It’s a brazen show of hypocrisy: while low-income families pay up to a 10% sales tax on necessities, wealthy investors who nearly crashed our economy pay ZERO sales tax on their financial purchases.
Politicians seek creative ways to balance the budget, but they stubbornly refuse to consider even a tiny sales tax on the financial purchases of their friends in the business world. Instead they choose measures that are effectively taxes on the middle-class: cutbacks in police and fire departments, mental health clinics, and libraries; new fees on transportation and city services.
The financial transaction tax (FTT) is a sensible tax, an obvious tax. It would help guard against the reckless speculation that contributed to the financial meltdown. And as demonstrated in England, it is easier to administer than federal income taxes.
How much revenue could be generated by an FTT? According to the Center for Economic and Policy Research (CEPR), at least $150 billion a year, which is about the size of all 50 state budget deficits combined. Another CEPR analysis estimated a return of $353 billion. A study by the Chicago Political Economy Group concluded that $537 billion could be generated annually by an FTT. That equates to 15 million jobs at $35,000 per year, which could put all unemployed Americans back to work fixing America’s highways and water systems and energy grids.
And the revenue estimates may be understated. The Bank for International Settlements reported that annual trading in derivatives had surpassed $1.14 quadrillion (a thousand trillion dollars!), with about half the trades occurring in the United States.
Yet instead of paying even a minimal share, big corporations are finding ways to avoid their tax responsibilities. Like the Chicago Mercantile Exchange (CME), whose profit margin (income as a percent of revenue) over the past three years is higher than any of the top 100 companies in the nation. They’re threatening to leave Illinois unless they receive a tax break.
For over 100 years CME has used Chicago’s location, reputation, technology, and infrastructure to build up the nation’s most lucrative business, but they’re holding Illinois hostage over taxes. It’s not much different in the home states of major corporations around the country. An analysis of the 10-K financial statements of 100 of the largest U.S. companies found that less than 10% of pre-tax profits in 2010 were paid in non-deferred U.S. federal income taxes.
Avoiding tax avoidance may be a losing battle, but an FTT would make up the losses. It’s not a new idea. A “stock transfer tax” existed in the U.S. until 1966. Economist James Tobin suggested a “currency transaction tax” in 1972. England has had a successful FTT for many years, as has Japan and a number of other countries. Last year the G20 tried, unsuccessfully, to institute a global financial tax, and recently the European Commission proposed a small .1% tax on the trading of stocks and bonds and a much smaller 0.01% on derivatives. As observed by Sweden’s finance minister Anders Borg, “All goods and services are regularly subject to tax, so I don’t see why financial transactions would have exceptional protection.”
Even Fortune admits, “There is growing consensus from diverse corners of society for some sort of financial transaction tax.” Apparently the only people failing to see this are the biggest investors and our representatives in Congress.
This article was originally published by Common Dreams.