Nearly five years after the stock market imploded launching the Great Recession, the speculative activity that led to the market collapse has accelerated – pushed in part by a dramatic decline in trading costs.
High-frequency trading, stocks held in some cases for milliseconds, account for 55 percent of stock market volume. About half of this casino trading is initiated by a couple of hundred specialty money managers with high-powered computer programs. Most of the rest derives from Wall Street investment banks.
Financial transaction taxes – a small sales tax on each transaction – are not a new idea. The United States used to have one, many nations including the United Kingdom still do. France and Germany have been aggressively pressing the European Union to adopt a new EU wide financial transaction tax both to rein in speculative excesses of the banking industry and to raise significant revenue to repair the fiscal and economic destruction caused by the banking crisis and recession. These taxes, small as they are, create a speed bump, reducing profits on speculative trades that may eke out profits measured in hundredths of cents per trade.
Within the United States, estimates of the amount of money that could be raised ranges from around $50 billion a year to as much as $300 billion, depending on the particular terms of the tax. Most proposals call for small taxes to be placed upon all trades of stocks, bonds, options, forward contracts (futures) and swaps, capturing most of the investment vehicles where speculation undermines market stability.
A modest tax of one-quarter of a percent on stock trades would cost a small investor buying $25,000 of stock per year just $62. But a tax at that level when paid by Wall Street traders would raise an estimated $150 billion per year, or $1.5 trillion over ten years. This would pay the entire $1.2 trillion Congress is struggling to cut from social programs and leave $300 billion that could be reinvested in all of the things that have already been cut too much.
Last month, thousands of pro-FTT advocates from all over the world gathered and marched in Chicago to demand that US policymakers give seriously consideration to this solution that many of our major trading partners are working to implement in their nations. The coalition of FTT activists are circulating a sign-on letter for financial industry professionals to sign before the G-20 meets on June 17th to discuss financial transaction taxes. If you are currently, or have been, a financial industry professional, or if you know people who are and who might be interested in signing, please have a look at the letter and consider signing (or sending to friends and colleagues). Also, if you haven’t signed our petition for a financial speculation tax, please do that as well.
This post was written by Scott Klinger, Policy Director for Wealth for Common Good.