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Less growth with a financial transactions tax

Nov 2, 2011

Ralph Nader is in The Wall Street Journal today with an op-ed promoting a tax increase on economic activity, in this case a tax on financial transactions, which he has generalized into "speculation." The sub-headlined of the column, "Time for a Tax on Speculation," makes the case succinctly enough: "Even a small levy could help curb the destructive wheeling and dealing on Wall Street and raise hundreds of billions in revenue." References to Occupy Wall Street  notwithstanding, Nader is repeating himself; see his Bloomberg, July 15, 2010, op-ed, "Financial Transaction Tax Might Fix Host of Ills.

Meanwhile, anxious political leaders are bruiting about the idea in Europe (Spiegel Online, "Europe May Act Alone on Financial Transaction Tax,") and the tax increase is being pushed anew by populist members in Congress, e.g. Sen. Tom Harkin (D-IA) and Rep. Peter DeFazio (D-OR) (Bloomberg, "U.S. Lawmakers to Propose Financial-Transaction Tax on Firms.")

Now matter how you package or promote it, a financial transactions tax is a tax on the kind of economic activity that creates growth and employment. Business associations including Business Roundtable stated the case in a Sept. 22 letter to Treasury Secretary Timothy Geithner, arguing:

The case against the imposition of such a tax is strong, and the arguments well known. A transaction tax will cycle through the entire U.S. economy, harming both investors and businesses. As you know, a number of studies have shown that a FTT will impede the efficiency of markets, impair depth and liquidity, raise costs to issuers, investors, and pensioners, and distort capital flows by discriminating against asset classes. Major economies that have adopted a FTT and FTT like initiatives have had overwhelmingly negative results, including reduced asset prices, trading moving to other venues, market dislocation, and a decrease in liquidity. In light of the current fragile state of the global markets and the economy, and with many economies experiencing high levels of unemployment and sluggish recoveries, the imposition of such a tax would be particularly harmful.

That was true in September, before protesters started showing up in parks to attack Wall Street, wealth creation and "Whaddya got?" It's just as true today.

UPDATE (2:20 p.m.): From the online Journal, Paul Gigot in Political Diary, "Colorado Says Occupy This," summarized as "The election results were 'a killing field for tax measures.' Voters rejected a higher income and sales tax earmarked for education."

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