Presidential candidates are making Wall Street pay

Presidential candidates have recently proposed new Wall Street taxes. The differences and similarities reflect the candidates. 

Mark Lennihan/AP/File
A Wall Street address is carved in the side of a building in New York (October 2014).

Both Bernie Sanders and Hillary Clinton recently proposed new Wall Street taxes, which reflect their strikingly different philosophies (and, perhaps, their different personalities).   Bernie’s proposal is bold—he squeezes Wall Street to fund programs for our country’s future.  Hilary’s proposal is targeted—she tackles a specific problem precisely.

Bernie goes big: he introduced legislation that included a “speculation fee” on “Wall Street investment houses and hedge funds” to collect a 0.5% tax on stock trades, 0.1% on bond trades, and .005% on derivative trades.   The tax would hit a wide range of financial transactions—and market participants (not just investment houses and hedge funds).  And his tax would be big:   a stock buyer’s typical commission of $5-$10 on a $50 thousand stock purchase would jump by $250 under Bernie’s proposal.

Bernie expects his new tax to raise $300 billion annually to pay for free college for all.

In contrast, Hillary wants a more targeted financial tax.  She would add a small tax on stock order cancellations, presumably along the lines of the French high-frequency tax.  Her tax would apply to algorithmic traders, who place and then cancel millions of orders a year.  She wants her tax to curtail harmful trading practices—and get “Wall Street to work for Main Street.”  Raising revenue is not the goal—the best outcome would be the disappearance of the cancellations and hence no new revenue.

The flash tax approach has substantial merit, as I have written before.  High-frequency traders impose real burdens on the rest of us.  They use high-speed computers and fast connections to outrace investors to the market.  And much of their activity is simply a new form of old-fashioned front-running, in which these traders exploit unfair information to buy or sell stock ahead of the rest of us (for example, they pay the exchanges for early glimpses of other investors’ orders).  These traders simply extract a small toll from the rest of us who want to buy or sell stock.

High-frequency traders now account for more than half of all U.S. stock trades.  And, asMichael Lewis observed, they spend billions to save milliseconds (by, for example, laying expensive high-speed  fiber-optic cables directly between exchanges in Chicago and New York).  They waste a lot of social resources, which could otherwise address important social challenges.

A Tax Policy Center discussion draft on financial transactions taxes finds that a financial transactions tax could raise a lot of revenue, mainly from higher income taxpayers.   It could also address serious problems with parts of the financial sector—but might also impose substantial distortions.

Bernie’s financial transaction tax could raise a lot of much needed revenue—and there are few revenue options out there.  Hillary’s small high frequency tax wouldn’t raise much but could limit the worst of market abuses, without disrupting the market place much.

So, the next presidential election may determine whether we go big, or go small, on Wall Street taxes.

The post Making Wall Street Pay: Proposals from the Campaign Trail appeared first on TaxVox.

You've read  of  free articles. Subscribe to continue.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.