The US Financial Transactions Tax: A Primer
What do Bill Gates, Archbishop Desmond Tutu, House Minority Leader Nancy Pelosi, former UN Secretary General Kofi Annan, and Nobel-prize winning economist Joseph Stiglitz, have in common? All of these prominent figures support some type of Financial Transactions Tax, a progressive tax on financial speculation.
The proposed U.S. Financial Transactions Tax (FTT), commonly known as the “Robin Hood Tax,” seeks to raise billions of dollars in federal revenue by levying a small excise tax on certain transactions in the financial sector. This study explores at how a Financial Transactions Tax will work, precedents for the tax, and current arguments for and against the tax.
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Bankers, Brokers, Bubbles, and Bailouts
Bankers , Brokers, Bubbles and Bailout is aimed at activists, students, workers—anyone interested in helping our towns, states, and nations construct and economy that is more equitable for everyone. Our method builds on a popular education framework, where we connect to the experience and expertise of participants so they can become more engaged as potential activists.
In the workshop, participants review the trends and events that created the housing bubble and the financial meltdown, and explore the impact of the crisis on their jobs, families and communities. Together they identify strategies and individual actions they can take to help build a broad-based, inclusive, democratic social movement that will create a more equitable economy.
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The Racial Wealth Divide
UFE's Racial Wealth Divide workshop helps explore how our current economic inequality has been and continues to be shaped by racialized policies and behavior from the past to the contemporary. The workshop focuses on the role of government policies and reveals how critically important it is for us to abolish racial wealth inequality and the society that creates and maintains it. Thus the workshop is a critical education tool that helps workshops participants understand why things are the way they are. The workshop also helps participants develop strategies, campaigns and actions that will help create greater economic equality and racial economic justice.
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The Robin Hood Tax Makes Wall Street Pay
There is little question that Republicans took a political hit for the senseless government shutdown. If there is a lesson to be learned for the GOP (and everyone else), it’s that government shutdowns and debt-ceiling standoffs are counterproductive and irresponsible bargaining chips in political debate (not to mention a cruel tactic for millions of Americans, not just federal employees and beneficiaries of public assistance programs, but everyone really). But whatever is learned, the larger fight over taxes and public investments is far from over.
As the new December budget and January debt ceiling deadlines approach, United for a Fair Economy and our allies will continue to push back with a clear anti-austerity message to Washington: “Damaging cuts are not necessary! America is not broke! Congress simply needs the political will to raise taxes on the wealthy.”
In addition to UFE's fights to strengthen the federal estate tax and tax wealth like work, UFE is one of 150 organizations supporting the "Robin Hood Tax," an exciting proposition that could raise hundreds of billions of dollars to invest in our communities (and raised from the reckless Wall Street speculators who wrecked the economy in the first place).
The Inclusive Prosperity Act (H.R. 1579) by Rep. Keith Ellison would create such a "Robin Hood Tax," or financial transactions tax (FTT), on the sale of stocks, bonds, derivatives, and other financial instruments. The FTT rate on stocks would be 0.5%, with lower rates applied to bonds and derivatives.
United for a Fair Economy wholly endorses the “Robin Hood Tax.” Why? Because this tax accomplishes two very important goals at the same time, not to mention it’s totally feasible:
1) It Reins in Casino Capitalism
Because the financial transactions tax is levied each time a stock is sold, its otherwise nominal rate is magnified many times over for those speculators who buy and sell stocks repeatedly in a single week or day.
If someone buys $100 in stock shares and holds it for 5 years, the tax expense, 50 cents, will be spread over 5 years (so you will owe effectively 10 cents a year in taxes on this transaction). But if you trade that same stock each week to gain some small advantage, you'll pay $26 a year instead. And if you trade hourly using automated computer software, well then the multiplier effect really kicks in. That's the whole point!
By taxing at the point of transaction, the Robin Hood Tax effectively separates the type of long-term investments that are good for the economy, from the type of high-frequency trading – or "casino capitalism" – that contributes nothing but volatility and instability to the economy.
If people want to gamble, they should go to Vegas. We cannot afford to let the reckless behavior of Wall Street gamblers take down the global economy again.
