By Robert Reich
Alternet via USW Blog
Why is there so little discussion about one of Bernie Sanders’s most important proposals – to tax financial speculation?
Buying and selling stocks and bonds in order to beat others who are buying and selling stocks and bonds is a giant zero-sum game that wastes countless resources, uses up the talents of some of the nation’s best and brightest, and subjects financial market to unnecessary risk.
High-speed traders who employ advanced technologies in order to get information a millisecond before other traders get it don’t make financial markets more efficient. They make them more vulnerable to debacles like the “Flash Crash” of May 2010.
Wall Street Insiders who trade on confidential information unavailable to small investors don’t improve the productivity of financial markets. They just rig the game for themselves.
Bankers who trade in ever more complex derivatives – making bets on bets – don’t add real value. They only make the system more vulnerable to big losses, as occurred in the financial crisis of 2008.
All of which makes Bernie Sanders’s proposal for a speculation tax right on the mark.
He wants to tax stock trades at a rate of 0.5 percent (a trade of $1,000 would cost of $5), and bond trades at 0.1 percent.
The tax would reduce incentives for high-speed trading, insider deal-making, and short-term financial betting. (Hillary Clinton also favors a financial transactions tax but only on high-speed trading.)
Another big plus: Given the gargantuan size of the financial market and the huge volume of trading occurring within it every day, this tiny tax would generate lots of revenue.
Even a 0.01 percent transaction tax (a basis point is one-hundredth of a percentage point, or 0.01 percent) would raise $185 billion over 10 years, according to the nonpartisan Tax Policy Center.
Sanders’s 0.5 percent tax could thereby finance public investments that enlarge the economic pie rather than merely rearrange its slices – like tuition-free public education.