Financial Transaction Tax Sparks Hopes That Obama Will Play Robin Hood In 2012
WASHINGTON -- Advocates of a tiny but lucrative tax on financial transactions are increasingly hopeful that President Barack Obama's need to more firmly establish himself as the Main Street candidate in 2012 will lead him to back the measure.
The tax -- though nearly inconsequential on a per-trade basis -- would reap billions in revenue from Wall Street's most rapacious institutions while also cutting down on their incentive to engage in the high-stakes, lightning-fast gambling that has proven particularly lucrative for them, at the expense of others.
Sen. Tom Harkin (D-Iowa) and Rep. Peter DeFazio (D-Ore.) introduced legislation last month that would impose a 0.03 percent fee on financial transactions, an amount so small that its sting would only be felt by speculators who rapidly move vast sums in and out of trading positions.
But because of the enormous volume of transactions, the new tax would still raise $350 billion in next 10 years, according to nonpartisan congressional scorekeepers.
The bill is "generating some interest in the White House, and I'm hopeful that the president will pick up on this," said Harkin, a fifth-term senator.
"I think there's interest in the White House at looking at sources of revenue, and I think this is one that's got their interest," Harkin said. "They haven't said yes, they haven't said no."
Mike Lux, a progressive strategist, said he thinks that despite some internal opposition within the administration -- most notably from Treasury Secretary Timothy Geithner -- the tax may be an idea whose time has come.
"I know that Geithner remains adamantly opposed to it, but I also get the sense that the political folks in the White House understand that Geithner's positioning isn't always the right thing for the president to do politically," Lux said. "There is sort of a growing awareness of that."
A White House spokesperson, asked to explain the administration's current position, referred The Huffington Post to a Treasury spokesperson, who declined to comment.
DeFazio, who co-founded the Congressional Progressive Caucus, said that Obama's endorsement of the bill "would be great for the country and it would also be very helpful in his reelection bid."
"People are really, really, really angry at Wall Street," DeFazio said. "Wall Street destroyed the real economy of the United States through their gambling and recklessness. They're profiting handsomely. None of them went to jail and they're back to doing the same thing all over again."
A transaction tax proposal "would resonate not only with Democratic activists and Occupy Wall Street types, but also with many who affiliated with the Tea Party in the last election because they were real angry about what happened to them and the economy, and they have seen no action by the Justice Department, and bailout after bailout," he added.
The financial transaction tax, sometimes referred to as the financial speculation tax, also has a nickname: The "Robin Hood tax." Its popularity transcends borders, and, as The New York Times reported a few weeks ago, it has "an array of influential champions, including the leaders of France and Germany, the billionaire philanthropists Bill Gates and George Soros, former Vice President Al Gore, the consumer activist Ralph Nader, Pope Benedict XVI and the archbishop of Canterbury."
The bill has also had champions within the Obama administration. Ron Suskind, in his book "Confidence Men: Wall Street, Washington, and the Education of a President," described how former budget director Peter Orszag actively pushed the idea with Obama.
Orszag argued that such a move would calm the markets, while showing deficit hawks that Obama was serious about raising more revenue, Suskind reported. And Orszag is hardly the Occupy type. In fact, he's so Wall-Street friendly that he left his job at the White House to go work for Citigroup.
According to Suskind, Obama embraced the idea, even saying at one meeting that "we are going to do this!" But Larry Summers, then the director of Obama's National Economic Council, apparently spoke out against the idea.
Orszag declined to comment for this article.
DeFazio noted that the personnel changes that have occurred within the administration may have an effect. "It may be that finally, with Larry Summers gone, that perhaps the president is able to assert his desires over that of the Wall Street-oriented economic team," he said.
"There hasn't been much daylight between the president's economic team and those on Wall Street," he said. But coming out for the tax would allow Obama "to create a little daylight and a little distance sand say, 'Yeah, I get it.'"
Suskind, in an interview, said he thinks movement is possible. "I pressed some people on this. Their position was that it is an arrow in our quiver -- and we don't have that many," he said. He said he also got the impression that Obama's team was considering waiting until the right moment, and continuing to reap Wall Street money in donations until then.
Lux, however, said there's no time to waste.
"I think with the Teddy Roosevelt speech last week [in which Obama outlined a populist economic vision], they now need to look for some new policy ideas to show that they're being bold, that they're being tough on Wall Street -- and I think this is a perfect one for them to take on," Lux said.
