This is the week when, more so than any other time of the year, Americans have taxes on their minds. And, as another tax filing season wraps-up, it’s always a great time to reflect on potential changes that could make our system more equitable.
Absolutely, corporations need to stop dodging taxes by gaming the system to book profits offshore. It’s infuriating for individuals who take seriously their civic duty to pay the taxes that support government infrastructure to know that some corporations are shirking their responsibility by paying little or no corporate income tax. And then there are the ridiculous deductions companies are taking: for multi-million dollar executive bonuses and for settlements after having been charged with wrongdoing.
Why not Wall Street?
Even though this time in April is when most citizens are focused on their tax bills, the truth is we’re paying our fair share throughout the year. For example in the sales taxes most of us pay for the products we buy. But, one of the most profitable sections of our economy is avoiding paying real taxes on the sales of the stocks and bonds that they purchase: the financial industry.
So why not tax Wall Street trades? Proposals to levy a tiny fee (from 3 cents to 50 cents on every $100 in transactions) have been offered by lawmakers for years, but until now they’ve not been getting much traction.
High Time to Curb High Frequency Trades
Enter the game changer: Michael Lewis’ new book, Flash Boys: A Wall Street Revolt which is sparking a media firestorm that even this Congress might not be able to ignore. Focused on high frequency trading, when lightning fast computers use algorithms to detect and capitalize on fluctuations in stock prices, Lewis’ book argues that high speed trading by computers has “rigged” the market. Regulators are in the process of sorting out whether it should be considered illegal for providing an unfair advantage to privileged traders.
What we do know now is that high-speed trades can be dangerous for the economy overall. A glitch in high frequency trading systems threw the market out of whack and caused the Flash Crash of 2010.
Since high frequency traders make only a fraction of a penny on each trade, which stacks up quickly after billions of trades (remember the scam used in Office Space), a tiny tax on Wall Street would be a huge hindrance to the practice.
Adding a win to a win, a tax on financial transaction would mean real revenue for our supposedly cash-strapped nation– to the tune of hundreds of billions of dollars. A .03 percent tax would put over $352 billion in U.S. government coffers over 9 years according to the Joint Committee on Taxation.
Already doing it
Of course, there’s the tired argument that it won’t work or that it will be yet another tax that corporations become skilled at evading. But, the fact is that 30 countries already have FTTs that raise billions of dollars per year. These include many countries such as the UK, South Africa, Hong Kong, Singapore, Switzerland, and India. The United States even taxed stock trades at 0.04 percent from 1914 to 1966. The only thing that’s different now is the will to challenge the status quo.
If, even in the face of this evidence, certain members of Congress are still hesitant to pass a tax that may anger their Wall Street donors so close to the November election, it will likely soon be moot. Big banks and other financiers who trade with Europe won’t be able to avoid paying the tax—since the EU is extremely close to finalizing a proposal to tax financial transactions.
Only that revenue won’t be going to pay for our roads, for our education, for our health services. Why should the U.S. be left behind?
NOW is the time to do something to change that!
Susan Harley is the deputy director of Public Citizen’s Congress Watch division.