Financial Transaction Tax. Cutting the Deficit

Last month the Congressional Budget Office raised its 10 year deficit projection from 7 to 9 trillion dollars. It's easy to see that the cost of the wars in Afghanistan and Iraq, along with TARP and the stimulus package are beginning to add up(that's just in the last year). While unemployment continues to rise, and the poverty rate jumped for the first time since 04 I can suspect the spending will continue. That of course does not mean we have to continue to see the deficit rise. One idea that's been floating around the blog world for awhile is the Financial Transaction Tax.

Dean Baker a prominent economist has argued extensively for the tax and has written this report outlining the benefits. The basic idea is to impose a .25% tax on the sale or purchase of a stock. The percentage here seems relatively small, but the impact of a tax could potentially raise close to 100 billion dollars in the US. With Wall Street trading millions of shares of stock each day its easy to see how we can begin to pay down the deficit.

The impact for an average American who holds a stock over a long period of time would barely notice such a small tax. Where this tax would gain most of its revenue is from the day traders who buy shares at 10am and sell three hrs later, this is also on the larger scale of financial institutions like Goldman Sachs, and JP Morgan. The tax would not only raise money from these traders and corporations, but also stabilize the volatility of stocks that are traded on pure speculation.

Opponents of the tax claim investors will go to other markets, but the fact is Great Britain already has implemented a .25% stamp tax (transaction tax). In the coming years European and Asian governments will be finding ways to pay for the programs they implemented to stabilize their economies, I wouldn't be surprise if more follow the lead of Britain. If you ask me paying down the deficit while returning the stock market to its fundamental values (investors finding quality investments) sounds like a hell of a deal. Lets hope Congress sheds a little light on this next.

TLH