With the Republicans in Congress busy working up Donald Trump’s “big beautiful bill” to give tax breaks to the rich and cut Medicaid and SNAP benefits for everyone else, it’s a good time to come up proposals to move things in the right direction. It’s hard to think of anything much better in this direction than a nice sales tax on financial transactions, similar to the sales taxes most of us pay when we buy groceries or clothes.

The logic here is straightforward. The financial sector has exploded relative to the size of the economy over the last five decades. The broad financial sector accounts for 7.5 percent of GDP, almost $2.5 trillion annually. The more narrow securities and commodities trading sector (i.e., Wall Street) accounts for 2.4 percent, more than 5 times as large a share as it had half a century ago.

In addition, private equity is taking up an ever larger share of the economy, with assets under its control now exceeding $4.0 trillion. The crypto promoters are also looking to have a growing share of the economy flowing into their pockets.

To be clear, there is nothing wrong with finance. We need the sector to allocate capital. That means providing money to new businesses or businesses looking to expand, as well as people who want to buy a home or attend college. But we should want the sector to be as small as possible to accomplish these purposes. Finance is an intermediate good in that it supports the economy; it does not directly provide benefits to consumers like healthcare or housing.

In that sense, we should think of finance like trucking. It is absolutely essential for the economy. We need the trucking industry to transport materials to factories for manufacturing and then to transport the finished products to the stores where people can buy them.

But we want the trucking sector to move items from Point A to Point B as efficiently as possible. If we saw that the trucking sector had expanded five-fold relative to the size of the economy in the last half century, we would likely conclude that we have an inefficient and badly bloated trucking industry. This is the story of our financial sector today.

It would benefit enormously from a modest financial transactions tax that would be similar to the sales taxes that people pay on most of the goods they buy in most states. The industry will scream bloody murder at the prospect of a 0.1 percent tax on the sales of stock and an even lower tax rate applied to bonds, futures, options, and other derivative instruments. (We probably want something like 1.0 percent on crypto, since it seems to have no uses other than facilitating illegal transactions.)

A scaled tax along these lines could easily raise $150 billion a year in revenue and it would come almost entirely at the expense of the financial industry. Essentially, we would have a story where investors paid roughly twice as much for each trade they made, but they would cut their trading volume in half.

This means that what they pay out in trading costs, including the tax, would be roughly the same as what they had paid out without the tax. The difference is that money that used to be going to people in the financial industry is now going to the government to cover the cost of the tax. That probably would not bother most people. In fact, since the financial sector includes some of the richest people in the country, many would consider it a good thing that the industry pockets less money.

There are many other things that we should do to make the financial sector more efficient. Having a much stricter policy on bailouts would be a great thing. We shouldn’t be rushing to throw hundreds of billions of dollars at Donald Trump’s campaign contributors every time the jerks blow themselves up with stupid investments.

We also should not be writing the tax code to give special privileges to private equity and hedge fund partners, many of whom pocket tens of millions of dollars a year for their work. Under current law, which is apparently not going to change in the tax bill, much of the pay of private equity and hedge fund partners is taxed at the 20 percent capital gains tax rate rather than the 37 percent rate that people in the top tax bracket would face.

The rationale is that their income is effectively incentive pay, where they get paid a portion of the earnings of the funds that they manage. This is comparable to the pay of realtors or cars salespeople, who typically get paid based on the price of what they sell. But these more typical workers pay at the normal income tax rate; they can’t afford huge campaign contributions to members of Congress and presidential candidates.

Private equity also profits by exploiting the bankruptcy code. Its strategy is to heavily leverage companies to create a win-win situation. They pull out as much as they can from a company ensuring they get their investment back, and often some profit, and then try to turn it around into a profitable company that can be resold. If they succeed, they have done fabulously well, if they fail, they put the company into bankruptcy and leave workers and creditors to deal with the problem.

Reining in the bloated financial sector is a big task. It would be great to have Elon Musk with his chainsaw run around after the industry. Unfortunately, the chainsaw apparently has a shutoff switch when it gets near the pockets of rich people. In any case, a financial transaction tax would be a great first start towards eliminating the waste, fraud, and abuse on Wall Street.