The Joint House-Senate supercommittee Tuesday was called on by a coalition of Senate and House Democrats to include a 0.03% tax on banking and financial firms’ nonconsumer transactions, including trading of derivative contracts, options, puts, forward contracts, swaps and other complex instruments, in their upcoming deficit-reduction legislation.
The Joint Committee on Taxation has estimated that a modest tax on Wall Street banks would raise a total of $352 billion during the period of 2013-2021, wrote the group of Democrats in a letter to the co-chairs of the supercommittee, Sen. Patty Murray (D-WA) and Rep. Jeb Hensarling (R-TX).
“As your work to craft a comprehensive deficit-reduction plan, we believe you should incorporate reasonable spending cuts and ask the wealthiest Americans and most profitable corporations to pay their fair share. However, we understand through media reports and talking to our colleagues that revenue options remain the largest challenge in your negotiations to obtain significant deficit reduction. We believe we have a viable revenue option that deserves serious consideration,” the lawmakers said, pointing to the proposed 0.03% tax.
The supercommittee has two weeks left to come up with $1.2-1.5 trillion in additional cuts to the federal deficit (see Daily GPI, Aug. 15). Congress is slated to vote on the measure by Dec. 23 (two days prior to Christmas). Republicans on the supercommittee have been unwilling to consider any proposals to raise taxes, but this one might have legs in Congress in light of ongoing demonstrations on Wall Street and in other cities in the United States protesting economic inequality and corporate greed.
The proposed 0.03% tax was outlined in companion legislation (S. 1787, H.R. 3313), the Wall Street Trading and Speculators Tax Act, which was introduced in the Senate by Sen. Tom Harkin (D-IA) and in the House by Rep. Peter DeFazio (D-OH) last Wednesday.
The legislation would levy a small tax of three basis points (three pennies on $100 in value) on most nonconsumer financial trading, including stocks, bonds and other debts, except for their initial issuance. For example, if a company obtains a loan from a financial company, that transaction would not be taxed. But if the financial institution traded the debt, the trade would be subject to the tax, the lawmakers noted.
In addition, the tax would cover all derivative contracts, options, puts, forward contract, swaps and other complex instruments at their actual cost. The measure would exclude debt that has an original term of less than 100 days. The legislation would not harm long-term investing like retirement funds, the lawmakers said.
“Given the extraordinary profitability of Wall Street banks, while the rest of the economy is suffering there is no question that Wall Street can easily bear this modest tax,” the lawmakers said.
“The first step on the long path to recovery happens when we rein in the excessive speculative activity that has destabilized our financial system. This legislation will curb unnecessary speculation and generate needed revenue to help our cash-strapped federal government pay down debt and invest in the real economy to benefit all Americans,” DeFazio said.
The proposed tax, if passed by Congress and signed into law by President Obama, would take effect Jan. 1, 2013.
The European Union is considering a similar proposal, but with a tax rate that is more than three times higher, according to the lawmakers. Currently 30 foreign nations have in place a similar tax, including Great Britain and Switzerland, they noted.
In addition to Harkin and DeFazio, other members of the coalition are Sens. Bernie Sanders of Vermont and Sherrod Brown of Ohio; and Reps. Bruce Braley of Iowa, Earl Blumenauer of Oregon; John Conyers of Michigan, Bobby Scott of Virginia, Hank Johnson of Georgia, Betty Sutton of Ohio, Bob Filner of California and Louise Slaughter of New York.
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