The AFL-CIO labor union has a new tax in mind.
Specifically, the union wants to apply a small tax — a tenth of 1 percent — on every stock transaction.
The tax would especially target firms that use so-called high-frequency trading, which uses technology to oversee many transactions in the blink of an eye.
The union-backed tax would not pose much of a threat to small and medium-sized investors but big firms like Goldman Sachs would feel the pinch.
Proponents say the bill would put an end to speculative trading.
“It would have two benefits, raise a lot of revenue and discourage speculative financial activity,” says Thea Lee, policy director at the AFL-CIO.
There may be hangups but as long as Washington collects, things should be okay, Lee says.
“The big disadvantage of most taxes is that they discourage some really productive activity,” Lee told Congressional newspaper The Hill.
“This would discourage numerous financial transactions. People flip their assets several times in an hour or a day. They make money but does it really add to the productive base of the United States?” she asked.
According to the labor union, levying a tax on every stock transaction a tenth of a percent could raise between $50 billion and $100 billion per year, money that could be used to pay for infrastructure projects and other spending priorities.
James Pethokoukis points out on his Political Risk blog on Reuters that the idea is nothing new.
Democrats have been pushing for a while for a 0.25 percent tax on all securities transaction (targeting to raise $150 billion) and Peter DeFazio, an Oregon Democrat, wants a 0.2 percent tax on crude oil futures to pay for transportation projects.
“With a stock transaction tax, investors would get hit directly through passed-along trading costs, just as a cap-and-trade emissions plan on business would quickly mean higher energy costs for consumers,” Pethokoukis argues.
But it gets worse, he says. A tax could just push trading, and the taxes it would generate, away from the United States.
“To the extent that active traders are nudged aside, volume would thin and spreads widen. Some investment firms might choose to locate offshore or trade overseas,” he warns.
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