Oct. 8, 2015

Report: Reinstituting Tax on Wall Street Trades Is an Old Solution to a New Problem

A Minuscule Financial Transaction Tax – Like the One in Place Through 1965 – Would Stabilize Market, Raise Revenue

WASHINGTON, D.C. – Reinstituting a tax on Wall Street trades would reduce reckless “casino-style” trading strategies and would yield revenue to invest in the public good, according to a new Public Citizen report released today, “The Financial Transaction Tax: An Old Solution to a New Problem.”

From 1914 through 1965, the United States had a modest tax on Wall Street trades (frequently referred to as a financial transaction tax or FTT) – ranging from 0.02 to 0.06 percent – in place. The FTT was repealed at the end of 1965 as part of a bill that did away with dozens of excise taxes. In contrast to some doomsday forecasts surrounding current proposals for a Wall Street tax, the economy grew at 5 percent annually from 1959 until 1965, the period in which the legacy financial transaction tax most closely resembled modest current day proposals.

If the tax on transfers of stocks had not been repealed and sales volume had remained the same, the tax would have generated nearly $400 billion in today’s dollars for the half-century spanning 1966 to 2014. Of that, $333 billion would have accrued since 2000. That would have meant an average of more than $22 billion a year in revenue since 2000.

In addition, if the Wall Street tax was not repealed, it would have reduced the amount of high-frequency trading activities – a relatively new phenomenon in which computers exploit inside information and other technological advantages to squeeze out profits by flipping stocks in millisecond intervals. The reduced trading would have reduced revenue from the tax somewhat but also might have reduced the likelihood of aberrational events, such as the 2010 “flash crash,” in which the stock market lost 1,000 points in mere minutes.

“Taxing Wall Street trades is a tried and true commonsense policy,” said Susan Harley, deputy director of Public Citizen’s Congress Watch division. “This tax is so small that an ordinary investor would hardly notice it, however, it would go a long way to stabilizing the market while also generating significant revenue.”

In 2013, now-retired U.S. Sen. Tom Harkin (D-Iowa) and U.S. Rep. Peter DeFazio (D-Ore.) proposed legislation that would have taxed stock transactions at 0.03 percent. Meanwhile, Sen. Bernie Sanders (I-Vt.) and Rep. Keith Ellison (D-Minn.) support a significantly more robust tax of 0.5 percent on stock transfers.

The latter proposal has enjoyed some bipartisan support. In 1990, Richard Darman, director of the U.S. Office of Management of Budget under President George H.W. Bush, proposed a financial transaction tax of 0.5 percent as a means to cut the deficit.

Read the report.

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