The case for Financial Transactions Taxes
By James S. Henry, John Christensen, David Hillman and Nicholas Shaxson
New battles with global finance are brewing, as a range of countries, states and coalitions now push to enact new financial transactions taxes (FTTs,) an old, honourable, effective and progressive kind of tax that is fast regaining popularity around the world as governments scramble to pay for the costs of the Covid pandemic. Powerful new initiatives in the United States and the European Union show rising momentum for new FTTs.
An FTT does what it says on the tin. States apply a tiny tax rate (for example, 0.1 percent) on the value of financial transactions such as the sale of shares or derivatives. Well designed FTTs have three main benefits: first, they raise significant tax revenue, delivering a welcome transfer of wealth from rich to poor; second, perhaps more importantly, they curb excessive and harmful high frequency financial speculation (which makes up around half of all US stock market trading now) while leaving normal trading and investment intact; third, they boost transparency, giving tax authorities better oversight of financial activities.
A push in New York, and the United States
In New York state, Assemblyman Rep. Phil Steck has sponsored a disarmingly simple three-page bill that would raise some $10-20 billion a year from Wall Street and plough the money into the pandemic response and the local economy, creating jobs with a fair, efficient and progressive tax.
The form of FTT in play is the Stock Transfer Tax, a tax on share dealing that has been on the books in New York state since a Republican governor introduced it in 1905 – and still is. The tax was progressive and highly effective, raising around $80 billion (in 2020 dollars) until 1979 when the New York Mayor and state governor caved into Wall Street pressure and phased in a 100 percent annual “rebate”, which unfortunately also remains in effect. So the tax is in effect levied – then kicked straight back to Wall Street. According to detailed calculations by co-author James Henry, who is helping Steck organize the fight, New York state has lost $344.2 billion in lost STT revenues since 1979 when they started phasing in the rebate (figure is in 2020 dollars: original data sources are here and here.)
“The whole public sector has been starved,” said Steck.
His bill is clear and simple: it removes the rebate. If enacted, it would levy a tax of five cents on every share trade valued over $20 – so for the median Nasdaq share traded, worth $48, this would amount to an insignificant 0.1 percent tax. It behaves like a progressive sales tax, vastly lower than the eight percent tax New York residents pay on retail items.
The STT would be painless and easy to implement – and, of course, would prove immensely popular. Steck’s bill currently has 54 sponsors in the New York assembly – and it only needs 60-65 to get accepted. (Senator James B. Sanders, Chair of the New York State Banking Committee, is sponsoring the same bill in the state Senate.) It has widespread support, ranging from the biggest trade unions, to conservatives worried about budget deficits. We are close to a nifty victory that can be replicated all over the planet. This has got legs.
A similar Wall Street Tax Act, a new federal FTT proposal, is supported by a good majority of voters, though its chances at a federal level are currently slim, and even lower if this doesn’t pass in New York. Various other FTT proposals have been introduced recently in the US alone.