House Democrats: Transactions Tax ‘Very Much’ On The Table For 2010 Deficit Reduction

Despite a flurry of opposition from financial services lobbyists and Congressional representatives from trading centers, the push to implement a financial transactions tax has not yet been shelved, according to House Democrats. “There is considerable support for it,” Rep. George Miller (D-CA) said, adding that the tax is “very much” on the table for deficit reduction next year.

The revenue potential for such a tax is not insignificant, as a new report from the Center for Economic and Policy Research (CEPR) shows. According to CEPR, a .5 percent tax transactions tax would raise about $353 billion annually. Of course, the tax would discourage some of the excessive speculation and high-frequency trading that currently occur, but even assuming a 25 percent reduction in trading volume, the tax would still generate about $265 billion per year.

“Clearly [the tax proposal] is gaining support, but there’s tremendous push-back from Wall Street,” said Rep. Peter DeFazio (D-OR). Indeed, the financial services lobby is trying to portray the tax as an assault on ordinary investors. “As we read it, it’s clear it’s going to be a tax on Main Street,” said Paul Stevens, president of the Investment Company Institute, a trade group for mutual funds. However, under the current plans, savings, health care, and retirement accounts would be exempted from the tax.

Plus, the levy will be placed on activity that has only been gotten cheaper, due to technological advances, so a .25 percent tax “would only raise trading costs back to the level of the 1970s or 1980s.” “The US already had a vibrant, well-developed capital market in these decades, so there is no reason to believe that raising trading costs back to earlier levels would prevent these markets from performing their economic function,” wrote Dean Baker, one of the chief proponents of a transactions tax.

As Sen. Tom Harkin (D-IA) said, “I don’t look upon it as any kind of way of punishment or anything like that. I mean, we’re just looking for revenue. We’re looking for ways of getting out of this hole we’re in.” And with limited revenue options available, and balancing the budget on the spending side alone totally unrealistic, the transactions tax makes a lot of sense.