ISSN 2330-717X

Reining In Wall Street And Raising Revenue: Case For Financial Transaction Taxes

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Since 2008, Wall Street has been a symbol and constant reminder of major wealth and income disparities in America. Yet, Wall Street continues to be a massive industry, serving as a primary source of income for many of the highest earners in the economy.

recent report by Dean Baker, co-director of the Center for Economic and Policy Research (CEPR), published by The Century Foundation’s Bernard L. Schwartz Rediscovering Government Initiative, finds that a financial transaction tax (FTT) can rein in the financial sector and also raise a large amount of revenue.

The report, “Reining in Wall Street to Benefit All Americans: The Case for a Financial Transaction Tax,” finds that an FTT targets an already swelling financial sector, and does not negatively impact individual holders of stock or pension funds, or other institutional investors. Rather, an FTT can make the financial sector more efficient, reducing waste and volatility.

Other key findings in the report include:

  • financial transaction tax could likely raise over $105 billion annually (0.6 percent of GDP) based on 2015 trading volume. This estimate is roughly in the middle of recent estimates that ranged from as high as $580 billion to as low as $30 billion.
  • The full amount of this tax would be borne by the financial industry, and not individual holders of stock or pension funds and other institutional investors. Evidence suggests that trading volume is elastic with respect to price, meaning that the drop in trading volume resulting from the tax would reduce costs for end users by a larger amount than the tax would increase them.
  • The industry would be no less effective in serving its productive use (allocating capital) after the tax is in place. This means that one of primary effects of the tax would be to reduce waste in the financial sector.
  • The revenue raised through an FTT would easily be large enough to cover the cost of many social programs, specifically free college tuition at public institutions.

“Financial transaction taxes raise money by eliminating waste in the financial sector. It’s hard to think of a better tax, said Dean Baker, author of the report.

In the United States and abroad, there has been growing interest in FTTs both as a source of revenue and as a tool for reining in the financial sector, which would play an important role in reducing income inequality.


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CEPR

CEPR

The Center for Economic and Policy Research (CEPR) promotes democratic debate on the most important economic and social issues that affect people's lives.

One thought on “Reining In Wall Street And Raising Revenue: Case For Financial Transaction Taxes

  • July 30, 2016 at 5:18 am
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    Sound so good the way you state it, but I have a better idea, let’s tax government, seems, judging by your ideas/outcomes, we’ll raise money, reduce costs for end users (people), reduce waste in the government sector, and we can then pay for the social programs that are already insolvent.

    Reply

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