Thursday, November 3, 2011

Occupy Wall Street X: Gates Proposes Wall Street Tax to Fund Programs for the Poor at G20 Summit

The G20 Summit was held in Cannes, Frances this week with the globalizing theme entitled, “Nouveau Monde, Nouvelles Idees,” which is to say “New World, New Ideas.” One idea that has been discussed for several years but never given serious consideration in the United States was presented by Bill Gates at the invitation of French President Nicolas Sarkozy. Bill Gates proposed that there should be “a small tax on trades of stocks, derivatives, and other financial instruments,” also known as a financial transactions tax (FTT), Wall Street speculation tax, or the Robin Hood tax. The funds raised from the FTT would be used to meet the needs of the poor.

Bill Gates stated that the “FTTs already exist in many countries, where they generate significant revenue, so they are clearly technically feasible. According to the IMF, 15 of the G20 countries have some form of securities transaction tax. In the seven countries where the IMF estimates revenue, these taxes raise an estimated $15 billion per year." Fifteen billion is a lot of money and would go a long long way towards relieving the suffering of many Americans who find themselves living in the aftermath of the financial crisis. For example, the money could be used to provide housing for thousands of Americans who are homeless as a result of foreclosure. The money could be used to create jobs for thousands of unemployed Americans whose companies were forced to let them go as a result of the double dip recession. The money could be used for educational programs to help re-tool the unemployed for jobs in growing sectors. The money could be used for food programs to feed children and adults that are unable to purchase food because there is not a steady source of income in the family or to develop urban farming programs where familie can grow fresh fruits and vegetables. The money could be used to provide healthcare to the uninsured because health care is a benefit of employment and if one is unemployed it is almost a certainty that one will not have health care. The money could be used for ….

However, I am intrigued as to why Congress has not adopted some form of FTT legislation. We seem to have a tax for everything else such as an income tax, property tax, sales tax, capital gains tax, so why not a financial transactions tax to fund programs for the poor? Perhaps it is time for a revamping of old ideas into new ideas that are designed to address specific harm or inequity especially when Wall Street’s mishandling of certain financial transactions is the proximate cause of such harm or inequity. Perhaps this is an idea whose time has come.

Lydie Nadia Cabrera Pierre-Louis

22 comments:

  1. Professor Cabrera why doesn't Congress considers a FTT? It would pay for the damage that Wall Street has caused and the remedy would be tailored to the wrongdoer. It seems to be the right thing to do.

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  2. Interesting post Professor Cabrera. I had not heard about the FTT or the Gates FTT Proposal. Right now in this election environment, I think a FTT would be dead on arrival in Congress. While I agree the possibility of FTT revenue providing those suffering the most in this economic environment with some relief is an admirable goal. I have serious doubts the revenue generated by a FTT would accomplish the desired effect. It seems like it would give corporations another reason to lay off more people and in this economic environment that would further this downturn. Furthermore, I doubt the funds would get to the people who need it the most because the government is not known for its efficient use of tax revenue. I am sure the subject of an FTT will come up again and again in the upcoming election season. Thanks for the post and the insight.

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  3. Jessica Bradley (Memphis Law)November 7, 2011 at 12:34 AM

    The G20 failed to endorse the FTT. The FTT will still be proposed at a Congressional level, but Obama does not endorse the FTT and according to media reports, it is doomed to fail. It seems like a logically sound concept that holds great potential for economic justice. However, in the current post-Citizens United political climate, it is difficult to imagine many American politicians supporting the measure.
    Unfortunately, the reasoning used by detractors to defeat this measure is skewed. Yes, America already has a high corporate tax rate (not considering the various methods used by corporations to evade taxes). However, it is highly unlikely that a corporation would move to a different country just to save $3 on $10,000. The opposition view is not based in reality, and it is sad that such an inventive proposal will die so quickly.

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  4. Brigid (Memphis Law)November 7, 2011 at 1:15 PM

    It is unfortunate that individuals and corporations that make billions of dollars trading in the U.S. financial markets hold so much power over our political system that they will easily be able to combat this small FTT tax. The list that you provided of what could be done with the money raised, and the way you left it open ended goes to show the amount of good that will not be done because of an irrational resistance to even small taxes. While other changes would have to go along with implementing a FTT, including review of our corporate tax structure, I am a big fan of the Robin Hood tax...and Robin Hood in general.

