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Financial Transaction Tax Introduced

Under the title of the “Let Wall Street Pay for the Restoration of Main Street Act of 2009,” Democrats in the House and Senate are introducing a bill today to raise $150 billion dollars annually through a small 0.25% tax on financial transactions.

Reps. Peter DeFazio and Ed Perlmutter are the main sponsors in the House, with co-sponsors Bruce Braley, Mike Arcuri, Betty Sutton and Steve Kagen. In the Senate, Tom Harkin is the main sponsor. The revenue from the tax could be used to pay for immediate job creation efforts.

Small investors who don’t trade large sums would barely feel the tax. By contrast, speculators and large firms who make thousands if not hundreds of thousands of trades a day would feel a real impact. It may discourage the behavior of over-speculation, moving that capital into other investments, like businesses that create jobs.

Needless to say, the financial industry strongly opposes the tax. But organized labor is on board, along with a wide range of other leaders, including those on Wall Street. In a statement, the AFL-CIO said, “We believe working people are poorly served by capital markets with short term time horizons. A financial transactions tax encourages long term investment horizons and discourages churning, high frequency trading and other speculative capital market activity.” They cite support from even Warren Buffett and Pete Peterson for the tax.

The labor federation believes that a financial transactions tax could be used to pay for the kinds of job creation public spending needed currently. The Economic Policy Institute has floated phasing in the stock tax three years down the road, so the deficit created from any jobs bill is paid for but not right away.

UPDATE: Over 200 economists have signed a letter in support of the financial transactions tax.

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David Dayen

David Dayen