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Obama considering a tax on Wall Street

Jackie Calmes reports that the White House is weighing a new tax on Wall Street that would help balance the budget deficit and, though the article doesn't say this, show that the administration's punishing the banks.

The two tax ideas most commonly cited are a transactions tax and a tax on bonuses. But according to Calmes, Geithner has pretty much scotched both, "arguing that a transactions tax would simply be passed on to customers and a bonus tax could be easily circumvented." So the administration is now looking for "an alternative tax that does not share the weaknesses it claims for the other ideas."

Any ideas?

By Ezra Klein  |  January 11, 2010; 2:00 PM ET
Categories:  Financial Regulation  
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Comments

How about "Flog a CEO day"? CEO's of companies such as Goldman Sachs can pay a $10 million dollar fine, or be set in the stocks for a day with free whips, floggers and cat o-nine tails available to the public. Technically, it isn't even a tax, just a voluntary contribution, so no worries there. If they refuse to contribute, then the public can enjoy some much needed therapy.

Posted by: palarran | January 11, 2010 2:13 PM | Report abuse

It's too obvious to actually be tried, but how about just raising income tax rates on those making more than say $500,000?

Posted by: AuthorEditor | January 11, 2010 2:18 PM | Report abuse

Yet more ammunition for the Geithner must go crowd, of which I'm a new member.

ALL taxes on a corporation are passed on, whats his point? By that logic, Mr Treasury Secretary, conservatives would say you should get rid of all corporate income taxes, because they're passed on to the consumer in higher prices!

This is idiocy. Of course a financial transactions tax is a good idea, in much the same way that higher and higher cigarette taxes were a good idea, both for the revenue they'll bring as well as to act as a governor on speculation in financial markets!

That Geithner is opposed to this is another reason on a growing list of why his narrow little ass oughta be thrown out of the Treasury building.

Posted by: zeppelin003 | January 11, 2010 2:28 PM | Report abuse

The transaction tax is SUPPOSED to be passed along to the "consumer"- it's a VERY small tax on transactions that is used to discourage large-volume transactions by brokers that take advantage of small inefficiencies in the markets. The tax would void any profit gained by those transactions, which are only available to large trading institutions and their huge computers.

Posted by: alameda | January 11, 2010 2:28 PM | Report abuse

Soak the rich. Seriously. Bring back the top marginal tax bracket of 94% from 1944-45. Hey we're at war, right? That was on incomes above $200,000, which is $2,368,280 in 2008 dollars. That would raise quite a bit of much needed revenue which could then be used for additional stimulus and it would appropriately punish the Wall Street assholes.

Posted by: drjimcooper | January 11, 2010 2:30 PM | Report abuse

How about a "fire Geitner-and-transactions tax"? That'd make a whole lot of people happy, and be good policy. I'm confused why Geitner gets to foreclose options which are good policy and good politics when he's so unpopular and the deficit's so huge?

The tax on bonuses seems unconstitutional under bill of attainder/due process ....

Posted by: Chris_ | January 11, 2010 2:34 PM | Report abuse

Ask Geithner what business tax wouldn't be passed on to consumers in some way. I'm thinking there is no such tax.

The transactions tax is good because it raises revenue AND slows down pure speculation.

Geithner leaving isn't going to change jack for his critics (did the DoJ improve when Gonzo left?) but the guy really rubs people the wrong way which isn't good in politics.

Posted by: jamusco | January 11, 2010 2:34 PM | Report abuse

A real progressive tax on income and capital gains.

And yeah, fire Geitner.

Posted by: AZProgressive | January 11, 2010 2:36 PM | Report abuse

Ugh, Geithner's argument against a transactions tax is stupid. The point of the transactions tax is to (a) reduce churn on Wall Street, and (b) generate revenue. If it's passed on to consumers that's orthoganal.

Also isn't this an administration that's supporting an excise tax on insurance that will invariably be passed on to consumers?

Posted by: NicholasBeaudrot | January 11, 2010 2:37 PM | Report abuse

Everyone has covered the "Geithner is a fool/shill" angle pretty well already. Do the words "Tobin tax" mean nothing to Geithner?

An annual wealth tax would be good. It wouldn't hit Wall Street alone, so maybe doesn't work for the populist angle as well as a more-targeted financial sector tax. But a wealth tax is worthwhile on its own merits and would hit Wall Street harder than most other sectors.

Posted by: JonathanTE | January 11, 2010 2:43 PM | Report abuse

How about a tax similar to the polluter tax that funded the EPAs superfund clean-ups? Let's have an industry-wide tax that pays for the bailout and all of the ensuing damage the financial sector has done to the US economy, including what we paid for in stimulus funds. Then let's provide an annual tax that's set equal to the estimated damage they'll do to our economy in any given year. It could be simplified as the cost of a meltdown * the likelihood of a meltdown. As the risk they take increases, they'll pay more. We can even apply it using something like risk scores of companies, so as they take on less risk, the less we tax them. As the FTC has argued, fixed costs don't go to consumers - marginal costs do.