"The later it gets into a campaign year, the less credibility legislative proposals tend to have with people," he added.
Some on the left have objected to the Harkin/DeFazio proposal, saying that they don't think it would go far enough.
Michael Lighty, director of public policy for National Nurses United, a group that frequently finds itself out front on social issues, sees the proposal as a fig leaf that he is afraid will be irresistible to Obama.
"It's the perfect solution for a president wanting to look like he's doing something without really alienating Wall Street," Lighty said. The Harkin/DeFazio bill proposes a levy of 3 cents per $100; National Nurses United wants to set it at 50 cents.
"We'd like the president to come out there and say yes, Wall Street needs to pay to rebuild Main Street -- and not just for deficit reduction, and not just for chump change, but for something that will make a real difference in the economy," Lighty said.
Harkin, however, says that $350 billion in 10 years is "nothing to sneeze at."
For now, the administration's official position is that it does not support a transaction tax -- instead, it supports what it calls a financial responsibility fee, something Obama first proposed almost two years ago.
That fee, which would raise only a fraction of the revenue of the transaction tax, would be paid by financial institutions with more than $50 billion in assets, based on leverage and risk. It would essentially be a fee for being -- and acting -- "too big to fail."
Jared Bernstein, a former senior White House economic adviser now at the Center on Budget and Policy Priorities, said Obama's staff discussed a transaction tax as one possibility.
But, he said, "we landed where we landed, which was on the financial responsibility fee, which seemed more responsive to the problem of over-leverage."
"It scratches a different itch," he said. "It doesn't scratch speculation and volatility, but it scratches leverage, which struck us as extremely important."
But the proposal has been a dismal failure, both in terms of getting a foothold in Congress and as a political statement.
One of the top arguments against the transaction tax has been that it would drive trading away from the U.S. financial markets -- thereby hurting the economy and also failing to raise the anticipated revenue. But the respected Joint Tax Committee's projections that it would bring in $350 billion in the next decade likely settled that argument.
Advocates of the tax, furthermore, consider that estimate extremely conservative.
Damon Silvers, policy director for the AFL-CIO, sees the debate over the tax as presenting a simple choice between Wall Street and Main Street.
"A key hidden argument here is about whether or not we ignore hundreds of billions of tax revenue to protect the money that systemically significant financial institutions are getting from high-speed trading while we cut fuel aid for the poor and fire teachers," Silvers said. "The labor movement does not believe that is in the public interest."
Meanwhile, the European Union is proposing a considerably steeper financial transactions tax that would take effect in 2014 -- 0.1 percent, rather than the 0.03 percent that Harkin and DeFazio have proposed.
A possible sign that the administration is relaxing its view about the tax came just last month. Geithner, who had previously said that a European transaction tax could create "frictions," reportedly told leaders at the G-20 summit in Cannes in November that while the U.S. was still opposed to the tax, it would not block others from going ahead.
"If Europe moves toward a financial transaction tax, it will take a major U.S. argument against it off the table, and it's hard for me to see how the politics line up against it for a Democrat," Bernstein said.
Asked to elaborate on the Treasury Department's stance, a spokeswoman directed attention to two press briefings, at which senior administration officials essentially ducked the issue.
At one, deputy national security advisor Michael Froman said that Obama "shares the objectives" that European leaders "have in ensuring that the financial sector contributes an appropriate share to the resolution of crises." But, he added, "the administration has proposed one approach to that through the financial crisis responsibility fee. The Europeans have another approach."
The idea of a transaction tax in the U.S. is not new. The nation actually had one from 1914 to 1966. The modern version of it was first proposed by Nobel Laureate economist James Tobin in 1978, to address currency speculation he felt was damaging the real economy. "[M]y proposal is to throw some sand in the wheels of our excessively efficient international money markets," he wrote.
In a 1989 paper, a younger Larry Summers wrote: "Such a tax would have the beneficial effects of curbing instability introduced by speculation, reducing the diversion of resources into the financial sector of the economy, and lengthening the horizons of corporate managers."
Harkin says he plans to fight for his bill for as long as it takes.
"I'm going to keep pushing it and I'm going to keep talking about it," he said. "I don't think we're going to have a tax bill until we get a lot of things sorted out. I'm looking at this to be something that's in a package."
Obama's support would help, he said. "Obviously it'll have a better chance of passage if the president gets behind it."