Last week, legislation was introduced in the House that would implement a .25 percent financial transactions tax (FTT or Tobin tax), which would affect all trades, except those pertaining to retirement, health and education savings, and mutual fund accounts. Speaker of the House Nancy Pelosi (D-CA) has offered her support to the idea, saying that “I believe the transaction tax still has a great deal of merit.” “It is really a source of revenue that has really minimal impact on the transaction but a tremendous impact on helping us meet our needs,” she added.
Sen. Tom Harkin (D-IA) has said that he will introduce a similar bill in the Senate. “I don’t look upon it as any kind of way of punishment or anything like that,” Harkin said. “I mean, we’re just looking for revenue. We’re looking for ways of getting out of this hole we’re in.”
Thus far, the administration has been cool toward the transactions tax, with Treasury Secretary Tim Geithner reiterating over the weekend that “I have not seen the version of that that I think works.” Today, at the Economist’s World in 2010 conference (attended by ThinkProgress), Council of Economic Advisers member Austan Goolsbee was asked about the transactions tax. He said he thinks such a tax “would be hard” to implement, and that the FTT was merely a “serving as a proxy” for more robust financial regulation:
It’s clear it would have to be done by everybody, and don’t overlook the temptation of a bunch of small — there are a whole bunch of, I don’t know if it would be Singapore or somebody who wants to be a financial center — saying ‘everybody else is going to tax your transactions but we won’t, so you should move all your stuff here.’
So I think it would be hard…Tobin himself would often say ‘well I don’t know if it exactly could work,’ because everybody’s got to do it together. The second thing I’d say, though, is it’s clearly getting at don’t we need a stronger regulatory environment. The Tobin tax is serving as a proxy for ‘don’t we need tougher, tighter, more robust oversight.’ Obviously we do.
The first point Goolsbee makes is worth considering, especially in light of Germany’s assertion yesterday that an FTT is not in the cards. “This government has taken office to lower taxes, not to levy new ones,” said Development Minister Dirk Niebel. But this concern should be balanced by acknowledging that there is a cost to a company for moving as well, and the United Kingdom instituted a .25 percent stock trading tax and still has a vibrant financial industry. Threats to move overseas may have more to do with the financial industry fearmongering than any real intent to move.
As for Goolsbee’s second assertion, I think he’s missing the mark. As Harkin pointed out, an FTT isn’t just about regulation, but also raising deficit-reducing revenues from the one source that can most afford it these days: Wall Street. In a $50 trillion trading industry (under conservative estimates), surely a tax that will raise $100 billion yearly can be managed. As Dean Baker wrote, “the economic collapse caused by Wall Street’s irrational exuberance has led to a huge increase in the country’s debt burden. It seems only fair that Wall Street bear the brunt of the clean-up costs.”