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  5. I am not sure that an FTT tax is such a good idea. Revenue from such a tax is highly unlikely to go towards funding the needs of the poor. It is more likely that FTT revenue would be used to shore up shortfalls in other areas of the federal budget or be consumed largely by administrative costs.

    Furthermore, the effects of an FTT would be inequitable because the tax burden would largely fall on those least able to afford it. Institutional investors, which make up a massive portion of the market, would simply pass any FTT related costs onto their customers. The establishment of an FTT could also ultimately be used to pressure institutional traders by raising the FTT or simply threatening to do so. This result does not seem just in light of the stated purpose of the proposed FTT.

    As to why Congress has not enacted an FTT, it is likely the huge sums of campaign contributions that would be at stake if certain politicians were to support such a tax. Aside from raising revenue, an FTT might actually promote greater stability in the market and avoid future flash crashes if it worked to discourage high frequency trading. If this were the result, I think an FTT would do greater good than harm.

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  6. I'm surprised that the election climate is the reason given for an FTT's anticipated failure. More specifically, I'm surprised that politicians haven't been eager to establish themselves as the Robin Hood figure behind an FTT. Although there is the possibility of a loss of support from corporate giants, the average American voters are demanding this type of action right now, most evident in the "Occupy" protests that have been taking place across the country. Even if this tax wouldn't hit the 1% directly (@ Randall, commenting that they would pass it on to customers), I find it unlikely that the estimated $15 billion in revenue would all go toward administration costs. I agree that the eventual result would be more good than harm, and I'm surprised no "Robin Hood" has come forward to champion this position.

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  7. I can definitely see both sides of the coin as to whether or not to implement Financial Transaction Tax. The argument against FTT would be that by implementing a tax on trades of stock you might exclude the average middle class individual from being able to afford to be active in the stock market. Also, this tax is not going to be limited to the 1%, but will also be establishing a tax on the 99%

    The argument in support of FTT as Professor Cabrera pointed out, this tax could do some good. No matter what would be done with the revenue (helping the poor or paying it towards the national debt) it is better than the government not collecting the extra funds.

    I am shocked that so many individuals find the Robin Hood idea so appealing. Robin Hood stole from the rich to give to the poor. While the 1% might acquire their wealth through deceitful tactics (I am assuming that is what occurs since every one despises the 1%), “stealing” from the 1% is still not justified. I don’t believe that FTT is in a literal since a true Robin Hood theory because you are not “stealing” from the 1%. So it might further the movement for FTT if it can shed the Robin Hood title and gain more support.

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  8. First off, those seven countries with FTTs, they are not the large financial centers of the world. Thus we must ask whether a financial transaction would work/generate revenue here.

    The major problem is that financial transactions can quite easily move across international boundaries. If a FTT was implemented solely in the United States, we'd lose much of the financial business to other countries (London would probably love this tax). The seven nations with FTTs do not have major financial centers (with the exception of the UK which has London and the Stamp Duty Reserve Act; however that act is limited to transactions of shares and provides relief to major banks).

    Enacting an FTT would push an industry overseas, increase unemployment, and not raise the revenue expected. Thank goodness it would be DOA in Congress.

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  9. In a country where CEOs make around 475 times as much as those who work for them, some form of FTT makes sense. Directors and major shareholders can easily, and fluidly, transfer their assets without incurring tax liability. An FTT that only taxed a small percentage from each transaction would generate much needed revenue to fund programs mentioned in this article.

    A tax on these transactions could also bring stability to the stock market. If traders, brokers, and those they represent factor in the cost of a transactional tax, its less likely we'll see as much risky trading on the stockroom floor.

    The wars and interventions abroad consume a majority of government revenue generated through taxation. If the President intends to follow through with promises of extending social welfare, its important that he considers sources of revenue beyond the bottom 99%.

