For weeks, the Occupy Wall Street protest has filled streets and parks in New York, Los Angeles and Hong Kong, as well as other cities. The movement soon may show up in the halls of power, too — or Capitol Hill, to be more precise.
Sometime after the Senate comes back into session next week, look for Sen. Tom Harkin, D-Iowa, to introduce a bill that would impose a tax on financial transactions. The size of the levy has not been determined, according to an aide to Mr. Harkin who was not authorized to speak on the record.
At a Capitol Hill meeting last Friday, several groups promoting such a tax said that its size would be minuscule – likely somewhere between 0.1% and 0.01%, or even less.
Supporters said that the tax on purchases of stocks, options, derivatives and other financial instruments potentially could raise $90 billion annually at a time when Washington is desperately looking for ways to reduce the deficit and lower individual tax rates.
“This is an absolutely essential step to address the 99% problem,” said Damon Silvers, director of policy at the AFL-CIO, referring to the Occupy Wall Street claim that the movement represents the 99% of Americans whose economic prospects are limited by the 1% who control most of the nation's wealth.
“The financial sector in the United States and worldwide is profoundly undertaxed,” Mr. Silvers said. “Inherently, any tax on the financial system is a progressive tax.”
No one is predicting that a financial transactions tax will become a reality before 2013. The Obama administration does not support it, and Republicans are adamant in opposing tax increases. For now, supporters are introducing the idea on Capitol Hill and laying the groundwork to win a future debate.
Mr. Silvers and his allies are taking heart in what they see as a global movement toward a financial transactions tax. They point to a proposal introduced by the European Commission on Sept. 28 that would impose a tax of 10 cents in every $100 of securities sales and 10 cents per $1000 of derivatives transactions.
It's not clear how many European Union countries will endorse the plan. The estimated $70 billion that would be raised annually would be used to finance development projects, supporters said.
RELATED ITEM Which investment bigshots back OWS -- and which don't?
In the United States, Wall Street already is pushing back against the notion of a financial transactions tax, saying that it would be hard to collect, reduce liquidity, increase costs for investors and make capital more expensive.
But proponents are ready to respond. Dean Baker, co-director of the Center for Economic and Policy Research, said that such a tax is being successfully collected in Britain and that it would have little effect on market liquidity or growth.
Mr. Baker also said that little or none of the cost would be passed along to investors who hold stocks and other investments for the long term. Instead, it would be borne by companies engaging in high-frequency trading.
“We'll have less resources going into trading, which is what we want,” Mr. Baker said. “It's going to … eliminate some of the pointless trading.”
The role that a financial transactions tax could play in shifting the Wall Street mindset from short-term profits to long-term growth is one of the levy's strongest selling points, according to John Fullerton, a former managing director at JPMorgan Chase & Co., and the founder and president of the Capital Institute.
Any effort to move away from short-term thinking to longer time horizons should be welcomed by corporate leaders and make the financial transactions tax more than just a “99%” issue,” Mr. Fullerton said.
“The fact that Fortune 500 executives aren't coming out in favor of this is the problem,” he said.
Although it's a long way from being approved, a financial transactions tax could quickly change Washington accounting ledgers. Budget deficits have focused recent debate on words such “trillions.” The tax would introduce terms like “one-tenth of one percent.”
“We're talking about something so small, no one can understand it,” Mr. Baker said.
