A House bill now being drafted would raise a purported $150 billion each year to pay for new manufacturing jobs by taxing securities transactions such as stocks, options, derivatives and futures.
But the effect here would be the polar opposite. It would hurt job creation, notably in the already flattened finance sector, where jobs will fly overseas if the US is the only country with this taxing regime.
And although Congress says they'll exempt trades made for retirement savings, chances are slim that will happen as sequestering such trades are notoriously difficult to track. The tax will likely get passed along to investors, hurting portfolios.
Essentially a VAT on securities, the “Let Wall Street Pay for the Restoration of Main Street Act of 2009” is backed by Democratic Reps. Peter DeFazio (Ore.) and Ed Perlmutter (Colo.). It would slap a quarter of a percent tax on the sale and purchase of financial instruments.
Taxing trades could happen, as it has come up just recently for a totally different idea. Just this past July, President Barack Obama floated the idea of taxing securities at a night-time news conference, but for a different cause: to raise money for a “kitty” to help pay for winding down too-big-to-fail companies.
The president at the time cited the tax as a brand new "fee" for banks that conduct "high risk," "far-out transactions" and pose systemic risk because they are too big to fail.
Just as then, the Wall Street tax raises these issues: which government official determines which security to tax? Who decides which manufacturing sectors get the money to create jobs?
The Wall Street tax strikes at the heart of a heated debate in Washington--how to foster economic growth and create jobs. Is there another way? "Cut taxes and regulations so that the engine of job growth – small businesses – can be more confident about the future and decide to expand and hire," says Richard Karlgaard, publisher of Forbes Magazine, adding, "respect private property. Don't degrade the currency. Don't tear up loans."
The Wall Street Tax
With fears mounting they will be rousted out of their own powerful jobs in the midterms, Congressional Democrats are looking for ways to save their jobs by creating jobs using your tax money, after the nation's unemployment rate hit 10.2% in October and as job losses have steadily mounted since the crisis unfolded, with more than 7 million positions vaporized.
Job losses have also steadily risen since the Administration got Congress to pass its $787 billion stimulus plan earlier this year to help create jobs.
History of the Tobin Tax
A tax on financial transactions was first suggested by the American economist James Tobin three decades ago, but it never gained traction because for one, the tax would have to be global, else banks would take flight to more lax regimes—and the tax-happy home country would lose jobs.
When then president Richard Nixon announced on August 15, 1971 that the US dollar would no longer be pegged to gold, effectively abolishing the Bretton Woods system, Tobin pitched a new system for international currency stability to stop any resulting speculation, including an international charge on foreign-exchange transactions.
Since then the Tobin Tax has been proposed as a way to solve poverty, world hunger, and to help create development in third world countries. It has also been proposed that having the United Nations manage a Tobin tax would give the U.N. a large bucket of funding that would make this body no longer dependent on donations by participating states. Canada, Brazil, Venezuela, the UK, Belgium, France, Austria have all backed a Tobin tax for various issues as well.
Tobin Himself Speaks on the Tobin Tax
But in an interview given to the German publication Der Spiegel in 2001, the economist Tobin said he himself never envisioned his tax would be intended for poverty, job growth, or the global justice movement, and was meant to only curb foreign currency manipulations by speculators.
“The antiglobalization movement had stressed the income from the taxes with which they want to finance their projects to improve the world. They've hijacked my name,” he said, adding “The tax on foreign exchange transactions was devised to cushion exchange rate fluctuations,” the thinking being that such a tax “dissuades speculators.”
Tobin did say though that some revenues the tax raised could go to the World Bank, but countries themselves would have to choose how to use the "byproduct" of his tax.
The “Let Wall Street Pay for the Restoration of Main Street Act of 2009”
The bill, a copy of which was obtained by the DC publication The Hill, says that half of the $150 billion in tax revenue would go toward reducing the deficit, while the other half would be deposited in a “Job Creation Reserve” to support new jobs.
The job fund would be available to offset the additional costs of the 2009 highway bill and other legislation that creates jobs.
The stock tax measure specifies that tax revenue would need to support jobs that pay at least the median wage in the United States, promote manufacturing jobs and prohibit any recipient of the $700 billion financial bailout from directly benefiting from the job reserve fund.
Organizations supporting the tax include the Americans for Financial Reform, Public Citizen, the Service Employees International Union (SEIU) and the AFL-CIO, among others.
Tobin Tax a Jobs Killer
First, a unilateral “Tobin Tax” will make the US less competitive in the financial sector, says Fox News analyst James Farrell. He adds it will definitely create jobs, “unfortunately, those jobs will be in London or other financial centers that choose not to commit similar acts of unilateral [economic] suicide.”
Congress Usually Does Not Follow Through
Despite repeated avowals that it will only use revenues raised for a specific project or issue, Congress usually spends the tax revenues raised on some other pet project.
That was true for the biggest entitlement of all, Social Security. Social Security taxes were first assessed to pay for retirement, but then Democrats in the sixties pushed for a ‘unified' budget, which let Congress raid Social Security trust funds for the first time to spend on all sorts of vote-getting projects in their districts.
Although Democratic presidential contender Al Gore tried with his “lock box” to protect Social Security, the US has not had a single trust fund that has not been shamelessly raided by Congress to pay for their pet projects, Farrell says.
Will a New Tobin Tax Hurt Retiree Savings?
At a time when American portfolios have been decimated and companies are starving for cash, Farrell asks should the country impose an additional tax that will disincentivize people investing in the market and limit the new cash that these companies need?
Tax something and you get less of it, Steve Forbes likes to say. This new tax would undoubtedly get passed along to individual shareholders and increase the cost of investing for retirement, education and home ownership.
Can Government Create Jobs?
Democrats just simply do not get the concept that government does not create jobs -- the private sector does.
This tax is another way of Congress directing where investments should be made, meaning, picking winners and losers, Farrell says. “They have been so successful with Fannie Mae, Freddie Mac, Amtrak and the US Postal Service that we should definitely let them decide what [sectors] are good investments” for jobs, he says.
Finally, to the extent that they believe that a government dollar can “create” a job, they simply do not get that taking the money away from individuals through taxes destroys jobs, Farrell adds.