Congressman: Tax Wall Street to Help Main Street

By: Brian Montopoli
Topics: Congress

(US Congress)

Rep. Pete DeFazio (D-Ore.) is seeking co-sponsors for the "Let Wall Street Pay for the Restoration of Main Street Act," which he suggests could raise $150 billion per year through a securities transaction tax.

The money raised "will be invested in the current needs of Main Street America," according to a message DeFazio sent to House colleagues seeking support for the effort.

"We cannot sit back and assume that job creation will turn around," the message says. "We must make it clear to our constituents that we know Main Street is suffering and a restored Wall Street should now share in its recovery with everyone else. Timely job creation and deficit reduction is the fair thing to do."

The tax would be applied to stock transactions (at 0.25 percent), futures, swaps, credit default swaps and options. In an effort to make sure it does not affect pension funds or average investors, it would be refunded for the first $100,000 of transactions annually, as well as for tax-favored retirement accounts, education savings accounts and health savings accounts.

DeFazio notes that the United States had a similar tax from 1914 to 1966. The United Kingdom currently has one, he writes, and maintains "the highest volume exchange in Europe." He said the British experience is evidence that such a tax would not push trading overseas.

Half of the revenue generated would go to reduce the federal deficit, he said. The other half would go to fund jobs creation programs.

The proposed legislation currently has five cosponsors.

Wall Street giant Goldman Sachs announced yesterday that it is donating $500 million for a program to help small businesses. That represents about three percent of what it has set aside to pay its employees in 2009.

"We participated in things that were clearly wrong and have reason to regret," the company's chairman said in conjunction with the announcement. "We apologize."

Brian Montopoli
Brian Montopoli is the senior political reporter at CBSNews.com.
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by smtblnde November 29, 2009 8:06 AM EST: The entire 13-year Apollo Program cost a total of $145 Billion in 2008 dollars, or about $11 Billion a year.

Contrastingly, Wall Street spent an estimated $26.5 billion on computer hardware and software improvement and development in 2005 alone.

Yes, the same firms that took billions of bailout dollars from us spent billions of dollars on research and development for one purpose only - to gain a millisecond computerized algorithmic trading advantage over small investors (us again) and smaller investment firms.

Sadly, our nation?s money and intellectual capital that was once focused on the Space Race has now been replaced by the Money Chase.

The net product of these endeavors could not be more different.

The Apollo moon landing yielded a tremendous amount of scientific data and technological spinoffs that improved our lives. It also inspired an entire generation to pursue science and math, follow their dreams, and lifted all Americans? heads upward toward the heavens.

The Money Chase on the other hand, yields no scientific benefit to society because the Wall Street firms keep their technological breakthroughs secret. It produces nothing except huge bonuses, hungry and homeless children, and ultimately causes the American people to hang their heads low in despair.

If the misuse of science to obtain and act on information for monetary gain sounds familiar, that?s because it was the main plot of the movie ?Back to the Future Part II.?

In that movie, the nemesis ?Biff? obtains a sports statistic almanac in the future, steals Doc Brown?s time machine, goes back in time, and gives the almanac to his younger self in order to bet on all the winning sports teams.

Biff?s ill-gotten fortune ultimately plunges the ideal middle-American hometown into a hell hole of chaos and despair.

Ultimately, the hero ?Marty McFly? pursues Biff back in time and intercepts the sports almanac from young Biff which restores his hometown back to the way it used to be.

