November 25, 2009 04:28 PM EST by Elizabeth MacDonald
A House bill now being drafted would raise a purported $150 billion each year to pay for new manufacturing jobs by taxing securities transactions such as stocks, options, derivatives and futures.
But the effect here would be the polar opposite. It would hurt job creation, notably in the already flattened finance sector, where jobs will fly overseas if the US is the only country with this taxing regime. And although Congress says they'll exempt trades made for retirement savings, chances are slim that will happen as sequestering such trades are notoriously difficult to track. The tax will likely get passed along to investors, hurting portfolios.
Essentially a VAT on securities, the "Let Wall Street Pay for the Restoration of Main Street Act of 2009" is backed by Democratic Reps. Peter DeFazio (Ore.) and Ed Perlmutter (Colo.). It would slap a quarter of a percent tax on the sale and purchase of financial instruments.
But taxing trades could happen, as it has come up just recently for a totally different idea. Just this past July, President Barack Obama floated the idea of taxing securities at a night-time news conference, but for a different cause: to raise money for a "kitty" to help pay for winding down too-big-to-fail companies.
The president at the time cited the tax as a brand new "fee" for banks that conduct "high risk," "far-out transactions" and pose systemic risk because they are too big to fail.
Just as then, the Wall Street tax raises these issues: which government official determines which security to tax? Who decides which manufacturing sectors get the money to create jobs?
The Wall Street tax strikes at the heart of a heated debate in Washington--how to foster economic growth and create jobs. Is there another way? "Cut taxes and regulations so that the engine of job growth "“ small businesses "“ can be more confident about the future and decide to expand and hire," says Richard Karlgaard, publisher of Forbes Magazine, adding, "respect private property. Don't degrade the currency. Don't tear up loans."
The Wall Street Tax
With fears mounting they will be rousted out of their own powerful jobs in the midterms, Congressional Democrats are looking for ways to save their own jobs by creating jobs using your tax money, after the nation's unemployment rate hit 10.2% in October and as job losses have steadily mounted since the crisis unfolded, with more than 7 million positions vaporized.
Job losses have also steadily risen since the Administration got Congress to pass its $787 billion stimulus plan earlier this year to help create jobs.
History of the Tobin Tax
A tax on financial transactions was first suggested by the American economist James Tobin three decades ago, but it never gained traction because for one, the tax would have to be global, else banks would take flight to more lax regimes"”and the tax-happy home country would lose jobs.
When then president Richard Nixon announced on August 15, 1971 that the US dollar would no longer be pegged to gold, effectively abolishing the Bretton Woods system, Tobin pitched a new system for international currency stability to stop any resulting speculation, including an international charge on foreign-exchange transactions.
Since then the Tobin Tax has been proposed as a way to solve poverty, world hunger, and to help create development in third world countries. It has also been proposed that having the United Nations manage a Tobin tax would give the U.N. a large bucket of funding that would make this body no longer dependent on donations by participating states. Canada, Brazil, Venezuela, the UK, Belgium, France, Austria have all backed a Tobin tax for various issues as well.
Tobin Himself Speaks on the Tobin Tax
But in an interview given to the German publication Der Spiegel in 2001, the economist Tobin said he himself never envisioned his tax would be intended for poverty, job growth, or the global justice movement, and was meant to only curb foreign currency manipulations by speculators.
"The antiglobalization movement had stressed the income from the taxes with which they want to finance their projects to improve the world. They've hijacked my name," he said, adding "The tax on foreign exchange transactions was devised to cushion exchange rate fluctuations," and that such a tax "dissuades speculators."
The "Let Wall Street Pay for the Restoration of Main Street Act of 2009"
The bill, a copy of which was obtained by DC publication The Hill, says that half of the $150 billion in tax revenue would go toward reducing the deficit, while the other half would be deposited in a "Job Creation Reserve" to support new jobs.
The job fund would be available to offset the additional costs of the 2009 highway bill and other legislation that creates jobs.
The stock tax measure specifies that tax revenue would need to support jobs that pay at least the median wage in the United States, promotes manufacturing jobs and prohibits any recipient of the $700 billion financial bailout from directly benefiting from the job reserve fund.
Organizations supporting the tax include the Americans for Financial Reform, Public Citizen, the Service Employees International Union (SEIU) and the AFL-CIO, among others.
Tobin Tax a Jobs Killer
First, a unilateral "Tobin Tax" will make the US less competitive in the financial sector, says Fox News analyst James Farrell. He adds it will definitely create jobs, "unfortunately, those jobs will be in London or other financial centers that choose not to commit similar acts of unilateral [economic] suicide."
Congress Usually Does Not Follow Through
Despite repeated avowals that it will only use revenues raised for a specific project or issue, Congress usually spends the tax revenues raised on some other pet project.
That was true for the biggest entitlement of all, Social Security. Social Security taxes were first assessed to pay for retirement, but then Democrats in the sixties pushed for a "?unified' budget, which let Congress raid Social Security trust funds for the first time to spend on all sorts of vote-getting projects in their districts.
