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  December 4, 2011

Why a Financial Transaction Tax?

Sarah Anderson: 0.25% tax on financial transactions could raise $150 billion a year in the US alone
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Sarah Anderson is the Global Economy Project Director, Institute for Policy Studies. In 2009, she served on an advisory committee to the Obama administration on bilateral investment treaties. She is the co-author of the books, "Field Guide to the Global Economy," and "Alternatives to Economic Globalization."


PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Washington. How is all of this going to be paid for? That's the question that's being asked when it comes to joblessness, unemployment insurance, or dealing with the deficits, whether it's in the United States, Europe, or many other countries. And one of the solutions being proposed in many quarters is: go where the money is. The finance sector is taking a disproportionate share of profits. So why not finance--why not tax (excuse me) financial transactions? There has even been some buy-in amongst some European leaders on this. So where is it heading? Now joining us to talk about the financial transaction tax and the struggle that's taking place about it is Sarah Anderson. She's the Global Economy Project director at the Institute for Policy Studies in Washington. She's also the author of the books Field Guide to the Global Economy and Alternatives to Economic Globalization. Thanks for joining us, Sarah.

SARAH ANDERSON, INSTITUTE FOR POLICY STUDIES: Really great to be here, Paul. Thanks.

JAY: So talk a little bit about where we're at, both a little bit--start, maybe, with the G-20, where there was--some of the European leaders bought into this idea. There was some thought going into those last G-20 meetings in Cannes that maybe it might be adopted, but I don't think it was. So what happened?

ANDERSON: Yeah. Well, it's been fascinating to see the progress on this issue over the past couple of years. And just to be clear on what the idea is, the idea is to put a very small tax on each trade of stocks and derivatives and other kinds of financial instruments as a way to not only raise a lot of money, but also discourage the kind of short-term speculative trading that many people think doesn't have any real social value and can make our markets less stable. And as you said, we have seen government leaders coming out in support of this, particularly in Europe, with the leaders of Germany and France being strong advocates of it now for about a year and a half. And initially they did hope to have an agreement among all of the G-20 countries. But there's been strong opposition from the United States, as well as countries like Canada. And so, going into the Cannes G-20 summit about a month or so ago, the hope was really to at least add a few more governments in support of the financial transactions tax, particularly ones outside of Europe that could make this more of an international agreement. And by the end of the summit, President Sarkozy from France was able to announce that Brazil, Argentina, and South Africa had all joined this sort of coalition of the willing on financial transactions taxes. Of course, the deal, you know, the details aren't all developed yet, but we do see forward movement. And I think it's highly likely that some grouping of countries will adopt an internationally coordinated agreement on financial transactions taxes sometime next year.

JAY: Well, how effective will that be if you don't get buy-in from New York and London?

ANDERSON: Yeah. Well, one thing that's important to look at is that there are already some forms of financial transactions taxes already in place. And, in fact, the UK, which is very opposed to the current proposals, actually already has a tax on trades of stock. They're opposed to expanding that to covering derivatives and other financial instruments, but they already have a very effective stock trading tax that raises about $6 billion a year. They didn't see a collapse of their financial markets when they introduced this. They have a very vigorous financial sector there, as you know. And so there are already real-world examples that prove that these kinds of taxes don't necessarily mean the end of the world for your financial sector. I would also argue that, hey, if we lose some of that high-frequency trading, the, you know, people who are trading every few seconds, just following movements in the market, not real investment, that wouldn't be such a loss for the economy. And so I think that not having a completely global agreement shouldn't stop countries from adopting these financial transactions taxes.

JAY: Well, where's the state of the debate in Washington and New York?

ANDERSON: It was fascinating to see what happened at the last G-20 summit, because the Obama administration did change their position in what I see as the positive way. Only about six weeks before that summit, Treasury Secretary Timothy Geithner had gone to a meeting of European finance ministers and really lectured them about how they should not adopt a financial transactions tax. And he got quite a strong backlash from some of the finance ministers who were basically saying, you know, who are you to talk. And so in Cannes we saw a very different tone from them, not coming out necessarily in support, but saying they agree with the overall goal of taxing the financial sector to help pay for the crisis. President Obama said they have some different ideas of how they would like to do this in the US, but they certainly weren't going to stand in the way of other countries wanting to implement financial transactions taxes. So that is a shift from, you know, openly hostile to neutral. And I think--we're hoping that we'll continue to see a progression on that. According to this book that came out a couple of months ago by Ron Suskind, the Confidence Men book that's been kind of abuzz in Washington, President Obama did support financial transactions taxes at one point. He said he was going to make it happen. And it was his adviser, Larry Summers, who put a stop to that. So he was in support at one time, and we're hoping he can return to that.

