After the GameStop fiasco, momentum builds for an $800 billion tax
Uncle Sam is in search for a pot of gold that could ease the pain of trillion-dollar deficits. And some believe Wall Street might just have the answer.
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For more than a decade, progressives have tried and failed to impose a financial transaction tax. But there is new momentum for such a levy as the national debt skyrockets during the pandemic and in the wake of the GameStop trading frenzy that shined a bright light market structure concerns.
The White House told CNN Business on Sunday that a financial transaction tax on GameStop-like trading deserves additional study and can be part of a greater evaluation of such a tax for revenue and market stability. The leading proposal amounts to a $1 tax on every $1,000 of transactions.
But there is a deep divide over the wisdom of a financial transaction tax. Progressives see it as a smart way to simultaneously curb predatory trading while funding ambitious programs aimed at easing America's inequality problem.
Opponents, on the other hand, paint a financial transaction tax (FTT) as a nightmare. Wall Street, which would take a hit, is already warning such a levy would backfire on Main Street by raising trading costs and depressing market liquidity.
Lawmakers will surely be tempted to tax transactions because it could raise vast sums of money at a time when Washington is strapped for cash.
A 0.1% tax on stock, bond and derivative transactions could raise $777 billion for the federal government over a decade, according to a 2018 estimate by the nonpartisan Congressional Budget Office.
"We have tremendous income inequality in our society and a giant deficit. A financial transaction tax would be an incredibly efficient and progressive way to raise revenue," Aaron Klein, a former Treasury Department official in the Obama administration, told CNN Business.
The top 1% of American households would pay 40% of the total amount of the tax, while the bottom 60% would pay just over 11%, according to the Urban-Brookings Tax Policy Center.
That makes sense because the wealthiest 10% of US households owned 87% of all stocks and mutual funds, according to 2020 data from the Federal Reserve.
"The concentration of wealth in the stock market is mindboggling," said Klein, who is now a senior fellow of economic studies at the Brookings Institution.
Even though some argue an FTT would be a disaster, the United States already has a tax, albeit a very tiny one. Roughly 2 cents per $1,000 traded goes toward funding the budget of the Securities and Exchange Commission. Due to surging trading volume during the pandemic, the tax rate to fund the SEC is being lowered to just half a cent per $1,000 starting Thursday.