Although Democratic presidential contender Al Gore tried with his "lock box" to protect Social Security, the US has not had a single trust fund that has not been shamelessly raided by Congress to pay for their pet projects, Farrell says.
Will a New Tobin Tax Hurt Retiree Savings?
At a time when American portfolios have been decimated and companies are starving for cash, Farrell asks should the country impose an additional tax that will disincentivize people investing in the market and limit the new cash that these companies need?
Tax something and you get less of it, Steve Forbes likes to say. This new tax would undoubtedly get passed along to individual shareholders and increase the cost of investing for retirement, education and home ownership.
Can Government Create Jobs?
Democrats just simply do not get the concept that government does not create jobs -- the private sector does.
This tax is another way of Congress directing where investments should be made, meaning, of picking winners and losers, Farrell says. "They have been so successful with Fannie Mae, Freddie Mac, Amtrak and the US Postal Service that we should definitely let them decide what [sectors] are good investments" for jobs, he says.
Finally, to the extent that they believe that a government dollar can "create" a job, they simply do not get that taking the money away from individuals through taxes "destroy" jobs.
PEOPLE AND COMPANIES WILL MOVE TO ANOTHER COUNTRY TO TRADE STOCK AND BONDS BEFORE THEY WILL PAY A TAX
The Dems have finaly found something they can tax and not get less of steve. The rise in the dow is evidence of that. each week as the 401K money is pulled out of pay checksit has to go somewhere. average workers have no confidence in the ss retirement and have almost no where else to go for defered tax. when the gov sees all that money sitting they are attempting a pre-tax to bost revinue now till they can tax the meat later.
In the US, we all know that the only way jobs are created is by spending someone's money. Unfortunately, Banks and corporations are not spending money in the US and are not generating any new jobs. So, how can we improve our situation? Maybe the problem is one of taxation. Today, we tax mostly income. To get back to balance, why don't we start taxing spending? This will give people a chance to accumulate money for a change. No more income tax, WOW!
This is not a tax on Wall Street... this is a tax on Main Street. A 0.25% tax on the principal every trade! There is already a small tax that is in place on any sale on the exchanges. This will only be a continuation of this Democratic Congress & Administration's mission to destroy the wealth of not just the wealthy but all of this. This is criminal and unconstitutional. Every day there is another ludicrous bill being pushed. Health Care. New taxes.Too big to fail bailouts. Vote them out!
It is like always, those who have the most cry the loudest if they are to give a very little of their too much. So we will have WWIII and no way out. In Europe the new treaty gives Brussels the power to send troops to anywhere. There are too many poor and jobless on this globe, so a war will solve this problem. This time it is two to three Billion that have to be eliminated, otherwise it is not worthwhile. Those gaining from any war will survive, as always. Regards
Great article. In regards to the last section, "Can Government Create Jobs", how can we convince the People's Republic Of Pelosi (Congress) of this? I wish there was an easy answer.
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Half of the volume in the NYSE is from high frequency trading and that is distorting the market. I am highly suspicious of any claim that a tax would have any meaningful effect on jobs in this country. I would reduce the proposed tax by half and I think that would eliminate the unhealthy effect of HFT that has increased since the competitive forces of Lehman and Bear Stearns are gone to keep HFT more balanced.
When will the lame brains figure out that when the middle class get so fed up with taxes they will just set on their butts let their saving just dwindle and then go on the system. Government can only absorb so much blood from a body then the body just gives up and says to hell with the system. THE government takes away the incentive to work.
The only jobs the government will create by taxing financial tranactions are the government jobs that will decide where to collect the tax dollars. For every $1 the federal government taxes for job creation, less 20 cents is returned to private industry for job creation. Here is a much better idea. Target the areas of the economy were job creation is needed and will provide the greatest return. Then create tax credits and tax incentives for individuals that invest in these areas.
These government people will do anything to get our money and stay in power, anything but solving the problem. Term limits and cutting the size of government.
Do you realize 1/4% transaction tax means if you buy then later sell 1,000 shares of Walmart, that you'll have to pay the US Government over TWO HUNDRED SEVENTY DOLLARS in taxes alone! And it makes no difference if you made or lost money on the stock trade! $270 just to have the right to buy & sell stocks. $270 every time you make a trade that size is incredibly damaging to those of us in the middle class who have brokerage accounts. The number of such folks is in the millionsssssssss.
Liz, (Part 2) Democrats are hypocritical in three areas of life. They talk about jobs but their policies drove thousands of jobs from this country. They consider the 13 million that have union membership as the only ones to be worthy of being considered worthy while they relegate the 141 million as unworthy of consideration. They talk of families but their policies have nearly destroyed families. They talk of religion, but they don't know a real God if they saw one. BobH
Folks, I believe that politicians are equating what they do to a JOB when in reality they produce nothing of use except for the rising air temperatures from all of their expert mouths. They define a job as something similiar to what they do. They really believe that they have JOBS but the truth is that they do not have JOBS and in fact I would call it an ANTI-JOB since it sucks the money out of the economy in order to pay them for their valuable time. Think about it. Regards
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