JAY: Well, that's kind of revealing, because Larry Summers was the voice of Wall Street in the administration, and that's been part of the issue here. So much of President Obama's funding comes from Wall Street, he's not likely to go to war with the people that are going to pay for his presidential campaign.

ANDERSON: Well, they're having to put out a lot of mixed messages these days, because I think they're understanding the power of the Occupy Wall Street movement and how much that has changed the discourse in our country and how much resonance some of their messages have had. And so you see mixed messages coming out. You see President Obama saying some things that sound sort of supportive of Occupy Wall Street at the same time that we know they're inviting the executives from Wall Street to the White House for fundraising pitches for the election campaign. They're going to need to make a decision here, I think, in terms of what is going to be the overriding message of their campaign. Are they going to go with, you know, the 99 percent message and where that leads you? Or are they going to rely on a different strategy that's all about raising money from Wall Street?

JAY: But isn't part of the problem is that they can message one way and govern another?

ANDERSON: That's true. But I'm trying to keep an open mind, because so much has changed in this country, I think, in the past month that very few people expected. If you see that the polls show the majority of Americans support increasing taxes on the wealthy, that means a lot of Republicans are supportive of those kinds of policies and are not being well represented here in Congress. And I think it's going to take a grassroots movement--.

JAY: You mean ordinary voter Republicans.

ANDERSON: Yes. And I think it's going to take grassroots pressure to really change the dynamic here in Washington, where we have just been in this horrible deadlock for so long. And we're seeing a lot more activism around this issue. One of the groups that's really on the forefront here in the US is National Nurses United, which is a union of registered nurses. And they've been doing rallies in Washington and in Wall Street, and they sent a delegation to France during the G-20 to hook up with other nurses unions from around the world. It was really a cool sight, to see that kind of solidarity. And they've really brought a tremendous grassroots energy and power into this movement. And if opinion polls start to show that Americans are supportive, that we know elections are often, you know, to a large extent driven by the polls--. So, hopefully, anything can happen here.

JAY: Now, how much tax are generally being proposed, and how much could be raised?

ANDERSON: Well, there's a lot of different proposals out there and different estimates, you know, bearing on what kinds of instruments are covered, how traders respond to this, which is a bit unknown. The Center for Economic and Policy Research has done a lot of analysis of this out there. They're talking about a tax on trades of stock at 0.25 percent, and then somewhat lower rates on derivatives and bonds and other instruments. And they estimate that you could raise $150 billion a year in the US alone, just with a unilateral financial transactions tax. So we're talking about a big pile of money, even bigger than rolling back the Bush tax cuts and many of the other big revenue raisers that are in the debate.

JAY: It's a big pile of money, but the actual rate seems awfully low, actually, and compared to how everything else in the economy gets taxed. Why so low?

ANDERSON: Well, you're right that it seems low when you think about the kind of sales tax that most people pay when they go to buy basic items like a winter coat or when they're putting gas in their car--they're paying much higher tax rates. But I think that these are levels that are determined so that they can have a response from the financial sector where trading activity will completely collapse. You're still raising money at the same time that you're having a bit of a regulatory impact in terms of discouraging the really high-frequency trading. And so it's designed to sort of meet that balance test of being able to raise money while still discouraging some of the most absurd forms of gambling on Wall Street.

JAY: But Wall Street is fighting this tooth and nail.

ANDERSON: Absolutely. And I think as a sign of how they're having to finally really start taking it seriously, they have been getting mobilized, just within the past month or so. I mentioned that Geithner went over to Europe and pissed off a lot of people by lecturing them against doing a financial transactions tax. That provoked a letter from the corporate lobby cheering him on: Dear Treasury Secretary Geithner, we're so proud of you for going over there and telling those Europeans not to do this. And so we're seeing now the Chamber of Commerce, the Business Roundtable and all taking this issue seriously enough to really start fighting back on it.

JAY: But Geithner doesn't do this if President Obama doesn't want Geithner to do this.

ANDERSON: Yeah. I mean, you mentioned Larry Summers before and the role he's played. Geithner is really carrying on, you know, the Summers perspective on this and playing, you know, the obstacle role. But hopefully, he's gotten the talking points now that Obama said in Cannes, which is, you know, it's important to tax the financial sector. As many people agree, it's undertaxed. And we're certainly not going to stand in the way of others who want to do this. And if they can implement it in Europe, in other countries--I mentioned Brazil, South Africa--and start to raise a lot of money without, you know, the sky coming, falling down, that could really also help build the momentum in this country. Policymakers here who've been very resistant could start, you know, scratching their heads and thinking, hmm, maybe this is not such a bad idea.

JAY: Thanks for joining us, Sarah.


JAY: And thank you for joining us on The Real News Network.

End of Transcript

DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.


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