.25% on each trade can take a giant step for jobs and justice
While over 200,000 Americans lose their jobs each month, the investment bankers and insurance company executives whose reckless behavior caused the crisis are enjoying record profits and over $100 billion in salaries and bonuses this year.
President Obama’s economic team, afraid of offending the offenders on Wall Street, has done little to correct this immoral and economically unsound situation. Two Democratic back benchers in Congress, however, are planning to introduce legislation that requires those who put so many other Americans out of work to dig into their deep pockets to help put people back to work.
Representatives Steve Kagen of Wisconsin and Ed Perlmutter of Colorado have drafted legislation that would place a .25% surcharge on every transaction by stock brokers and investment bankers buying and selling securities, and would use the revenue obtained to fund jobs programs and deficit reduction.
The transaction tax is morally right, economically sound, and badly needed – it will generate $150 billion in revenues that Kagen and Perlmutter would use to create jobs for tens of thousands of our people, working to fix roads and bridges and on other infrastructure needs. The tax will not apply to average investors because it will refund the first $100,000 of transactions annually. It also will not apply to pension accounts, education, and heath savings accounts.
Opponents will still call it a dangerous gimmick that will hurt investors and the economy as a whole. These criticisms fall flat, since the transaction tax already has a record of success. First enacted as part of the Revenue Act of 1914, the transaction surcharge started at 20 cents per share traded and was doubled by President Franklin Roosevelt in 1932 as part of his plan to save capitalism. Of course, the capitalists objected to the means of their own salvation. But the market did not suffer because of the surcharge from 1932 until Congress eliminated it in 1966.
It is time to bring it back.
The transaction tax will benefit the economy by offering a disincentive to excessive speculation – the buying and selling at a fast pace that produces non-productive profits for investment bankers and incredible risk for investors. The transaction tax may reduce the incentive to make so many trades, and failing that it will at least make high speed, high volume speed traders pay.
The public will be attracted to the bill because it represents one of the few actions the government is taking that demonstrates that it is listening to the average person’s economic frustrations and the sense that our entire system is rigged by business elites and enabled by government.
The New York Times reported last week that the four largest investment firms in New York City – Goldman Sachs, Merrill Lynch, Morgan Stanley, and the investment banking arm of JPMorgan Chase – earned $22 billion in the first nine months of this year, which puts them on track to report record profits for 2009. The Times story, by Zachery Kouwe, was based on NY State Controller Thomas DiNapoli’s report, and claims that “six of the top American bank holding companies set aside $112 billion for salaries and bonuses, including deferred payments in the first nine months.” The banks include Merrill Lynch, Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo.
President Obama could take a lesson from Kagen and Perlmutter – instead of waiting for Wall Street to voluntarily cooperate, take action that will restore some balance to Wall Street practice, much needed revenues, and confidence that the government is listening to America west of Battery Park.