. A transaction tax would, however, certainly raise enough to make the Wall Street crooks and gamblers pay for their own Washington bailout. Lets scan some figures economists put forth.

    The most discussed and popular one is a simple sales tax on currency trades across borders. Called the Tobin Tax after its originator, the late James Tobin, a Nobel laureate economist at Yale University, 10 to 25 cents per hundred dollars of the huge amounts of dollars traded each day across bordered would produce from $100 to $300 billion per year.

    There are scores of civic, labor, environmental, development, poverty and law groups all over the world pressing for such laws in their countries. (see

    According the University of Massachusetts economist, Robert Pollin, various kinds of securities-trading taxes are on the books in about forty countries, including Japan, the UK and Brazil.

    Pollin writes in the current issue of the estimable Boston Review: "A small tax on all financial-market transactions, comparable to a sales tax, would raise the costs on short-term speculative trading while having negligible effect on people who trade infrequently. It would thus discourage speculation and channel funds toward productive investment."

    He adds that after the 1987 stock market crash, securities-trading taxes "or similar measures" were endorsed by then Senate Minority Leader Bob Dole and even the first President Bush. Professor Pollin estimates that a one-half of one percent tax would raise about $350 billion a year. That seems conservative. The Wall Street Journal once mentioned about $500 trillion in derivatives trades alone in 2008--the most speculative of transactions. A one tenth of one percent tax would raise $500 billion dollars a year, assuming that level of trading.

    Economist Dean Baker says a "modest financial transactions tax would be enough to finance a 10% across-the-board reduction in the income tax on labor."

    The stock transaction tax goes back a long way. A version helped fund the Civil War and the imperial Spanish-American War. The famous British economist, John Maynard Keynes, extolled in 1936 a securities transaction tax as having the effect of "mitigating the predominance of speculation over enterprise." The U.S. had some kind of transaction tax from 1914 to 1966.

    The corporate history scholar (read his excellent book, Unequal Protection ) Thom Hartmann, turned three-hour-a-day talk-show-host on Air America (, had discussed the long evolution of what he calls a "securities turnover excise tax" to "tamp down toxic speculation, while encouraging healthy investment."

    So, why don't we have such a mega-revenue generator and lighten the income tax load on today and tomorrow's American worker? (It was one of the most popular ideas I campaigned on last year. People got it.) Because American workers need to learn about this proposed tax policy and ram it through Congress. Tell your Senators and Representatives--no ifs, ands or buts. Otherwise, Wall Street will keep rampaging over people's pensions and mutual fund savings, destabilize their jobs and hand them the bailout bill, as is occurring now.

    A few minutes spent lobbying members of Congress by millions of Americans (call, write or e-mail, visit or picket) will produce one big Change for the better. Contact your member of Congress. The current financial mess makes this the right time for action.
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  3. Thanks Walter4. Good post.
  4. And so the thousands of Americans trading from home, or in the securities industries, are not Tax Payers?

    I paid damn near 40% (CA and Fed) on my trading income last year. Aren't I a Tax Paying American Worker?

    More taxation is never a good idea. This isn't a cigarette tax. It's a (yet another) tax on markets and trade.
  5. just21


  6. The real tax increase is going to be the widening of the bid ask spread for all securities....

    Defazio is too fucking stupid to understand this but the difference between the bid ask will become larger than the total interest earned from a BBB bond for a whole year....

    So the tax raise is greatest to the buyers of securities.....much higher than the sellers of securities....

    Thus the accounting rule is a failed concept in that it does not take the highest cost of trading into account...

    Defazio is a typical political "lawyer type" idiot.....

    He wants to get back at the "speculator" by taxing his constituents more than 20x the supposed tax....

    Very typical.....of people like this.....

    Stupid is as stupid does....
  7. some speculator on Wall Street can buy $100 million worth of Exxon derivatives and not pay one penny in sales tax?

    The underlying problem is: Why invest in men and machines to build an Exxon when you can make money in oil and never get your hands dirty.

    We are nationalizing our industries under the guise of economy of scale, easier to regulate, control, enforce social policy.

    As dire as the economy is, there still isn't much concern for more efficient gov't at any level. One half of the govt is for cutting taxes the other half is figuring out a way to increase taxes.
  8. TGregg


    You forgot the other half. Or quarters, maybe. Or something, anyway. One half is for bigger, more expensive government and the other half is for lots bigger and more expensive government.
  9. Great idea, when a problem has been identified (in hindsight of course), institute a tax and the problem will be solved.

    The only sense this is common to would be those ignorant enough to believe this will solve the problem.

    The problems are with our banking system and in Washington. The problems are with the career politicians who employ the tactic of fear mongering with ignorant rhetoric.

    The truth about the cause (of this mess)

    Mises (1998, pp. 230–1) summarizes monetary calculation as a "method of thinking" that: a. is the "guiding star of action under the social system of division of labor" where the entrepreneur "calculates to distinguish remunerative lines of production from the unprofitable," b. is "commercial precalculation of expected costs and expected proceeds" and the ex-post evaluation of past action as reflected in accounting profits and losses, c. can operate only in an institutional setting "with the division of labor and private ownership of the means of production in which goods and services of all orders are bought and sold against a generally used medium of exchange, i.e., money," and d. "reaches its full perfection in capital accounting."

    What is sound money? Salerno (1998 [2002], p. 4) argues, "Sound money, then is simply one which does not lead to systematic falsification of or nullification of economic calculation." Economic calculation requires money prices, but for calculation to most adequately achieve the goal of solving the 'economic problem', the money prices used for calculation must reflect the valuations of producers/consumers that are based on their individually unique preferences, knowledge, and resources. With sound money, money prices reflect valuation and action.


    Government control/intervention into the money system creates distortions in the money pricing system. These interventions lead to money prices that are not based on individual valuations and knowledge. Calculation errors will be in excess of entrepreneurial errors that are part and parcel of the unavoidable uncertainty associated with planning for future provision of consumer wants. Planning to meet consumers' most urgent demands is hindered, and in the case of a crack up boom where no substitute money is readily available, so shortened in time horizon as to be effectively eliminated.
  10. euclid


    So we should first tax politicians then?
    #10     Feb 19, 2009