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September-October 2010
Vol. 35, No. 5

Proposed transaction taxes could bolster aid

Due to the high U.S. deficit and a still-depressed economy, new sources of funding are necessary to help the U.S. respond to climate change; maintain promised levels of response to global health crises, including HIV and AIDS; reduce the deficit; and respond to critical needs at home. As a possible source of revenue, financial speculation taxes (FST) or financial transactions taxes (FTT) -- small (on the order of 0.25 percent) levies on trades of stocks, derivatives, currency and other financial instruments -- are gathering significant attention worldwide.

The United States had a transfer tax from 1914 to 1966. The Revenue Act of 1914 levied a 0.2 percent tax on all sales and transfers of stock. In 1932, Congress more than doubled the tax to help financial recovery and job creation during the Great Depression. The United Kingdom currently levies a similar tax and despite this tax, has the highest volume exchange in Europe.
Several FST/FTT bills have been introduced in the 111th Congress. Examples include: HR 4191 (sponsored by Rep. Peter DeFazio, D-OR), the Let Wall Street Pay for the Restoration of Main Street Act and S2927 (sponsored by Sen. Tom Harkin, D-IA), the Wall Street Fair Share Act, which would raise revenues for job creation and to reduce the deficit. To ensure that the tax would target speculators and not the average investor or pension funds, the tax would be refunded for tax-favored retirement accounts, education savings accounts, health savings accounts, mutual funds and the first $100,000 of transactions annually that are not already exempted. It is estimated that this tax could raise $150 billion a year.

HR 5783 (sponsored by Rep. Pete Stark, D-CA), the Investing in Our Future Act, would place a tiny levy (0.005 percent) on the untaxed foreign currency exchange market – where one currency is exchanged for another – to raise funds for climate change and health programs in impoverished countries. The bill exempts transactions under $10,000, so it would have very little impact on small-scale traders, middle class investors, and travelers. It also could generate billions of dollars annually.

Forty percent of the revenues generated would go toward United Nations climate funding, to help impoverished countries deal with climate impacts that they did not cause, such as increasingly severe droughts, floods, crop losses and water shortages and grow their economies sustainably. Another 40 percent would go to the Global Fund to Fight AIDS, Tuberculosis and Malaria and other international health initiatives, and 20 percent to affordable childcare for working parents in the U.S.

According to the Center for Economic Policy Research, a financial speculation tax adopted by the United States could generate as much as $177 billion per year, based on taxes ranging from 0.01 percent on currency transactions to 0.25 percent on stock trades – and assuming a 50 percent drop in trading volumes.

In their recent report, Taxing the Wall Street Casino, the Institute for Policy Studies (IPS) notes that in recent years, “[T]echnological advances have made it easier to collect financial speculation taxes. Clearing and settlement services, which handle the processes of confirming terms of trade and making the deals legally binding, have become much more centralized, organized and standardized. This allows for tax collection on all types of financial instruments, even those traded outside formal exchanges (called ‘over-the-counter trades’). The IMF confirmed the administrative feasibility of such taxes in a recent report.”

The discussion about financial transaction/speculation taxes is likely to continue for some time, giving decision-makers and interested citizens opportunities to iron out the details, but the conversation is very timely and will, hopefully, move toward a decision without delay. For additional information, see the IPS report, Taxing the Wall Street Casino, which includes a list of excellent resources.

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