[wordup] Proposal to tax transactions

[Adam Shand]

Interesting idea.  I'm no economist but this seems to make good  
sense ... ?

Adam.


Source: http://www.nytimes.com/2009/01/13/opinion/13herbert.html

Where the Money Is
By BOB HERBERT
Published: January 12, 2009
A trillion here, a trillion there ...

President-elect Barack Obama is warning us to expect trillion-dollar  
budget deficits “for years to come.”
The economy is in a precipitous downturn and no one, on the left or  
right, is advocating tax increases that would jeopardize a recovery.

In the meantime, we’re spending money as fast as we can: the Troubled  
Asset Relief Program ($700 billion and counting); Mr. Obama’s proposed  
stimulus program ($800 billion and counting); and important  
initiatives still to come, like an overhaul of the way we pay for  
health care.

China, which has purchased more than $1 trillion of American debt, is  
getting antsy. As Keith Bradsher of The Times has reported, the global  
downturn has prompted Beijing “to keep more of its money at home, a  
move that could have painful effects for U.S. borrowers.”

Mr. Obama has tried to assure the public that his administration will  
be as careful as possible with its monumental spending, promising to  
invest wisely and manage the expenditures well. And he has made it  
clear that he is aware of the minefields that accompany mammoth long- 
term deficits.

At some point, however, someone is going to have to talk about raising  
revenue. The dreaded T-word is going to come up: taxes.

Well, there’s a good idea floating around that takes its cue from the  
legendary Willie Sutton. Why not go where the money is?

The economist Dean Baker is a strong advocate of a financial  
transactions tax. This would impose a small fee — ranging up to, say,  
0.25 percent — on the sale or transfer of stocks, bonds and other  
financial assets, including the seemingly endless variety of exotic  
financial instruments that have been in the news so much lately.

According to Mr. Baker, the co-director of the Center for Economic and  
Policy Research in Washington, the fees would raise a ton of money,  
perhaps $100 billion or more annually — money that the government  
sorely needs.

But there’s another intriguing element to the proposal. While the fees  
would be a trivial expense for what the general public tends to think  
of as ordinary traders — people investing in stocks, bonds or other  
assets for some reasonable period of time — they would amount to a  
much heavier lift for speculators, the folks who bring a manic quality  
to the markets, who treat it like a casino.

“It raises money in a way that comes primarily at the expense of  
speculation,” said Mr. Baker. “The fees would be a considerable  
expense for someone who is buying futures, or a stock, or any asset at  
2 o’clock and then selling it at 3. The more you trade, the more you  
pay.

“For the typical person holding stock, who is planning to hold it for  
a long period of time, paying the quarter of one percent on a trade is  
just not that big a deal.”

The fees, though small, could amount to a big deal for speculators  
because in addition to the volume of their trades they often make  
their money on very small margins. Someone who buys an asset and then  
sells it an hour later at a one percent appreciation might feel quite  
pleased. He or she would be less pleased at having to pay a quarter- 
percent fee to purchase the asset in the first place and then another  
quarter percent to sell it.

This, according to Mr. Baker, is part of the beauty of the transfer  
tax; it tends to curb at least some speculation. “It’s a very  
progressive tax,” he said, “that discourages nonproductive activity.”

A hallmark of the Bush years has been the rampant irresponsibility —  
by the White House, Congress and the general public — when it comes to  
matters of finance. The costs of the wars in Iraq and Afghanistan were  
placed on credit cards and off the books. Their ultimate overall costs  
will be in the trillions.

Incredibly, President Bush and Congress cut taxes in wartime, which is  
insane.

Budget deficits and the national debt are streaking toward the moon.  
And the only remedy anyone has come up with for fending off Great  
Depression II has been deficit spending on a scale reminiscent of  
World War II.

Excuse me, but did somebody say the baby boomers are about to start  
retiring?

Maybe the piper will never have to be paid. Maybe the deficits will  
someday magically right themselves. Maybe some prosperous future  
generation will be more than happy to clean up the mess we left behind.

If none of that is true, we should start looking now for some real  
money somewhere. A stock transfer tax is not a bad place to start.