STAMP TAX….Dean Baker proposes a simple way to put a modest damper on Wall Street — just enough of a damper, he suggests, to keep irrational exuberance from becoming too irrational:
The basic point is very simple. We impose a modest transactions tax on all financial transactions, for example a tax of 0.02 percent on the purchase or sale of a future contract or a tax of 0.25 percent on the purchase or sale of a share of stock. (The United Kingdom has had a tax of 0.25 percent on stock sales and purchases for many decades.) Such a tax could easily raise a $150 billion a year, enough to pay for a national health care program or a major clean energy initiative.
A tax of this magnitude will have almost no impact on someone who intends to buy and hold a financial asset. No airline is going to be discouraged from hedging on jet fuel futures because of a 0.02 percent tax, nor will any farmer be dissuaded from hedging on her corn crop.
….The only people who will really be hit by the tax are speculators; people who buy futures at 2:00, with the intentions of selling at 3:00. Even a modest tax can put a serious dent in the profits of those whose business is short-term speculation. We will therefore see less of this speculation, but it is hard to see why we should care.
This is sort of like the idea of charging a tiny fee for sending email: normal people wouldn’t even notice it, but it’s more than enough to make spamming a losing proposition. The difference is that an email tax is technologically impossible, while financial transaction taxes are generally quite simple and reasonably enforceable.
I only have two brief comments. First, I don’t know if this is a good idea on the merits. However, I’ve always had a temperamental aversion to ultra-short-term speculation, so it seemed worth passing along just to spark some discussion. Second, unless I’m mistaken, this wouldn’t have had any effect on our ongoing credit crisis, which was fundamentally caused by systemic mispricing of risk and the assumption of insane amounts of leverage, not too much speculation. (Also, perhaps, a bit of fraud here and there, but that’s a little less clear.) So this shouldn’t be taken as a proposal directly aimed at the current mess.
It still might be worth thinking about, though. Dean has more details in an old paper here.