Bloomberg’s is reporting that the Democrats have dreamed up some more tax schemes.
A group of congressional Democrats proposed taxing large transactions in stocks and derivatives, an idea that has received a cool reception from the Obama administration.
Iowa Senator Tom Harkin, Oregon Representative Peter DeFazio and five other House Democrats proposed the measure, designed to raise $150 billion a year to fund a new jobs bill and help close the federal budget deficit.
“Let me be blunt: We need new revenue,” Harkin said at a news conference today in Washington. He called a tax the “most painless way” to raise revenue and stop risky market speculation. “Ask not what America can do for Wall Street, but what Wall Street can do for America,” Harkin said.
House Speaker Nancy Pelosi said there’s a “great deal of merit” in imposing a tax on large stock transactions as long as other major nations do it as well.
Treasury Secretary Timothy Geithner said during a Nov. 7 meeting of Group of 20 finance ministers in St. Andrews, Scotland, that a “day-by-day” tax on speculation is “not something we’re prepared to support.”
Geithner was speaking in response to U.K. Prime Minister Gordon Brown, who said a transaction tax might prevent excessive risk-taking and compensate for the billions of dollars the public has spent on bank bailouts.
Harkin said he will introduce the bill in the Senate next week with Senator Bernard Sanders, a Vermont independent who caucuses with Democrats.
0.25 Percent for Stocks
The measure would be based on legislation DeFazio proposed in the House that would apply a tax of 0.25 percent or 25 basis points to stock transactions in excess of $100,000, and a levy of 0.02 percent or 2 basis points on derivatives including futures, options, swaps and credit default swaps.
Harkin and DeFazio said the proposed new levy is backed by more than 200 economists, the AFL-CIO labor union federation and business leaders including Warren Buffett and Vanguard Group Inc. founder John C. Bogle, now president of Bogle Financial Markets Research.
“I endorse the Harkin-DeFazio bill in principle,” Bogle said in an e-mail released by the lawmakers. He urged “careful study” to find appropriate tax rates. His office confirmed the authenticity of the e-mail.
Business groups including the Financial Services Roundtable and the Securities Industry and Financial Markets Association oppose the bill.
‘Nearly Every American’
“Nearly every American would be impacted by a new transaction tax, no matter how small it is,” said Steve Bartlett, president and chief executive officer of the Financial Services Roundtable.
Kenneth Bentsen, executive vice president for the securities industry group, called the bill “the wrong policy at the wrong time.” He said it would make capital more expensive, hurt U.S. companies’ ability to compete globally and increase compliance burdens.
Christopher Bergin, president and publisher of Tax Analysts, a Falls Church, Virginia publisher of tax information, predicted the lobby groups will successfully fend off the proposal.
“Willie Sutton robbed banks because that’s were the money is,” Bergin said. “There’s certainly money” in taxing stock and derivative trades, “but this bank is just too well guarded” by lobbyists who oppose the idea, he said.
Affecting Liquidity
Clint Stretch, a tax policy specialist at the Deloitte Tax LLC consulting firm, also said lawmakers will be reluctant to do anything that would be perceived as affecting liquidity.
“The current state of the economy and market does not suggest that Congress will want to risk having an adverse impact on markets,” he said.
Theodore Seto, a tax law professor at the Loyola Law School of Los Angeles, said supporters of the tax believe it will make markets more efficient by reducing risks created by the rise of computer-oriented trading.
The tax “reduces the pressure to operate with less information,” Seto said. “Markets that operate on the basis of more information are much less likely to produce the kinds of self-reinforcing bubbles that led to this past crash.”
The tax would be refunded for tax-favored retirement accounts, mutual funds, education savings accounts and health savings accounts.
DeFazio told reporters he thinks the idea will gain traction even though the Obama administration is resisting it because it will appeal to ordinary Americans in an era of government bailouts of investment banks.
“Mr. Geithner is just protecting the interest of Wall Street,” DeFazio said. He also said he thought the proposal would catch on around the globe. “There’s pretty much consensus around the world that derivatives are not a good thing” when used to speculate, he said.
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