Lastly, let's also tax them at 100% of every dollar they spend in lobbying and public policy. They shouldn't be influencing policy - we're the citizens, not them.

Posted by: GrandArch | January 11, 2010 2:43 PM | Report abuse

Isn't passing on the transactions tax kind of the point? I.e, part of the point of a Tobin Tax is to decrease "churn" by making it expensive to buy and sell large volumes of stock repeatedly.

Posted by: StevenAttewell | January 11, 2010 2:46 PM | Report abuse

Can't we just up the capital gains tax on financial institutions (or add a new tax that functions the same way)? Banks might pass costs on to the consumer but it seems like they'd eventually have to just accept lower profits if they're going to stay competitive.

Posted by: WHSTCL | January 11, 2010 2:48 PM | Report abuse

A tax targeted at "Wall St" is a completely stupid idea. We need to simplify the tax code, not create more targeted nonsense that people will contort their business around in an attempt to avoid it.

If the government wants to make some money from Wall St.- just start charging some interest on the money we are giving banks again! They are using the spread to buy Treasuries so that we the taxpayers end up paying them interest.

We'd be better off implementing the Buffet tax on very short term capital gains to curb stock bubbles (maybe to 90% for securities held less than one day?), to drop the exclusion on capital gains tax for home sales to reduce the risk of another housing bubble, and getting rid of the tax exclusion for all employer provided health plans.

Posted by: staticvars | January 11, 2010 2:56 PM | Report abuse

The economy is starving for credit and we want to raise taxes and make the banks even more risk averse. Brilliant!

Posted by: sold2u | January 11, 2010 2:58 PM | Report abuse

If Geithner really argued against a Transaction ("Tobin") Tax by saying the cost would be passed on to the consumer, he should be fired, for simple intellectual dishonesty in his professional advice.

Any tax will be passed on to the consumer. That's the way things work, and it doesn't distinguish the Transaction Tax from other. The huge benefit of the Transaction Tax is that it makes the most speculative and least useful parts of Wall Street less lucrative, while other parts (rough valuation of companies, raising capital, long-term investing) are largely unaffected.

Now, maybe Geithner could attempt an honest, rational argument that we need to minimize friction in the system to get the most accurate valuation of companies and instruments, to minimize the differences between similar positions, etcetera. All the services that people like those of, say, Long-Term Capital Management claimed they offered society. Some economists agree with these positions, and maybe the argument would convince people. At least it would be honest.

If Geithner is resorting to disingenuousness or dishonesty to defend the interests of his Wall Street buddies - or evenif he's doing so to defend an honestly held, principled intellectual position that he feels is less politically appealing when presented in its own terms - he needs to go.

Posted by: WarrenTerra | January 11, 2010 3:11 PM | Report abuse

I agree that a bonus tax is a silly idea. It's silly to tax earned income at different rates, depending on whether it's regular salary or a bonus of some sort.

But like the others here have said, it's fine for the transactions tax to be passed through to the customer. Either way, it would discourage churn and speculation.

Alternatively, my personal variant on what staticvars referred to as the Buffett tax: the tax rate on the gain on any securities or securities-based transaction should be the greater of the holder's marginal income tax rate and {99 - number of days an asset is held}%. So if you bought and sold a financial derivative the same day, 99% of your gain would go to the IRS. If you held onto it for 50 days, you'd pay a 49% tax on your gain. If you held onto it for 90 days, your gain would be taxed as ordinary income.

But the point should be to reduce the amount of money that flows through the hands of the Wall Street banks and investment houses beyond that which turns into investments in actual companies. If the lords of Wall Street have less money passing through their hands, then they'll *have* less money, which will in turn reduce their influence.

As the old saw goes, he who has the gold makes the rules. Wall Street's made some pretty lousy rules; we need to take some of their gold away, so that they won't have so much power to make bad rules.

Posted by: rt42 | January 11, 2010 3:14 PM | Report abuse

This just lays bare how treasury is run by the banks and foreign policy is run by the military industrial complex. Obama is a puppet president, and we are serfs who are told to buy crappy insurance and go shopping.

Posted by: bmull | January 11, 2010 3:15 PM | Report abuse

Can't we just tax all forms of income the same, both income and capital?

Posted by: ideallydc | January 11, 2010 3:15 PM | Report abuse

Geithner needs to go, that is given. Let us not waste time on that.

Transaction tax is good, but negative is it will for sure drive stock market business to Dubai and other places.

