The financial sector’s gains are raising taxes for the rest of us, but a tax on transactions could be good for the public, without hurting investors.
By Les Leopold
You want to make a million dollars an hour? Then you’d better watch out for those who are dying to tax your good fortune away even before you get it.
The do-gooders dare to believe that the financial sector is collecting hidden and unauthorized taxes from the rest of us.
Unfortunately, they may have a case, and it’s catching on. When hedge-fund managers conduct speculative raids on a nation’s currency, the money they waltz away with actually comes from taxpayers, via their central banks. In the George Soros deal, for example, the Bank of England lost funds, and the British people either received less from their government or had to pay more in taxes to make up for it.
Although that process was opaque and prolonged, the final ledger was clear: money went from the British and Swedish people to Soros and other financial speculators.
A Hidden Wealth Tax On The Rest Of Us
Is this compulsory payment to speculators really a hidden tax?
When hedge funds use insider information or rumormongering to extract money from markets, isn’t this a hidden tax on the buying and selling of financial instruments? When high-speed traders suck up small sums from virtually every trade made by the rest of us, aren’t they pocketing a hidden sales tax on our mutual funds, pension funds, and 401(k)s?
Or how about our too-big-to-fail hedge funds and banks that gorged themselves on trillions in bailouts and federally subsidized loans? Wasn’t that transfer from the public purse to financial elites a hidden wealth tax on the rest of us?
Then there’s that handful of “winners” who extracted billions through the creation and peddling of toxic assets and rigged securities that were designed to fail.
Rigged Securities Mean Strained Public Budgets, Loss of Services
Unfortunately, that money had to come from somewhere — namely, from folks like those five Wisconsin school districts. Unless they win their court case, isn’t it likely that either Wisconsin school kids will get fewer services or their parents will see tax increases, as a result of what the hedge funds did?
Add it up: bailouts, dubious high-speed trading fees, illegal insider-trading scams, rumormongering, securities designed to fail, and speculative raids on currencies — that ’s a lot of taxation without representation. Meanwhile, state and local governments are cutting services and raising overt taxes to make up for the losses and to provide services for the eight million workers who lost their jobs due to the financial crash.
So, first we pay hidden taxes to financial elites and then we pay overt taxes to clean up the financial mess?
Huge Growth in Financial Sector Derived From Hidden Taxes on Society
Of course, hedge-fund managers aren’t the only ones who extracted money from this toxic process at our expense. There were the predatory mortgage lenders, the investment banks that gobbled up the crap mortgages and then packaged, repackaged, and repackaged them again into CDOs of all shapes and stripes.
There were the ratings agencies whose rapidly rising profits depended on blessing these CDO monstrosities with AAA ratings. There were the proprietary traders and hedge funds and brokers who peddled the crap. Many financiers grew rich from hawking securities that had no real value. Now we’re paying for all of their ill-gotten gains.
It doesn’t bode well for the million-an-hour club when we examine the contours of our economy. During the last generation, the financial sector mushroomed in size and garnered a larger and larger share of all corporate profits.
Is that because of the “value” it produced for the economy or because of the hidden taxes it extracted?
Backlash to Wall Street Excess?
All in all, the million-an-hour club might want to bolt the door and draw the shades tight.
Outside, the public sees a bloated financial sector that extracts humongous hidden taxes from the rest of us. In the rigged casino that is high finance, those hidden taxes are the house’s money — and one day the public may want it back.
That’s why the do-gooders are working right now to put an end to these hidden taxes. As they see it, the drunken gamblers who wrecked the place should pay for the damages done. More important, the casinos should be shut down entirely to save us from the next greed-inspired crash.
So, take cover as those do-gooders line up their big gun that’s pointed squarely at the million-an-hour club. It can be summed up in three words: financial transaction tax.
How the Financial Transaction Tax Will Benefit Investors
What the financial transaction tax really does is replace the hidden tax (which is now extracted by hedge funds and banks) with an out-in-the-open tax that goes to the commonwealth. Pension funds, mutual funds, and the average trader might not see a rise in the actual cost of trading — only a change in who is collecting the tax.
The “financial speculation tax” is both aptly named and carefully targeted, much to the chagrin of the million-an-hour club:
- It goes after useless speculation.
- It reclaims for the nation the money that is being siphoned from markets.
- It makes it much harder for the sharks to make enormous profits from high-frequency trading.
- It will move about $150 billion a year from the pockets of financial elites and put enormous downward pressure on their inflated incomes.
Who knows, it might even motivate business school grads (and any avid young business readers of this series) to forsake Wall Street for more productive careers in rebuilding the real American economy or, God forbid, for careers in public service.
Obama Flip-Flopped On Transactions Tax
If this tax is such a no-brainer, though, why don’t we have one in the United States? Timothy Geithner, our Treasury secretary at the time of this writing, does not like the idea, so I called his office to ask him why. Unfortunately, he was unable to make time for me. Yet, his office did give me a statement on October 11, 2011, that I’m permitted to attribute to a “Treasury Department official:”
A financial transaction tax (FTT) is not an idea we are planning to support in the U.S. FTTs are hard to implement globally, are generally borne by retail investors, are prone to regulatory arbitrage, depress asset prices and trading volumes, and increase capital costs.
(Meanwhile 11 European countries are instituting a FTT.)
What does President Obama really think about a FTT? Supposedly, the president once liked the speculation tax idea. According to Ron Suskind in Confidence Men, he told his economic team, “We’re going to do this!” But Larry Summers, then Obama ’s top economic adviser, was of the same mind as Geithner and killed the idea.
If Obama truly wanted a financial transaction tax, he could have compelled Summers and Geithner to move on it. In fact, if he really wanted one, maybe he wouldn’t even be dealing with top economic advisers who come from Wall Street and who venerate hedge-fund billionaires.
Why Don’t We Already Have The Transactions Tax?
So really, why aren't we moving on this badly needed tax on Wall Street?
Because very wealthy, powerfully connected financial elites would lose by it. And they will do all they can to make sure it doesn’t see the light of day, unless forced to do so by a very large and very vocal popular movement.
You can help make that happen: watch out for the National Nurses United, a union of 150,000 nurses across the U.S. who are fighting for a Robin Hood Tax. Wherever there’s a protest about high finance, you’ll find nurses, dressed like Robin no less, pressing for the tax.
Who would have thought that kindly, caring nurses could stand in the way of you making it into the million an hour club?
Step 10: Milk Millions in Special Tax Breaks
Step 9: Bet on the Race After You Know Who Wins
Step 8: Have the Right People Whispering in Your Ear
Step 7: Don’t Say Anything Remotely Truthful
Step 6: Rig Your Bets
Step 5: Betting Is For Chumps
Step 4: Use Other People's Money
Step 3: Rip off Entire Countries Because That's Where The Money Is
Step 2: Take, Don't Make
Step 1: How To Make A Million Dollars An Hour In Twelve Easy Steps