While we're pondering whether to make health care affordable for moderate income Americans, how to keep Medicare and Social Security from bankruptcy, and the peasants are storming the government demanding jobs programs and denouncing the Wall Street bailouts, Tim Geithner is again worried about the incomes of day traders and Wall Street's worst gamblers.
A tiny Financial Transactions Tax was originally proposed last spring as both a fair way to get Wall Street to pay for it's own bailouts and a way to curb complex derivatives, which would be subject to the tax several times.
Now Prime Minister Gordon Brown of the UK and House Leader Steny Hoyer have again come out for considering a FTT and Geithner has wasted no time in opposing it.
For those unfamiliar with a FTT, it's main US champion was Dean Baker in a piece published in April as a simple way to raise at least $100 Billion per year:
http://www.counterpunch.org/...
A tax of 0.25 percent on the sale or purchase of a share of stock will make little difference to a person who intends to hold the share for 5-10 years as a long-term investment. This tax would cost someone buying $10,000 of IBM stock $25 when they purchase their shares. If the price doubles in ten years, then they will have to pay $50 when they sell. These fees would be dwarfed by their capital gains taxes.
Similarly, if a farmer had to pay a tax of 0.02 percent on purchasing futures to hedge her wheat crop, the cost for hedging a $400,000 crop would be $80. This expense would have little impact on her decision to hedge her crop or on her income from farming. In fact, since the price of trading share of stock, futures, and other financial assets has fallen sharply in the last three decades, a modest transactions tax would just raise the cost of trading back to where it was 15 to 20 years ago.
A small increase in trading costs would be a very manageable burden for those who are using financial markets to support productive economic activity. However, it would impose serious costs on those who see the financial markets as a casino in which they place their bets by the day, hour, or minute. Speculators who hope to jump into the market at 2:00 and pocket their gains by 3:00 would be subject to much greater risk if they had to pay even a modest financial transaction tax.
Wall Streeters and their hacks argue that a US FTT tax would be unenforceable and drive trades overseas. The problem with this argument is that the UK, America's chief rival financial center, has had a tax on stock trades for decades which would alone would raise the equivalent of $30 Billion per year in the US. Several US states also have stock transfer taxes.
(Of course, as Baker pointed out, even if finances were outsourced to other places, wouldn't we be better off to have them corrupting some other country's politics! Personally I wonder if these Wall Street types really want to subject themselves to Chinese justice.)
Bob Herbert back in January in the NYT gave a good summary of the FTT proposal:
http://www.nytimes.com/...
Now eight House members are co-sponsoring a tiny FTT on sales of stock, futures, options, swaps and credit default swaps on transactions of more than $100,000 that would raise at least $150 Billion per year. Half the revenue would be used to pay down the federal deficit and half would be used for job creation programs.
The tax rate would range from 0.02 percent for swaps, futures and credit-default swaps to 0.25 percent for stocks. Options would be taxed at the rate that applies to the type of underlying asset. That $150 Billion is based on a .02% tax on a derivatives market estimated at $600 Trillion. However, according to a press release by the Depository Trust & Clearing Corporation, the true size is actually three times this, or nearly $1.9 Quadrillion, meaning that tax could bring in $450 Billion per year.
http://newyork.dbusinessnews.com/...
The House members co-sponsoring this legislation are diverse and deserve our support:
Tom Perriello of Virginia
Robert Filner of California
Betty Sutton of Ohio
Bruce Braley of Iowa
Ed Perlmutter of Colorado
Michael Arcuri of New York
Peter DeFazio of Oregon
Steve Kagen of Wisconsin
House Leader Hoyer has acknowledged that the FTT will be considered by the House.
This is a very tiny tax. (In fact a .1% tax on derivatives might totally pay off the federal deficit and/or provide free health care for every American!)
At a recent meeting of finance ministers of the G20, Prime Minister Brown again stated that the G20 should impose a tiny FTT to fund bailouts at least.
Tim Geithner immediately struck back:
Geithner played down that idea, noting that the Obama administration was already pushing an overhaul of financial market rules in Congress that would ensure that banks pay the costs of their failures in the future from their own pocket.
"A day-by-day financial transaction tax is not something we are prepared to support," Geithner said in an interview with Sky News. In his concluding press conference, Geithner was asked repeatedly to say why he opposed such a tax on banks and indicated he doubted its effectiveness.
"This idea (of a bank transaction tax) has been around for a long time...I think frankly the experiences are mixed," he said, expressing an American view that there was no widespread backing for such a tax."
http://www.reuters.com/...
In January Geithner said that an FTT was not a good idea because Wall Street was so close to collapse. Now Geithner says that the recovery is still too fragile to "lean" on Wall Street". (see Reuters article above) in spite of the fact that Wall Street profits and bonuses are higher than ever because of the AIG double-dip payoffs he arranged (if you missed the TARP IG's report on this Geithner scandal, it's reported here:http://www.nytimes.com/... )
In fact, according to Dean Baker in the above article, even Larry Summers supports a FTT, making one wonder if Geithner does live in a Goldman-Sachs bubble.
(For those who missed today's NYT article, within 10 years the yearly interest on the federal debt is expected to grow from the present $202 Billion to over $700 Billion: http://www.nytimes.com/... )
The narrative for the 2010 and 2012 elections is now being set, ie. that the Democratic party is the party of Wall Street bailouts, fiscal irresponsibility and ballooning deficits. Limousine Liberals.
This is our opportunity to ally with the peasants and show that we are the party of the common person. Will we take it? Or will we stick with blind trust in Tim Geithner and go down the political toilet for the sake of the most corrupt on Wall Street?
This legislation should be more widely known and the "Powers" are keeping a lid on it. Please rec to get the drumbeat going so it can't be ignored.