After a year of multibillion-dollar bailouts of large Wall Street firms through programs such as the Troubled Asset Relief Program (TARP), many federal lawmakers are looking for payback from the financial industry. One idea is for a financial “transaction tax.”
Rep. Peter DeFazio (D-OR) and 25 other members of the House of Representatives have introduced the “Let Wall Street Pay for the Restoration of Main Street Act” (H.R. 4191) which would impose a tax on nearly all financial transactions, including stock trades, futures contracts, credit default swaps, and option transactions.
Sen. Tom Harkin (D-IA) said he plans to introduce a similar bill in the Senate.
Did During Depression
“Until 1966, the United States taxed all stock transactions and transfers,” Harkin said in a news conference call. “Indeed, Congress doubled the transaction tax rate during the Great Depression in order to finance economic recovery initiatives.”
The reaction in Washington has been mixed. Reciprocity with other nations seems to be a sticking point for many politicians. House Speaker Nancy Pelosi (D-CA) said in early December the idea has “a great deal of merit” as long as other major nations also do it.
Two Sides of Wall Street
Wall Street’s response to the transaction tax is mixed as well. In an interview with The Hill, John Bogle, founder of the Vanguard Group investment management company, favored the tax.
But other investment companies opposed it. In a press statement, online broker TradeKing voiced a concern of many trading companies.
“Our fear is that any tax on securities transactions will only serve to once again penalize everyday investors who are struggling right now to drive return on their shrinking investments to pay for a child’s college tuition, care for aging parents or save for a retirement that is looking further off in the distance every day. These are precisely the people our country is counting on to help pull us out of our current economic recession, but by burdening the investment system with an added transaction cost, we will only make that process longer and harder.”
Matthew Glans ([email protected]) is a legislative specialist in insurance and finance at The Heartland Institute.