The Significance of the Tax Policy Center's Report on Financial Transactions

July 02, 2015

The Tax Policy Center (TPC), which is a joint project of the Brookings Institution and the Urban Institute, issued a report this week assessing the potential revenue and the incidence from a financial transactions tax (FTT). This report, while not providing an endorsement of FTT, is tremendously valuable for advocates of the tax.

First, it is important to understand the TPC has gained substantial standing in policy debates for its non-partisan analysis. For this reason a report from the TPC can be seen as comparable to a report from the Congressional Budget Office. The center exists to analyze policy, not to advocate for it.

With this in mind, its assessment of the FTT is quite useful for several reasons. First, the report argues that a FTT is clearly feasible based on the existence of a large number of FTTs in countries around the world and the likelihood that one will be instituted in the euro zone in the near future. Second, the report finds that a scaled tax, similar to the one being debated in the euro zone, with a rate of 0.1 percent on stock trades, would raise over $50 billion a year in additional revenue and more than $540 billion over the next decade. Third, it shows the tax to be highly progressive, with the top quintile paying 75 percent of the tax and the richest one percent paying over 40 percent of the tax.

The report does note issues that have been raised about an FTT, such as its impact on liquidity and the extent to which it may lead to market distortions. These are reasonable questions that advocates of an FTT must be prepared to address. But the key take away from the TPC report is that an FTT is a mechanism through which a large amount of tax revenue can be raised in a way that is extremely progressive.


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