Securities Turnover Excise Tax

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= what should have been done instead of the bail-out


Thomas Hartmann:

"there’s another way: Create an agency to fund the bailout, loan that agencythe money from the treasury, and then have that agency tax Wall Street to payus (the treasury) back.

It’s been done before, and has several benefits.

In the United Kingdom, for example, whenever you buy or sell a share of stock(or a credit swap or a derivative, or any other activity of that sort) you paya small tax on the transaction. We did the same thing here in the US from1914 to 1966 (and, before that, we did it to finance the Spanish American Warand the Civil War).

For us, this Securities Turnover Excise Tax (STET) was a revenue source. For example, if we were to instate a .25 percent STET (tax) on everystock, swap, derivative, or other trade today, it would produce – in its firstyear – around $150 billion in revenue. Wall Street would be generatingthe money to fund its own bailout. (For comparison, as best I candetermine, the UK’s STET is .25 percent, and Taiwan just dropped theirs from.60 to .30 percent.)

But there are other benefits.

As John Maynard Keynes pointed out in his seminal economics tome, The General Theory of Employment, Interest,and Money in 1936, such a securities transaction tax would have the effectof “mitigating the predominance of speculation over enterprise.”

In other words, it would tamp down toxic speculation, while encouraging healthyinvestment. The reason is pretty straightforward: When there’s no cost totrading, there’s no cost to gambling. The current system is like going toa casino where the house never takes anything; a gambler’s paradise. Without costs to the transaction, people of large means are encourage tospeculate – to, for example, buy a million shares of a particular stock over aday or two purely with the goal of driving up the stock’s price (becauseeverybody else sees all the buying activity and thinks they should jump ontothe bandwagon) so three days down the road they can sell all their stock at aprofit and get out before it collapses as the result of their sale. (Weironically call the outcome of this “market volatility.”)

Investment, on the other hand, is what happens when people buy stock becausethey believe the company has an underlying value. They’re expecting thevalue will increase over time because the company has a good product or serviceand good management. Investment stabilizes markets, makes stock pricesreflect real company values, and helps small investors securely build valueover time.

Historically, from the founding of our country until the last century, mostpeople invested rather than speculated. When rules limiting speculationwere cut during the first big Republican deregulation binge during theadministrations of Warren Harding, Calvin Coolidge, and Herbert Hoover(1921-1933), it created a speculative fever that led directly to the housingbubble of the early 20s (which started in Florida, where property values weregoing up as much as 70 percent per year, and then spread nationwide, only toburst nationally starting in 1927 as housing values began to collapse), thenthe falling housing market popped the stock market bubble and produced thegreat stock market crash of 1929. That speculation aggregated enormouswealth in a very few hands, crashed the housing and stock markets, and producedthe Republican Great Depression of 1930-1942. Franklin D. Roosevelt, as part of the New Deal, put into place a series ofrules to discourage speculation and promote investment, including maintaining –and doubling – the Securities Transaction Excise Tax. Other countriesfollowed our lead, and the UK, France, Japan, Germany, Italy, Greece,Australia, France, China, Chile, Malaysia, India, Austria, and Belgium have allhad or have STETs." (