Contributed by David Kane, Maryknoll Lay Missioner who worked in Washington DC at the Maryknoll Office for Global Concerns from 2006-2012. Dave and his family will be living in João Pessoa, Brazil.
There is a simple and relatively painless way to confront two central economic problems facing the world today: the lack of money available for public investments necessary to create the conditions for human dignity; and increasing economic insecurity due to the growing size and influence of financial institutions.
Over the past few decades, the financial sector has grown to historic proportions. In 2010, the assets of the six largest U.S. banks equaled 62% of U.S. gross domestic product – up from 18% in 1995.The resulting “casino” economy has created chaos, throwing people out of work and families out of their homes unnecessarily and costing governments trillions of dollars in bailouts. A FTT would help decrease economic instability and shift money out of the bloated financial sector and into the real economy where it can create jobs and progress.
What is a Financial Transaction Tax?
A financial transaction tax (FTT), would place a very small tax (usually between 0.0001% and 0.5%) on different financial transactions. Normally the tax is placed on the buying and selling of stocks, bonds, derivatives, futures, options and/or currencies. Compare that to the fact that many states currently charge a full 9% tax on the sale of most consumer goods.
Because the tax is so small, the vast majority of investors would feel practically no impact. Those who would be affected are a new type of investor called high frequency traders. They use complex computer programs to buy and sell thousands or even millions of times every second. While some have argued that these traders help to lower the cost of trading, there is growing evidence that they have a negative effect on markets. Numerous times in the past few years, markets have had to shut down temporarily because of out of control high frequency computer programs.
Has a FTT been used before?
The U.S. currently has a FTT of 0.0034% on stock transactions that pays for the Security Exchange Commission’s budget. Between 1914 and 1966, the U.S. had another FTT. In 2011 a total of 40 countries had an FTT in operation. A number of European countries will likely implement new FTTs later this year.
How much money could a FTT raise?
Which transactions are taxed and at what level affects the amount of money raised. Around the world, FTTs brought in a total of $38 billion in 2011. A study by the Chicago Political Economy Group showed that a U.S. FTT would have brought in between $750 billion and $1.2 trillion each year from 2005 to 2009, while the Center for Economic Policy Research has a proposal with a (conservative) estimate of $177 billion being raised.
Are we serious about tackling the deficit?
At the end of 2012, the U.S. faces a “fiscal cliff” when a number of taxes are set to automatically increase and severe cuts in public spending are scheduled to begin. The cumulative effect of these changes could create a “significant recession” and the loss of close to 2 million jobs, according to the Congressional Budget Office.
Of the options being discussed to avoid falling off this cliff, none come close to bringing in as much money as a FTT. If members of Congress are serious about tackling this issue, a FTT must be part of the discussion. Even using CEPR’s most conservative estimate of $177 billion, a FTT would still dwarf the alternatives:
What does the Catholic Church say about a FTT?
The Vatican’s Pontifical Council for Justice and Peace recently stated that governments should consider “taxation measures on financial transactions through fair but modulated rates with charges proportionate to the complexity of the operations, especially those made on the “secondary” market. Such taxation would be very useful in promoting global development and sustainability according to the principles of social justice and solidarity. It could also contribute to the creation of a world reserve fund to support the economies of the countries hit by crisis as well as the recovery of their monetary and financial system…”
The FTT provides a clear way to uphold the priority for the poor and marginalized by addressing a core set of habits contributing to the increasing inequity between the rich and poor. The financial sector is a key driver of the recent recession, the massive foreclosures, the increase in unemployment, etc. Thus, the FTT also illuminates one of the deeper structural injustices of our time, helping to cultivate the habit of the faithful and all people to attend to systems of injustice or evil. In turn, we develop the virtues of justice and solidarity as we live out our call to holiness.