The Dreaded T-Word

We’re being warned these days of huge budget deficits for years to come – even by President-elect Obama. The economy is in a precipitous downturn and no one, right or left, is advocating tax increases that would jeopardize a recovery. Bob Herbert, Op-Ed Columnist for the New York Times wrote in his column this morning that we are spending money as fast as we can on TARP and the proposed stimulus program plus the overhaul of the way we pay for health care. Even China is getting antsy and has been prompted to keep more of its money at home. Not good news for U.S. borrowers. Let’s face it, sooner or later we’re going to have to face the dreaded T-word – taxes.

However, according to Mr. Herbert, there’s a good idea out there that takes its cue from Willie Sutton. Why not go where the money is?

Dean Baker, an economist, is a strong advocate of a financial transaction tax. This would impose a small fee – perhaps 0.25 percent on the sale or transfer of stocks, bonds, and other financial assets, including the seemingly endless variety of exotic financial instruments that have been in the news so much lately.

Baker says that the fees would raise a ton of money, perhaps $100 billion or more annually. I think the government sorely needs that kind of money.

Herbert also brings up another intriguing element – while the fees would be a trivial expense for what the general public tends to think of as ordinary traders, that is people investing in stocks, bonds or other assets for some reasonable period of time – they would amount to a much heavier lift for speculators, the folks who bring a manic quality to the markets and who treat it like a casino.

Also according to Baker, “For the typical person holding stock, who is planning to hold it for a long period of time, paying a quarter of one percent on a trade is just not that big a deal.”

The beauty of the transfer tax; it tends to curb at least some speculation. “It’s a progressive tax,” Baker said, “that discourages nonproductive activity.”

The rampant irresponsibility of the Bush years by the White House, Congress and the general public when it comes to matters of finance, the costs of the wars in Iraq and Afghanistan were placed on credit cards and off the books. Their ultimate overall costs will be in the trillions. And yet, incredibly, Bush and Congress cut taxes in wartime! I have to agree with Herbert; that is totally insane!

The only remedy for fending off the Great Depression II has been deficit spending on a scale that’s over the moon. And baby boomers about ready to retire? Maybe all these deficits will just disappear; maybe a more prosperous future generation will just happily clean up the mess we left for them. But if none of that is true just maybe we should start looking for some other answers. A stock transfer tax just might not be a bad place to start.