Although I am a free market Republican who doesn?t like new taxes, it is not a free market when just a handful of large Wall Street companies has a clear advantage in trading over everyone else. Which is why I liken a tax on algorithmic trading to a sin tax, we can call it the ?Human Misery Tax? or the ?Back to the Future Tax.?; Reply to this comment


by netizenbob November 27, 2009 1:47 PM EST: Best idea I have heard in a long time, makes total sense! Why didn't someone think of this sooner? We pay taxes on every other transaction so why not securities trading? Make stock trading be for investing and not for gambling.; Reply to this comment


by jrt640 November 21, 2009 4:56 PM EST: Here is my main problem with this Wall Street tax, and it's purely mathematical. Let's say you work full-time, and dabble in the stock market - maybe one buy-sell stock transaction per day. Assuming 250 trading days per year, you would have to have an 87% annual return JUST TO COVER THE 0.25% TAX (or those not mathematically inclined, here's the math --> (1+0.0025)^250 - 1 = 86.7%). And this assumes zero trading costs (normally run $10 or so per buy & sell). Basically, the sponsors of this bill would require us all to be three times the investor that Warren Buffett has been over his career just not to lose $1 in the stock market (Mr. Buffett has averaged an annual return of roughly 30% over the last 45 years). Further, the application of the 0.25% tax is a little unclear - I'm assuming it is only on the sale of stock - if it is applicable to buying stock, we would all have to average at least a 248% annual return just not to lose money. Obviously, few if any of us are capable of this, and none of us are capable of this over the long-term. It's ridiculous for the Congress to assume we are all superinvestors that make Warren Buffett look like a dart throwing monkey.; Reply to this comment


by TaxThePoor November 19, 2009 8:00 AM EST: Tax Main Street Again To Help Wall Street

This transaction tax is nothing but Intentional Wealth Destruction of the middle class and poor. The cost of Wall Street's own transactions will increase the cost for them of doing business. The cost of all those transactions will be passed onto us in addition to our own transactions, so we pay twice. Stocks are practically the only way we can increase our wealth. As a result of liquidity drying up, experts say the spread that we pay for stocks will increase to $0.53 per share. That is a 2% loss upfront on a $25 dollar stock. The loss in compounding is tremendous. Expect to lose one half of your retirement because of all these side effects of the transaction tax.

What do stocks have to do with the real estate and banking crisis, you know, the ones that created this disaster? This tax will create jobs? A study from the Independent Budget Office of New York City found that a much smaller tax on just the NYSE and AMEX exchanges would result in Net Negative Revenue and result in hundreds of thousands of jobs lost, most of them unrelated to finance. There would be millions of jobs lost if all exchanges were taxed.

Look at Taiwan. They keep trying. Why? 10-14-09: Taiwan tax commission wants to introduce for a 3rd time a stock transaction tax. 1973 was the first time they introduced the tax, result: the market fell 63% within a year. In 1988 they reintroduced the tax for a second time, result: 19 consecutive losing days, down 43% in less than 3 months. This is wealth destruction of the middle class and poor.; Reply to this comment


by schoops November 19, 2009 4:06 AM EST: One thing I don't understand in this transaction tax craze is why do you want everybody to pay for Banks bailout? Why not just taxing the profits of the banks or create an insurance they fund? That's what the IMF is trying to do on an international level .

It is : - Easy to implement. Just find the institutions that creates a systemic risk or can manipulate the markets and tell them to pay for it.
- Fair. I am a small investor and did not cause the financial crisis, nor do farmers, hedgers, producers... We don't have to pay for them. Please don't tell me about 100 K yearly limit, it's a joke for everyone.
- Hard to avoid for banks. They can't trade abroad to avoid paying.
- It doesn't harm liquidity. If you tax equities 0.25 %, bid/ask spreads become 0.25% wider overnight, it's that simple. Market makers need to be profitable to insure liquidity. We would pay the tax 2 times, one time directly and 1 time indirectly by lack of liquidity.

But no, people prefer to pay taxes for something they didn't cause. Is there just one advantage of implementing a transaction tax over an insurance fund on banks? No. It's just more populist. Give me a break.

Anthony; Reply to this comment


by JimP625 November 18, 2009 11:18 PM EST: The US currently has the leading financial markets in the world. Part of what makes them "leading" is the deep liquidity available when one makes a trade. The financial markets employ 10's of thousands of people, and are supported by many other related industries.

