THE HILL <http://thehill.com/
*[Note From CarlD: Watch the debate of this one if you want to see the
division between speculative and productive capital, and between
speculative capital and the people generally, reveal itself. It will
also highlight the main adversary of the day and a major obstacle to
dealing wisely with the economic crisis. For that reason, however, it
may get shushed up without much debate.]*
AFL-CIO, Dems push new Wall Street tax
By Alexander Bolton - 08/30/09 10:17 AM ET
The nation’s largest labor union and some allied Democrats are pushing a
new tax that would hit big investment firms such as Goldman Sachs
reaping billions of dollars in profits while the rest of the economy
The AFL-CIO, one of the Democratic Party’s most powerful allies, would
like to assess a small tax — about a tenth of a percent — on every stock
Small and medium-sized investors would hardly notice such a tax, but
major trading firms, such as Goldman, which reported $3.44 billion in
profits during the second quarter of 2009, may see this as a significant
threat to their profits.
“It would have two benefits, raise a lot of revenue and discourage
speculative financial activity,” said Thea Lee, policy director at the
“The big disadvantage of most taxes is that they discourage some really
productive activity,” she said. “This would discourage numerous
financial transactions. People flip their assets several times in an
hour or a day. They make money but does it really add to the productive
base of the United States?”
Lee said that taxing every stock transaction a tenth of a percent could
raise between $50 billion and $100 billion per year, which could be used
to pay for infrastructure projects and other spending priorities. She
said the tax could be applied nationwide or internationally.
The proposal would hit especially hard those hedge funds and large banks
earning hefty profits despite the shaky economy from a practice known as
high-frequency trading. High-frequency traders use powerful computers to
conduct hundreds of thousands of orders in mere seconds, taking
advantage of slower traders.
Only the biggest investment firms can afford to develop the technology,
which delivers handsome profits at little risk. The growing popularity
of the practice has contributed to the soaring volume of trades on Wall
Street in recent years and, some critics argue, market volatility and
High-frequency trading is estimated to earn about $20 billion in profits
for the nation’s biggest investment firms, who guard the their practices
zealously. Goldman Sachs, for example, has accused a former computer
programmer of stealing the valuable code, launching a high-profile legal
The AFL-CIO and some allied Democrats would like to cut down on the
overall level of trading, or at least give the U.S. government a piece
of the action, which would likely tamp down trading.
Democrats and labor officials would also like to take a bite out of
Goldman’s profits. Liberals are angry the company, which immersed itself
in the frenzy of speculation leading to last year’s financial collapse,
is now making huge profits after accepting (and repaying) $10 billion in
government aid. Goldman employees are on track to earn an average of
more than $700,000 this year.
There is also a growing realization among Obama administration officials
and lawmakers that tax increases may be necessary to curb the ballooning
The idea of taxing financial transactions has gained some support on
Capitol Hill and among senior government officials in London, a major
foreign financial center.
In Congress, Rep. Peter DeFazio (D-Ore.), chairman of the Highways and
Transit Transportation Subcommittee, has seized on the idea as a way to
help pay for a new massive surface transportation reauthorization bill,
estimated to cost $450 billion over six years.
Instead of taxing all stock transactions, as the AFL-CIO has
contemplated, DeFazio wants to focus on oil-based derivatives.
At the end of July, shortly before the House broke for the August
recess, DeFazio introduced legislation that would impose a 0.2 percent
transaction tax on crude oil futures contracts. The legislation would
tax the options for oil futures (in other words, the premium paid to
have the option to buy a futures contract) at 0.5 percent.
“The tax is simple; it imposes a small burden that penalizes short-term
traders for speculating on the price of oil,” DeFazio said in a
statement. “This legislation exempts legitimate hedgers from the
transaction tax. Since the tax is on speculation only, it deters
speculation and undermines much of the crude oil price bubble.”
DeFazio estimates his proposal, which has been referred to the House
Ways and Means Committee, would raise $190 billion over six years. It
has 29 cosponsors.
An aide to a liberal Senate Democrat said a transaction tax seems like a
good idea but did not know who might champion the cause in the upper
chamber. An aide on the Senate Finance Committee was not aware of
discussion of the proposal.
Taxing financial transactions has gained some momentum in Europe. Lord
Adair Turner, chairman of the Financial Services Authority, Britain’s
top banking regulator, voiced support for taxing financial transactions
in a recent magazine interview. The French government has endorsed the
idea as a way to fund development in poor countries.
The proposal to tax financial transactions is also known as a “Tobin
tax,” after the late American economist and Nobel laureate James Tobin.
Tobin proposed a transactions tax in the early 1970s to discourage
currency speculation after the collapse of the Bretton Woods
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