2) It Raises $350 Billion for Important Programs
Levied at the rates of the Inclusive Prosperity Act, the financial transactions tax would raise upwards of $350 billion. That is a tremendous amount of money that will be moved out of disruptive speculation and into the public sector, where it is truly needed.
Just for a sense of scale, $350 billion is more than the combined total of President Obama's proposed 2014 discretionary budgets for the Departments of Education, Housing and Urban Development, Veterans Affairs, and Transportation!
Applying this level of funding to the real needs of the nation – health care and health research, rebuilding and greening our transportation infrastructure, education, job creation, and more – would have a profound and positive impact on our nation's long-term well-being.
It's Totally Doable!
Already 40 nations across the world have some form of financial transactions tax, including the United Kingdom, Japan, China, and many others. At this point, the majority of the major financial centers around the globe are operating in nations with a financial transactions tax.
Additionally, the 0.5% rate on stocks being proposed in the Inclusive Prosperity Act is the same rate the United Kingdom already levies, and that has in no way endangered London’s status as powerhouse in global finance.
The US actually had a financial transactions tax from 1914 to 1966, levied initially at 0.2% and later raised to 0.4%. After the stock market crash in 1987, there was a serious effort, led in part by one of President George H.W. Bush's chief economists, to restore the financial transactions tax in order to bring stability to the markets.
With 11 nations across Europe now looking seriously at enacting a financial transactions tax, this has become a growing global movement to rein in the kind of casino capitalism that wreaked havoc on the global economy, while funding vital programs that foster true national wellbeing.
What can you do?
Visit the Robin Hood Tax web page to for news, research, talking points, and other helpful resources! Contact your member of Congress and ask them to support H.R.1579, the Inclusive Prosperity Act.
3 Principles for a Better Tax System
At the most basic level, taxes exist to fund the government. Decisions about how much revenue we should raise from federal taxes and from what sources we should raise it are incredibly important. The influence of federal tax policy ripples throughout the entire economy and affects funding at all levels of government.
United for a Fair Economy believes a sustainable and people-oriented tax system should be based on three key principles. And, we support several common-sense policies that are designed according to those principles.
Tax Reform - the current effort underway in Congress and any changes to federal tax law - should be guided by some basic principles of good tax policy. Taxes should:
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Generate the appropriate amount of revenue to fund our national priorities. The current tax code does not raise enough revenue, which leads to cuts to programs and services. |
Raise revenue from the sources that can most afford to pay for our collective enterprise of government. New revenue should come from the wealthy and from corporations whose taxes are lower now than they were a generation ago. |
Make it easier to file and collect our taxes. Making it easier to file taxes will make the system fairer and make tax avoidance more difficult. It will also reduce the burden of compliance on families and small businesses. |
These principles should guide all federal tax reform and policy change decisions. The main purpose of taxation is to generate revenue. We should generate enough revenue to pay for our national priorities and avoid unnecessary budget cuts. We should raise tax revenue from the sources that can most afford to pay. And we should make paying and collecting taxes simpler.
We Built It Together
Hammering an out-of-context quote from President Obama, "We Built It" became the theme of last week's Republican National Convention.Virtually every speaker used the phrase, with sometimes misty-eyed stories of bootstrapping, "I did it alone" success (with no help from government). Signs featuring the phrase hung over the main stage and filled the convention center, boasting: We built it! We built it! We built it!
Meanwhile, fact checkers, writers, and progressive organizations fired back, both recounting the full quote from President Obama (his "You didn't build that" comment was referring to the roads and infrastructure, not the businesses themselves) and making the case for why businesses do, in fact, depend heavily on public investments.
This debate is only getting started. As NRP's Ron Elving wrote, "The central theme… in Tampa is about to become the party's mantra for the fall." So get used to a lot of talk about who actually built it, what they built, and why it matters. Looking beyond this one election, this is a critical debate about core values that shape our views on taxes and the role of government in our society.
In March, months before Obama's statement in Virginia, we published a book entitled The Self-Made Myth: And the Truth About How Government Helps Individuals and Businesses Succeed. In it, we contrast the "self-made myth" with the "built-together reality." Little did we know when we came up with the term "built-together," that this would become a defining theme of this election cycle.
