While congressional leaders were negotiating the Wall Street bailout deal which was rejected today by the House of Representatives, Congressman Peter DeFazio (D-OR) outlined an alternative plan. It would provide the liquidity relief needed to prevent an economic meltdown without billing one cent to taxpayers.
At the core of Congressman DeFazio's alternative:
If Democrats continue to back the basic questionable premise of the Bush/Paulson bailout, then we must pay for it. The $700 billion is to protect Wall Street investors, therefore the same Wall Street investors should pay for this infusion of taxpayer money. I have proposed a minimal securities transfer tax of ¼ of one percent. A securities transfer tax would have a negligible impact on the average investor and provide a disincentive to short-term traders. Similar tax proposals have been supported by many esteemed economists such as Larry Summers, John Maynard Keynes and Nobel prize winners Joseph Stiglitz and James Tobin.
There is considerable precedent for this. The United States had a similar tax from 1914 to 1966. The Revenue Act of 1914 levied 7a 0.2% tax on all sales or transfers of stock. In 1932, Congress more than doubled the tax to help finance various programs during the Great Depression. In 1987, Speaker of the House Jim Wright offered his support for a financial transaction tax. And today the UK has a modest financial transaction tax of 0.5 percent.
DeFazio (and some of the other Democrats who voted against the bailout) also calls on the leadership to consider:
‣ Former FDIC Chairman William Isaac's suggested "net worth certificate" program which, modeled after part of the 1980s Savings and Loan bailout plan, would require banks to more fully demonstrate their financial soundness.
‣ Economist James Galbraith's proposal to eliminate the "pointless" $100,000 cap on federal deposit insurance, to prevent bank runs.
‣ Directing mortgage relief to homeowners as part of a bottom-up alternative to Treasury Secretary Hank Paulson's "bail out the fatcats" (read: more trickle-down economics) approach.
DeFazio proposed the transaction tax last week on the House floor, but the congressional leaders who negotiated the bailout package apparently did not seriously consider it. If you agree that it's a viable alternative to bailing out Wall Street on the backs of taxpayers, please contact your congressional representatives and urge them to advocate it in the new round of bailout negotiations.