A small tax on Wall Street could be a big help to US economy

Liberal economist Dean Baker thinks a good – and fair – way to raise federal revenues is to impose a special tax on stock trades and some other Wall Street trading activities. He calls this a “financial speculation tax,” and says it could potentially raise big chunks of money.

The more neutral term is “financial transaction tax,” or for those historically minded, the “Tobin tax,” first urged by Nobel Prize-winning economist James Tobin in 1972. The economist saw it as a way to tame rampant foreign exchange speculation.

Nomenclature aside, advocates maintain such a tax would indeed dampen financial speculation on Wall Street – the financial gambling that was in considerable part behind the Great Recession and collapse of so many major American financial institutions. That, along with home buyers tempted by “liar’s loans,” eventually required Washington to rescue these troubled institutions.

A tax on financial transactions could both raise revenues and curb speculation. But prospects of a politically divided Congress actually passing such a tax are not good, at least in the near term. For one thing, the financial industry is a major if not dominant provider of campaign funds to federal politicians facing election in 2012. Politicians aren’t famous for biting the hands of contributors.

But times are changing. Today we have the Occupy Wall Street protests and similar demonstrations around the country. Media interviewers find the protesters are often fuzzy in their stated goals. Yet they voice a common objection to widespread greed and excess in the financial industry.

That sentiment warms the atmosphere for a transaction tax. So does widespread and long-standing economic and financial distortion in the United States, which is now being more widely recognized.

For instance, extreme CEO pay. When this writer reported on gatherings of the chief executive officers of the nation’s largest corporations in the mid-1960s, their average pay was 30, maybe 40, times that of ordinary workers. These CEOs were generally bright and competent.

Today, top CEOs get 300 to 400 times the earnings of their regular workers. As an excuse they can usually note that compensation consultants tell their corporate boards these outlandish pay packets are deserved and normal. Maybe consultants should call for pay temperance, noting a political risk that Occupy rallies might explode into something hazardous.

Another long-time trend finally getting widespread attention, including by President Obama, is the growing spread between the really rich and the rest of Americans.

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