Tuesday, November 24, 2009

A U.S. Tobin tax? 

Two weeks after their party's leaders told Gordon Brown to stick it, two Democratic congressmen want to tax financial transactions to partly reduce the deficit, and partly to build a kitty for public sector jobs. (h/t: Andy)
Under a bill being drafted by Democratic Reps. Peter DeFazio (Ore.) and Ed Perlmutter (Colo.), the sale and purchase of financial instruments such as stocks, options, derivatives and futures would face a 0.25 percent tax.

The bill, a copy of which was obtained by The Hill, is titled the �Let Wall Street Pay for the Restoration of Main Street Act of 2009.�

Half of the $150 billion in tax revenue would go toward reducing the deficit, while the other half would be deposited in a �Job Creation Reserve� to support new jobs.

The job fund would be available to offset the additional costs of the 2009 highway bill and other legislation that creates jobs.

The Obama administration and congressional Democrats are looking for ways to create jobs after the nation�s unemployment rate hit 10.2 percent in October and job losses are expected to rise.
Treasury Secretary Timothy Geithner has said a �day-by-day� tax on speculation is �not something we�re prepared to support.� Paul Ormerod explained in 2001 why the tax doesn't help in terms of reducing market volatility. Ramkishen Rajan explains that one of two things happens: either it causes a sharp drop in market transactions, reducing economic efficiency and making revenues generated by the tax small, or it doesn't because the elasticity of demand for financial transactions is very low ... in which case the revenue it generates is quite large.

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