But there is a deep divide over the wisdom of a financial transaction tax. Progressives see it as a smart way to simultaneously curb predatory trading while funding ambitious programs aimed at easing America’s inequality problem.
“The odds are still against a financial transaction tax being enacted, but for the first time in a decade this proposal should be considered as a viable policy option rather than just another talking point,” said Isaac Boltansky, director of policy research at Compass Point Research & Trading.
Last week, House Financial Services Chairwoman Maxine Waters said she’s “very interested” and “certainly looking at” a financial transaction tax.
‘Mindboggling’ concentration of wealth
Lawmakers will surely be tempted to tax transactions because it could raise vast sums of money at a time when Washington is strapped for cash.
“We have tremendous income inequality in our society and a giant deficit. A financial transaction tax would be an incredibly efficient and progressive way to raise revenue,” Aaron Klein, a former Treasury Department official in the Obama administration, told CNN Business.
“The concentration of wealth in the stock market is mindboggling,” said Klein, who is now a senior fellow of economic studies at the Brookings Institution.
“There is a fee today and the world hasn’t ended,” said Dennis Kelleher, CEO of Better Markets, a group that lobbies for tougher oversight of Wall Street. “The proposed fee is so puny that no reasonable retail investor would ever notice it.”
The financial industry is arguing the exact opposite.
“This approach has a long history of unintended consequences that will penalize workers, pensioners and American families,” a spokesperson for the Coalition to Prevent the Taxing of Retirement Savings told CNN Business.
“An FTT will increase trading costs for investors — including individuals — undermine the competitiveness of our capital markets and harm the US economy just as we work to recover from this pandemic,” the spokesperson said.
Some countries tried and failed
“There is no such thing as a tiny tax that raises big revenue,” Angel said in an interview.
He pointed to how some other countries, most notably Sweden in the 1980s, abandoned such taxes after trading volume vanished and revenue underwhelmed. (Of course, the United States, with its deep financial markets, massive economy and the world’s reserve currency, is not Sweden.)
“It really messes up the market,” Angel said.
If US trading volumes fell sharply, the FTT wouldn’t raise nearly as much as the $777 billion the CBO estimates.
Greg Valliere, chief US policy strategist at AGF Investments, said the chances of a financial transaction tax are “very slim” because moderate Democrats would be unlikely to back it.
“It would be a disaster. It’s a pandora’s box that should not be opened,” Valliere said.
Of course, it’s possible that FTT proposals in Congress get scaled back, including by lowering the rate or excluding smaller blocks of trades.
Leveling the playing field
“We firmly believe a financial transaction tax would injure Americans trying to save for retirement,” Griffin said.
Klein, the Brookings Institution fellow, called Griffin’s comments a “self-serving lie” because high-frequency trading firms like his would be among those hurt.
The GameStop trading frenzy drew attention onto how Robinhood was able to bring zero-commission trading to the masses.
Payment for order flow has made it cheap and easy to trade. However, critics say it’s really Wall Street that is getting the better end of the deal by skimming pennies off each trade and racing ahead of retail orders to make a profit.
“We believe the markets today are rigged to favor high-frequency traders,” said Kelleher, the Better Markets CEO. “The industry has taken visible upfront commission fees and disguised it into invisible payment for order flow.”
In other words, it’s not really free to trade.
“A financial fee on orders could be the death knell for predatory high frequency trading,” he said. “Everyone will be better off — except for the predators.”