The Center for Economic and Policy Research (CEPR) reported in January that a tax on trades of stocks, options, futures and other financial instruments could generate $150 billion this year, or over 1% of U.S. gross domestic product.
The taxing of financial transactions has gained traction overseas in the wake of the global financial crisis. French President Nicolas Sarkozy recently said a financial transaction tax is one of his top priorities as leader of the Group of 20 nations this year, according to press reports.
The CEPR study looks at a 0.25% tax on stock trades in the United Kingdom and estimates that an equivalent tax in the United States could raise $40 billion a year for the Treasury.
“This is not hypothetical,” said Dean Baker, co-director at CEPR and author of the report, in a statement. “The UK has used an FST to collect large amounts of revenue,” he said, adding that the International Monetary fund “is currently advocating the tax in recognition of the enormous amount of waste and rents in the financial sector.” Baker argues that taxing speculation will put more of the burden on more sophisticated investors such as hedge funds, and will not hurt individual investors, who will simply make fewer trades.
He says the money generated from the tax could be used to cover the cost of extending benefits for the unemployed, the projected Social Security shortfall and provide much needed aid for cash-strapped U.S. states.