The stories of business leaders tell a more honest and complete story of their success. Jerry Fiddler, founder of Wind River Systems (sold to Intel for $880M), talks about publicly-funded research and land-grand universities as key to his business success. Jim Sherblom, former CFO of the Genzyme, notes the importance of the SEC in providing a stable financial market. Kim Jordan, CEO of New Belgium Brewing, declares "beer is heavy" as she emphasized the importance of roads and transportation infrastructure in making her business possible.
We also investigated people like the Koch Brothers who graze their cattle on federal land and use eminent domain law for their pipelines. We examine Donald Trump, whose father constructed FHA-guaranteed homes for US naval personnel, leaving the junior Trump with a sizable inheritance. Similarly, Ross Perot's software business rode to success on the backs of the federal Medicare program.
Governmental supports and public infrastructure are an important part of any success story in America, along with a bit of luck, various head starts in life, privilege, and the contributions of others, including the many employees (The AFL-CIO responded to last weeks convention theme with an email titled, "No, WE built it"). Such an honest and more rounded assessment helps put the "self-made" narrative in perspective.
But that's not what we heard last week. We heard, "I built it," and from that bootstrapping narrative comes a host of policy implications.
If they can convince us that the successful business leaders achieve their wealth through gumption and hard work alone, then extreme inequality is simply the result from their exceptional intelligence and hard work of those at the top …and the sloth of others. Efforts to rein in that inequality are thus viewed as "punishing success." Efforts of workers to demand a fair wage are viewed as "thuggary." Taken to its logical conclusion, this frame helps to fuel an anti-tax, anti-government, and anti-worker agenda.
The business leaders we spoke with understand that their hard work was matched in many ways by the contributions of society, not to mention a good bit of luck. As such, they take a very different view on taxes and the role of government, actively speaking out for a strong estate tax and ending the Bush tax cuts for top income-earners. Many also insist on paying their workers fair wages, or even sharing ownership with their workers.
In the weeks ahead, we have an opportunity to open a more meaningful discussion about the origins of individual and business success, and in doing so, shifting the public policy debates in positive ways. We sincerely hope our book, The Self-Made Myth, is a valuable contribution to this discussion. But we also need writers, bloggers, and organizers across the nation to pick up on this message. If we're going to create a new narrative, we'll need to "build it" together.
Robin Hood is STILL Right
| Working Americans and rich and famous people support the Robin Hood Tax! |
Robin Hood and his ragtag crew who took from the rich to give to the poor were simply serving justice in an unfair medieval economy. Today, feudal lords protected by high castle walls do not rule our economy, but we are again living in an age of extreme income and wealth inequality.
The big banks and Wall Street speculators are now the ones reaping enormous rewards and ruling over the economy while programs that serve the poor and middle class are slashed, which only serves to further enrich the wealthy by keeping their taxes low.
The Robin Hood tax is an idea that’s been around for a while. In our current age of austerity and Wall Street gambling, it’s an idea whose time has come. It is a financial transaction tax, a few pennies on each bet that the big banks make in the financial casino at the heart of the modern economy. The big banks would pay the vast majority of the Robin Hood tax and it would have two extremely positive results:
- It would raise billions of dollars that could be used to prevent cuts to vital social programs. The tax – even at pennies or even just fractions of pennies per transaction – would raise enormous sums from the immense volume of trades conducted on Wall Street.
- It would slightly discourage banks and financial institutions from making so many risky bets. High volume and high frequency trading make Wall Street a little bit richer but provide no social benefit and make the entire financial system riskier and more prone to crashes. A small disincentive to making so many trades would be a positive for the entire economy, and the tax isn’t so large that it would discourage genuinely profitable trades.
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| UFE staff and interns joined the Massachusetts Nurses Association at the Robin Hood Tax Campaign launch in Boston. |
Wall Street and the big banks are exploiting our system and people to generate never-before-seen profits. Meanwhile, the middle class is fading, poverty remains unshakable, people are losing their homes, health care costs are spiraling out of control, education is being pushed out of reach for millions, and there’s no meaningful job creation plan in sight.
A Robin Hood-like hero will not rescue us. Together, however, we can achieve truly heroic feats. We need revenue, and we need to raise it without further harming low- to middle-income families.
A global movement is working to develop support for the Robin Hood tax, and campaigns were recently launched in cities across the U.S. Your support can help to persuade world leaders to listen up and take action. Please join the Robin Hood Tax Campaign and help to build support in your own community.