One more option is to charge bank license fee in millions / billions for bigger banks based on:
- number of customer / accounts served
- amounts handled & dist. of amounts over these accounts
- bnouses paid (clue - new FDIC proposals)
- leverage of the bank
- inter connected of bank bets.

Posted by: umesh409 | January 11, 2010 3:22 PM | Report abuse

Geithner will oppose any tax that gets passed on to consumers? Okay then. Maybe it IS time for him to go.

Posted by: Chris_O | January 11, 2010 3:48 PM | Report abuse

While the "flog a CEO day" has its appeal, I will suggest, yet again, that we look into fair fines. The fact that these companies pay so little when they actually do something wrong is a joke. A $1000 fine is a lot to a little guy, but nothing to the rich guys.

http://supak.blogspot.com/2009/01/fair-fines-and-flatulence-taxes-for.html

Posted by: supak | January 11, 2010 3:48 PM | Report abuse

I got caught in the spam filter last time so I'll try this again. Raise the top marginal tax rate to 94% as it was in 1944-45 (Hey, we're at war, right?!). That was on incomes above $200,000 per year, which is about $2.3 Million in today's dollars. Use this money to fund additional stimulus, and also begin paying down the federal deficit. Once we get back to some semblance of a functioning economy, lower that bracket to 80% and lower it 1% every year, to stop at 60%. If Wall Street acts up again, raise the rate back up. It's like an APR default rate on your credit cards!

Posted by: drjimcooper | January 11, 2010 3:52 PM | Report abuse

GrandArch wrote: "Then let's provide an annual tax that's set equal to the estimated damage they'll do to our economy in any given year."

Don't call this a tax; call it a premium. If their operations are possible only because the government will bail them out of any disaster, then make that guarantee explicit and charge for the insurance.

Posted by: KenInIL | January 11, 2010 4:31 PM | Report abuse

A financial transactions tax is a great idea. They should ignore Geithner's counsel as far as that goes. As for the bonus tax, that is also a great idea. Just because the banks would look for loopholes or other circumventions doesn't mean that we should not take an approach to impose good rules that anticipate the banks' attempted avoidance. Furthermore, it wouldn't mean that we could not respond to new avoidance methods.

Keep in mind that derivatives, those instruments largely responsible for the recent financial meltdown and referred by Warren Buffet as "financial weapons of mass destruction," are largely valued for their use in circumventing regulation.

I have a few suggestions:
1. Regulate derivatives; making the disclosure of their existence, parties and implications required.

2. Put the following rule into law: if the buying or selling of a derivative has the same affect as another financial transaction or group of financial transactions, all rules that apply to these mimicked transactions apply to the buying or selling of the derivative. Any rules or laws that "don't make sense" in the context of said derivative should be decided in advance of any exchange of the derivative by the CFTC or other governing agency.

3. Limit leverage by imposing large capital requirements for all transactions but especially for those left unregulated preceding the financial meltdown and those that most contributed to it.

Posted by: bcbulger | January 11, 2010 5:00 PM | Report abuse

I'm sorry, exactly *what* goods is Geithner talking about? I don't buy anything that Wall Street is selling, so which consumers is he talking about?

p.s. This question is somewhat rhetorical. I know how I might answer this question, but I think it is probably pretty hard to put together a convincing defense of the answer.

Posted by: zosima | January 11, 2010 7:25 PM | Report abuse

I guess no one here has a 401k/403b or roth ira. Or is trying to save money for a house or a rainy day. Yep, saving money it's a bad thing.

--David

Posted by: davidring | January 11, 2010 9:46 PM | Report abuse

The "transaction" tax is just a scheme to soak the small investor. By the hugely wealthy Emanuel or Axelrod. I think the mega wealthy (like the aforementioned) should be disqualified from trying to fleece the middle class. A lot of this is a war against the wannabe wealthy waged by the truly wealthy.

Posted by: truck1 | January 12, 2010 6:45 AM | Report abuse

truck1 - any small investor who gets soaked by the transaction tax is trading far too frequently for his weight class.

Not to mention, the transaction tax would probably be a lot smaller than the per-transaction fees levied by eTrade, Charles Schwab, etc. If a small investor isn't getting hurt by those, then he's got nothing to worry about from the transaction tax.

Posted by: rt42 | January 12, 2010 10:14 AM | Report abuse

The transaction tax will not only affect the investor himself, but all mutual funds, etfs, etc., not to mention unknown and (perhaps) unintended consequences, which ALWAYS accompany these grand schemes. It will necessarily have a bad effect on the market. Those truly wealthy, such as Rahm Emanuel, have nothing to fear. Their money is in more exotic vehicles inaccessible to the average investor. It's all about the war of the rich against the wannabe rich.

Posted by: truck1 | January 12, 2010 12:02 PM | Report abuse

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