•Press Release Growth US Wall Street
July 28, 2016
For Immediate Release: July 28, 2016
Contact: Tillie McInnis, (202) 293-5380 x117
Since 2008, Wall Street has been a symbol and constant reminder of major wealth and income disparities in America. Yet, Wall Street continues to be a massive industry, serving as a primary source of income for many of the highest earners in the economy.
A recent report by Dean Baker, co-director of the Center for Economic and Policy Research (CEPR), published by The Century Foundation’s Bernard L. Schwartz Rediscovering Government Initiative, finds that a financial transaction tax (FTT) can rein in the financial sector and also raise a large amount of revenue.
The report, “Reining in Wall Street to Benefit All Americans: The Case for a Financial Transaction Tax,” finds that an FTT targets an already swelling financial sector, and does not negatively impact individual holders of stock or pension funds, or other institutional investors. Rather, an FTT can make the financial sector more efficient, reducing waste and volatility. Other key findings in the report include:
A financial transaction tax could likely raise over $105 billion annually (0.6 percent of GDP) based on 2015 trading volume. This estimate is roughly in the middle of recent estimates that ranged from as high as $580 billion to as low as $30 billion.
The full amount of this tax would be borne by the financial industry, and not individual holders of stock or pension funds and other institutional investors. Evidence suggests that trading volume is elastic with respect to price, meaning that the drop in trading volume resulting from the tax would reduce costs for end users by a larger amount than the tax would increase them.
The industry would be no less effective in serving its productive use (allocating capital) after the tax is in place. This means that one of primary effects of the tax would be to reduce waste in the financial sector.
The revenue raised through an FTT would easily be large enough to cover the cost of many social programs, specifically free college tuition at public institutions.
“Financial transaction taxes raise money by eliminating waste in the financial sector. It’s hard to think of a better tax,” said Dean Baker, author of the report.
In the United States and abroad, there has been growing interest in FTTs both as a source of revenue and as a tool for reining in the financial sector, which would play an important role in reducing income inequality.
You can read the report here. This report also coincides with a report from the Economic Policy Institute, which focuses on how an FTT would be a win-win for the U.S. economy. You can find EPI’s report here.