Labor & Employment Law

Study: Speculation Tax Would Make Wall Street Pay

By James Parks

The AFL-CIO and the global union movement have been demanding that Wall Street pay for creating the global economic meltdown, in part through a financial speculation tax. Other nations like the United Kingdom already have a similar tax; and France, Germany and other European Union leaders are pushing the United States to enact it; and the idea will be on the agenda at the G-20 summit in Ontario next week. 

Some economists say that along with generating job creation funds, the tax would help reduce the complicated, risky financial practices and products such as derivatives, short-term investment strategies and other speculation that fueled the economy’s crash.

Now a new report shows that financial speculation taxes could have had a significant impact if they’d been in place before the recent financial crisis. The study by the Institute for Policy Studies (IPS) shows, for example, that had a tax of just 0.25 percent on securities trades been in place during the 20 minutes of the wildest stock trading on May 6, it would have generated $142 million in revenue. May 6 was the day of the stock market’s “flash crash,” when the value of about 30 leading stocks fell at least 10 percent within five minutes. The study says ideally, the tax would have encouraged large investors to think before placing their bets, instead of relying on computer-driven high-frequency trading. 

The study notes that a financial speculation tax on insurance giant AIG’s $440 billion worth of risky credit swaps would have amounted to as much as $1.1 billion in taxes, enough to cover the annual salaries of more than 20,000 elementary school teachers.

Sarah Anderson, lead author of the report, “Taxing The Wall Street Casino,” says:

No one claims that taxing speculation will solve all of our problems. But combined with other sensible financial regulations, it could take us a long way towards reining in Wall Street and paying for “public goods,” such as jobs, anti-poverty, and climate programs.

You can read the full report here.

According to the Center for Economic and Policy Research (CEPR), a financial speculation tax would be expected to generate about $177 billion per year in the United States, far more than would be realized from President Obama’s proposed levy on the top 50 banks or from allowing the Bush-era tax breaks for the rich to expire. Read the CEPR report here. 

IPS senior scholar Chuck Collins says a transaction tax also would restore some fairness to our tax system:

 The richest 10 percent still own more than 80 percent of the total value of stocks. And it is the wealthiest of the wealthy who are engaged in the type of high-frequency, high-risk trading that is the target of this tax.

Full post as published by AFL-CIO NOW BLOG on June 17, 2010 (boomark / email).