Economy

Democratic Rep. Introduces Legislation To Tax Risky Financial Transactions

Minnesota Rep. Keith Ellison (D), a member of the Congressional Progressive Caucus, will today introduce legislation that would institute a tax on financial transactions, an effort to raise needed revenue while also limiting risky high-speed trading that has increased volatility in financial markets.

Ellison’s legislation, The Inclusive Prosperity Act, would levy a 0.5 percent tax on stock trades, a 0.1 percent tax on bond trades, and a 0.005 percent tax on trades of derivatives and other investments. Three Democrats — Rep. Peter DeFazio (OR) and Sens. Tom Harkin (IA) and Sheldon Whitehouse (RI) — introduced similar legislation earlier this year that would institute a 0.03 percent tax on all financial trades. That proposal would raise $352 billion over the next decade; Ellison’s seeks to raise roughly $350 billion annually.

“This is a small tax on financial transactions that will allow us to meet the needs of our nation,” Ellison said at the press conference. “And didn’t America step up, on very short notice, for Wall Street when it needed help? Well now the American people need help.”

Such a tax would slow down financial markets that have increased in both speed and volatility thanks to high-frequency trading, which allows firms to use algorithms to make thousands of trades per second. Opponents of a transactions tax argue that it would slow down economic activity and growth, but those claims are hardly proven: the U.S. had a transactions tax after World War II, when it experienced its largest period of growth. While most industry groups oppose the tax, some former financial leaders have come out in favor. “A modest financial transaction tax of less than 1 percent would serve as a remarkably efficient tool to achieve needed reform,” John Fullerton, a former director at JP Morgan Chase, wrote in 2011.

“We need to have more thoughtful trades, not just trades, trades, trades for their own sake,” Ellison said.

Eleven European countries are planning to implement a transactions tax, and Labour members in Britain have considered expanding its transactions tax, which exempts derivatives and swaps. “I don’t see any evidence that there would be a negative effect on economic growth,” Labour MP Chris Leslie told ThinkProgress in February. “In fact, quite the opposite.”

“This will allow us to invest in things that really matter,” Ellison said. “Education. Roads. Health care for our seniors.”