Truly shared sacrifice includes Wall Street

The Occupy Wall Street (OWS) protests have stretched into their third week and seem to be growing in strength and numbers. The protestors have been generally mocked by press coverage for having an inchoate message. Though this general criticism is going to be generally true of any large gathering, it’s worth noting that failure of message discipline has hardly been the death-blow to other protest movements that tend to get treated much more respectfully by the press. Further, a simple root of their protest is that U.S. economic policy is unfairly tilted towards the already affluent – and I surely would not disagree with that.

If it was decided, however, to turn the attention garnered by the OWS protests into a single policy “ask” (not saying this would be a good decision – I know nothing about effective organizing!), I’d probably nominate the financial speculation tax (FST).

Even a very small FST (say 0.25 percent on the sale or purchase of a stock, with rates on other financial assets set so as to minimize tax-arbitrage opportunities) has the potential to raise significant amounts of revenue very progressively and to reduce short-term, destabilizing financial speculation while imposing only trivial costs on longer-term, productive investments. Investing in America’s Economy, EPI’s long-run budget blueprint, proposed an FST that the Tax Policy Center estimated would raise $821 billion over the next decade—revenue that would finance more job creation, ease budgetary pressures elsewhere, and help to eventually stabilize public debt as a share of the total economy.

From Flickr Creative Commons by Mathew Knott

To put the cost of the tax in perspective, it is important to realize that an FST of this size would raise today’s transactions costs for financial speculation by less than they’ve fallen (due to market innovations and technology) since the 1980s – and nobody in that decade seemed to think that high financial transactions were strangling market participants’ ability to engage in trading.

In short, such a tax would raise money from a sector (finance) that has profited enormously in recent decades (aided by government guarantees) while too much of the rest of the economy has lagged. It would also provide a progressive and extraordinarily efficient way to raise tax revenue – providing a much less painful way to resolve much of the debate over long-run budget sustainability. Consequently, the policy is gaining momentum on the American left and abroad. In budget proposals for the Peter G. Peterson Foundation’s Solutions Initiative, the Center for American Progress and the Roosevelt Campus Network also proposed FSTs, as did the Congressional Progressive Caucus’s People’s Budget. The European Union also appears to be headed towards a uniform FST.

Given that many of today’s most enthusiastic deficit-hawks like to talk about “going after sacred cows” and “shared sacrifice,” it is odd indeed that an FST doesn’t loom larger in the U.S. fiscal policy debate, particularly among the deficit-obsessed political centrists. Maybe the OWS crowd really does have a point about how economic policy is made.