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  10. This doesn't seem like a good idea to me for two main reasons.

    First, taxes inevitably revert back to the to the consumer. This tax would in effect to the same thing. Taxing stock transactions will eventually force the burden onto minor individuals attempting to participate in the market.

    Second, if I have faith in one thing and one thing only..... it's Congress's incompetence. I don't want to provide Congress with the opportunity to misuse tax funds. Congress has consistently proven it cannot use tax funds to properly provide for social welfare. Given the lack of Congressional ability I cannot support FTTs.

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  11. Zach H - Memphis LawNovember 17, 2011 at 9:15 PM

    This has actually already been proposed, twice to my knowledge, in the current government. Rep. DeFazio proposed the "Let Wall Street Pay for the Restoration of Main Street Bill" in 2009, which was a broad based FTT. It was widely criticized and has so far gone nowhere. President Obama proposed a "Financial Crisis Responsibility Fee" last year, which is a FTT focused only at the largest firms (with at least $50 Billion in capital). This hasn't gone anywhere either.

    I think a broad, even FTT is a terrible idea that would reduce trading activity and hurt the overall economy. I support the Obama plan though, as its effect is limited enough not to hurt overall trading, and could have the effect of reducing the "too big to fail" banks, which I think is a worthwhile goal.

    As for funding new programs with proceeds from a FTT, that isn't a bad idea, though I don't think it is feasible right now. A limited FTT probably wouldn't bring in enough revenue to fund any new social programs. I think any revenue generated would be better spent investing in new projects of existing programs, or simply paying down the national debt.

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  12. On its face, I don't agree with instituting a FTT. The revenue would be drawn from a rather narrow pool of taxpayers and spent on programs that aren't necessarily related to market trading. I don't think it would be such a bad idea to institute such a tax that would then be earmarked specifically for victims of market abuse (or, rather, victims of unchecked faults in the market system). But if the tax was for more general benefit, as it appears, I think the revenue should be obtained from more a more general a broader tax base.

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  13. In regards to the use of FTTs in our current market, I see great benefit in their use, although to reduce the effects many of the above commenters have made, such as passing on the tax to consumers, these issues can be cured through proper structuring of the tax provision. An ideal FTT in my opinion would prevent said costs from transferring to the marginal day trader who doesn't have the resource equivalent of his larger corporate competitors. As for disagreeing with the use of revenue from FTT that do not align with curing the ails of the industry from hence it was collected, the Constitution gives Congress the power to tax for the public welfare, so that argument is a lame duck.

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  14. While I can see how an properly designed FTT would have its merits, I find it hard to believe it could gain broad support given the nation's current financial state. While this type of measure would presumably help stabilize the market by reducing speculative trading and help raise additional tax revenue, these results would take time and come with the short-term downsides of reducing liquidity and potentially driving trade to other international markets.

    Like others, I fear the costs would be passed on to consumers and disproportionately burden smaller-scale traders who do not have the seemingly unlimited resources of larger financial firms. Additionally, in an increasingly global market, companies could easily chose cheaper trade alternatives such as European markets, China, or Canada, which has been trying to gain greater relevancy for some time.

    An FTT is an interesting idea in theory with undeniable potential if carefully executed. However, with worldwide markets in such depressing states and so many people already struggling financially, I doubt any form of new tax, especially one that would impose an additional burden on trade activity, would be a welcome idea. While this idea is definitely one to keep on the back-burner, I don't feel it's currently the time or place for it succeed or produce the benefits it potentially holds.

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  15. While this proposed FTT idea seems very beneficial for those who are victims of our current economy, I am not so sure it would thrive in our society at this point in time. Currently, everyone, especially Congress, is so preoccupied with the budget deficit and ways to improve that situation. If Congress cannot find a compromised solution for the budget deficit, I am not so sure they would even want to begin to look at this proposed FTT. Our country is extremely divided now concerning the economy, and this proposed measure might further that divide.

    As others have said or alluded to, America is a relatively sophisticated country with much experience in the way of finance (good and bad experience). Given the financial experts that we have right within our very own borders, why has this proposed FTT had any light shed upon it? There has to be a reason as to why we haven't adopted or even attempted to adopt such a measure up to this point. I am curious as to what that reason might be.