What is remarkable is that politicians look to tax this remarkable creation, and thereby help to undo it. We are no longer leaders in virtually any industry...autos come to mind. And now we are going to destroy one of our last remaining industries. Worse, when this is diminished, one wonders where the capital comes from to finance the next tech or biotech company.

This "little" tax will bring an end to active trading, because it will become onerous to trade actively. The politicians seem to have no trouble with dispensing with these actively trading evil speculators. Yet their volume by some estimates may account for nearly 70% of daily volume.

Once the evil speculators have been driven from the markets, with volume at perhaps 30% of it's current level, spreads between the buy and sell price on any exchange will widen, thereby costing any remaining participant (the little guy) a very large cost to buy and sell. Not to mention, since the volume is lower, those brokerage firms that manage to survive will by raising commission in order to stay in business.

Yet, the current industry and supporting industries will obviously downsize, either by going out of business or simply firing employees.

So in the final analysis, the markets will become much less efficient, many companies will go out of business, many will by necessity have to fire employees, and the tax receipts of the government will be much, much less than they anticipate, just as they have always been throughout history.

This country needs to get rid of politicians who support this type of short-sided, destructive legislation.

JimP625; Reply to this comment


by TaxMyRetirement November 18, 2009 9:39 PM EST: This tax will destroy the returns of 401k's, Pension funds, and Mutual funds who make millions of transactions per year.

This is a $50 to $100 Billion tax on Americas retirement accounts, you have some nerve calling it "small".

Investors and traders already pay capital gains taxes. If you want to tax Wall Street then tax their profits. Leave the middle class investors and small traders alone!; Reply to this comment


by Haverchuck November 18, 2009 9:25 PM EST: The problem with this type of tax is that basing it on the total value of the transaction makes it way too extreme and unsustainable. This is why it never gains traction and why it's usually repealed quickly in countries that try to enact it (the current version in Britain is a joke because of all the loopholes, BTW). The problem for the average Joe is that even if you buy some stock and intend to hold for the long term, stuff comes up (house repairs, medical bills, etc) which might make it necessary to sell earlier than expected, and if you have to sell at break even or a loss, you'll still be stuck paying this tax (and 0.25% is not insignificant at all). The only sustainable approach that would ever have a chance to be implemented is one that increases the amount taxed on profit, or one that increases the current exchange fees.; Reply to this comment


by Haverchuck November 18, 2009 9:22 PM EST: The problem with this type of tax is that basing it on the total value of the transaction makes it way too extreme and unsustainable. This is why it never gains traction and why it's usually repealed quickly in countries that try to enact it (the current version in Britain is a joke because of all the loopholes, BTW). The problem for the average Joe is that even if you buy some stock and intend to hold for the long term, stuff comes up (house repairs, medical bills, etc) which might make it necessary to sell earlier than expected, and if you have to sell at break even or a loss, you'll still be stuck paying this tax (and 0.25% is not insignificant at all). The only sustainable approach that would ever have a chance to be implemented is one that increases the amount taxed on profit, or one that increases the current exchange fees.; Reply to this comment


by n23mc November 18, 2009 9:22 PM EST: If someone wants 1000 shares of Walmart stock, the TAX ALONE will be $270.75 for buying & selling it!!!!!!!!!!!! HOW CAN YOU TAX THE MIDDLE INCOME PEOPLE LIKE THAT WHO ARE TRYING TO GET AHEAD!!!! OBAMA SAID NO TAX HIKES FOR THOSE MAKING UNDER $250K!!!! I'M A LIFELONG DEMOCRAT WHO WILL ***DEFINITELY*** VOTE REPUBLICAN IF THIS GOES THRU!!! THIS IDEA IS A HUUUUUUUUUUUUUGE TAX THAT LOOKS DECEPTIVELY SMALL!!! SNEAKY!!!! DON'T GOUGE TAX MAIN STREET PEOPLE WHO HAVE MONEY IN A BROKERAGE ACCOUNTS!!!! WE'RE NOT WALL STREET!!!; Reply to this comment