A trio of Democratic lawmakers today introduced legislation to institute a small tax on financial transactions, a proposal that would reduce volatility in financial markets and raise substantial revenue for the federal government. Under the plan from Sens. Tom Harkin (D-IA) and Sheldon Whitehouse (D-RI) and Rep. Peter DeFazio (D-OR), financial trades would be subject to a 0.03 percent tax, which they say would raise approximately $352 billion in revenue over the next decade.

Such a tax would slow down high-frequency trading that poses a threat to the health of financial markets while also incentivizing investment that drives economic growth. Opponents argue that the tax would slow down growth, but DeFazio told ThinkProgress last year that those claims are unfounded. “For 50 years we had a tax that was about seven times larger than this when the country was seeing the greatest growth in its history, post-World War II,” he said. “So we’ve proven this will not have a detrimental impact on growth. In fact, it perhaps is beneficial to growth. It’s not necessarily beneficial to salaries of hedge fund managers on Wall Street.”

“This commonsense proposal will raise billions in new revenue to get rid of the sequester or reduce the deficit while also discouraging the kind of reckless high-volume trading that contributed to the financial crash in 2008,” Whitehouse said.

11 European countries recently announced that they will institute a financial transactions tax, and Britain, which taxes stock and bond trades but does not tax more complex trades involving derivatives and swaps, is open to expanding its tax as well, Labour Party MP Chris Leslie said last week. “I don’t see any evidence that there would be a negative effect on economic growth,” Leslie said. “In fact, quite the opposite.”

Harkin and DeFazio have introduced the transactions tax in the past, but it has not received support from Treasury or President Obama. Many consumer groups and business and financial leaders, however, have offered support for the tax. “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.

Democrats were unsuccessful in their push for a financial transactions tax after the 2008 financial crisis, but after 11 Eurozone countries received approval to institute such a tax Tuesday, two lawmakers are planning to try again. Rep. Peter DeFazio (D-OR) and Sen. Tom Harkin (D-IA) will reintroduce their proposal, which would raise an estimated $352 billion over the next decade by instituting a 0.03 percent tax on financial trades.

A financial transactions tax would slow down high-frequency trading, which has exploded in the last five years. Such trading “has absolutely no social value,” according to one of its pioneers, and only increases volatility in the market. The tax would have little effect on normal traders.

Critics of the Euro-wide turn to a transactions tax say it could slow down growth and encourage businesses to move elsewhere, and similar claims have been made about the American version. But 52 financial executives endorsed the tax last year, and DeFazio told ThinkProgress last year that such claims are false.

“For 50 years we had a tax that was about seven times larger than this when the country was seeing the greatest growth in its history, post-World War II,” he said. “So we’ve proven this will not have a detrimental impact on growth. In fact, it perhaps is beneficial to growth. It’s not necessarily beneficial to salaries of hedge fund managers on Wall Street.”

WASHINGTON, D.C. — A tax on high-frequency financial transactions would be good for American markets and the economy despite what its naysayers claim, Rep. Peter DeFazio (D-OR) said yesterday at the Take Back The American Dream Conference. DeFazio, who along with Sen. Tom Harkin (D-IA) introduced legislation that would institute a financial transactions tax, told ThinkProgress that such a tax could drastically combat the deficit and bolster the overall economy, but Wall Street influence has stifled any hopes of enacting the measure:

DEFAZIO: So it would dampen some of the volatility of Wall Street, it would drive some of these hedge fund speculators out of the market, so therefore it would benefit all investors. It would give us a longer term financial term horizon in this country, and it would raise about $35 billion a year, which we could invest in putting people back to work, or we could use in the future to defray our deficit. In one way or another it would be beneficial. [...]

These people are getting filthy rich by driving up the price of commodities, creating volatility, and they don’t want to see that go away. They don’t care what happens to the rest of the economy. They don’t care how they affect the real economy. They don’t care if they drive up the price of oil. They’re just there to trade something 1,000 times a minute with super-computers. [...]

Point-zero-three percent. We had a tax of 0.4 — that is more than 10 times larger — during the Great Depression to help rebuild the real economy. And for 50 years we had a tax that was about seven times larger than this when the country was seeing the greatest growth in its history, post-World War II. So we’ve proven this will not have a detrimental impact on growth. In fact, it perhaps is beneficial to growth. It’s not necessarily beneficial to salaries of hedge fund managers on Wall Street.

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To put things in perspective, Americans paid an average combined sales tax of 9.64 percent in 2010. DeFazio’s proposal of a .03 percent rate is 321 times smaller than what Americans would pay when they buy toothpaste. What’s more, the FTT would raise tens of billions of dollars a year, combat risky market speculation, and increase productive investments. By reducing high-frequency trading, the tax would reduce the market volatility and sudden crashes that come with trading for trading’s sake.

Since the global financial crisis, countries like France and Germany have pushed to institute a financial transactions tax. In America, however, this isn’t the first time that Wall Street has attempted to squash measures specifically geared toward preventing another financial crisis. The financial industry lobbied heavily against the Dodd-Frank financial reform law, and it has continued to lobby heavily against the Volcker Rule, a provision meant to prevent banks from participating in risky trading with federally backed funds.

– Steven Perlberg

Echoing the demands of the Occupy Wall Street protesters, Rep. Peter DeFazio (D-OR) is proposing to tax the trading of stocks, bonds, and derivatives. DeFazio, along with his Senate co-sponsor Sen. Tom Harkin (D-IA), has proposed the tax several times in the past. But this time around, the idea is getting a boost of momentum from the popularity of a similar measure in Europe, as well as renewed national media focus on Wall Street profiteering as a result of the 99 Percent Movement:

Declaring Wall Street a “gambling casino,” DeFazio said the new tax would “both raise needed revenue for the Treasury and rein in speculation on Wall Street.”

Already, the business community is mounting a counteroffensive. With the congressional supercommittee looking to trim at least $1.2 trillion in projected debt over 10 years, the tax could look tantalizing, despite public opposition from many Republicans and Treasury Secretary Timothy Geithner. [...]

The tax could help shrink the deficit — its previous iteration was estimated to add $150 billion a year to federal coffers — and spare Social Security, Medicare and other programs from jarring cuts.

Even representatives from the U.S. Chamber of Commerce admit that this proposal is going to receive serious consideration this session, as congressional Democrats look to trim the deficit in a way that doesn’t overburden the middle and lower classes that are already stretched to the breaking point. “In reality, a proposal like this is going to be on the table in some regard,” said Tom Quaadman, executive director for financial reporting policy and investor opportunity at the U.S. Chamber of Commerce.

France and Germany have embraced taxing financial trades, and proponents say it’s only a matter of time before the common-sense solution is finally adopted in the U.S. While American bankers are predicting dire consequences if the tax goes into effect, Dean Baker, a co-director at the Center for Economic and Policy Research, says that’s nonsense. “The reality is all you’re doing is raising transaction costs back to where they were 15 or 20 years ago,” he says, noting that the tax has not prevented countries like the United Kingdom from developing vibrant economies.

Top economists and analysts like Reuters’ Felix Salmon have long advocated for a transaction tax as an important moderating influence on Wall Street excess. As Pat Garofolo has explained, “It will help temper trading for trading’s sake and excessive speculation, particularly in the form of high-frequency trading, which only major Wall Street players have the infrastructure to engage in and which will become far more expensive.”