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  16. Jessica S - Memphis LawNovember 21, 2011 at 2:18 PM

    I think the FTT is a good balancing act. One of the problems I see in wealth disparity in the US is that wealthy people have the money to spend investing while the poor do not. This leads to the rich getting richer and the poor still struggling. The thing is that those who own stocks are able to make money without being taxed -why should you be able to generate an income without tax liability on your transactions? I think there is a common agreement that wealthy people are taxed less (in proportion to their actual income) than the lower class and the FTT could be a nominal tax per financial transaction could yield an incredibly large amount of money. This tax also stands to level the playing field a bit. A big problem I see is ever getting this tax passed. Those who have the power to pass this suggestion will probably not want to as they are in the upper class and this tax would clearly affect them.

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  17. Wow, I love Bill Gates more every day! The FTT is a fantastic idea. It's crazy to imagine how vast the wealth of the Forbes list is, and how much good could be done with just a small percentage of that wealth. Warren Buffett has said that even living off 1 percent of his wealth (which he has pledged to do during his lifetime) will leave his lifestyle untouched- private jets and all! He said that a "vast collection of possessions ends up possessing its owner... the asset I most value, aside from health, is interesting, diverse, and longstanding friends." This to me is refreshing, and Wall Street should take note.

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  18. FalenC (Memphis Law)November 27, 2011 at 10:21 PM

    This may seem like a great idea on its face; however, I'm not sure exactly how it would play out. To begin with, there's a list of all the places that funds raised from taxes COULD go, but who's to say that's actually were it would go. It also seems to me that this would still end up hurting consumers, especially those who are in the middle and lower classes who are trying to trade. The next thing you know...those individuals will be complaining about this tax too.

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  19. I agree with the arguments that recognize the likelihood of the corporations simply moving their money and business overseas. That is a real possibility. Also, those that point out the low likelihood that Congress would spend the money to "help the poor" are also not without grounds. If we recognize that we already tax corporations at such a high rate that many already hide most assets overseas, why not focus on plans to lower the corporate tax in order to get the corporations to bring that money back. Employ more people here, spend more of that money here. Its another option that should be discussed. Especially with the failing markets overseas, why not bring that money back and boost America's economy?

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  20. While I understand the argument against the FTT that it will unfairly burden small time investors that seek to participate in the trade in stocks and securities but I think that this argument fails to consider the fact that these sorts of investors do not constitute a large part of the trade in stock and securities. the largest investors in the market are institutional investors such as pension funds and insurance companies and this is the way that the vast majority of the US population interacts with financial markets outside of personal experiences with layoffs or pay cuts as a result of their employer's tumbling stocks. these institutional investors would just integrate this tax into the way that they determine what the cost of investing with them is. The tax will have a curbing effect on short term speculative trading which played a large part in starting the current economic downturn.

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  21. The argument against the FTT that Randall articulated that expresses doubt on the government's ability to spread the benefit is interesting. certainly the pathway from the taxpayer to those that receive governmental benefits is a long one but I don't believe that the argument that because the government has failed in the past is a valid argument for limiting government regulation in the future. the revenues that would be generated by an FTT would encourage the electorate to further demand of their representatives explanations on where the money is being spent. Large numbers of Americans have fallen through our social safety nets into poverty over the last couple of years and this decent has forced Americans to be more mindful of how tax dollars are spent. by sweetening the pot we would be giving voters further incentive to pay attention and vote for representatives that will stream line the process of funding programs that help the poor. There you go! a nice free market approach to improving the efficiency of the government!

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  22. Kirkland (Memphis Law)November 28, 2011 at 2:50 PM

    I believe that Gates' "Robin Hood" tax is an excellent idea. The fact that it has been incorporated in many other countries only strengthens his point that it would be wonderful for Congress to step up, as many other countries have, and, given the chance, help to alleviate the suffering of so many Americans. We are frequently reminded of the ever-increasing gap between the wealthy and the very poor, and I see anything that our government can do to lessen this divide as a positive.

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