WASHINGTON -- Rep. Peter DeFazio, D-Ore., put his prickly relationship with Wall Street into legislative language Thursday, proposing a tax on financial transactions that he said would deter high volume speculators while raising $150 billion a year that the government can use to "invest in our future, our infrastructure and our middle class.''
The proposal is nearly identical to one DeFazio introduced in the past only to see it founder. This time he believes prospects are better in the wake of government bailouts for big investment banks such as Goldman Sachs and amid rising public anger over the government's treatment of those firms.
''The American taxpayers bailed out Wall Street during a crisis brought on by reckless speculation in the financial markets,'' DeFazio said. "This legislation will force Wall Street to do their part and put people displaced by that crisis back to work.''
According to DeFazio, half of the money raised by the tax would go to reduce the deficit while the remainder would be used finance jobs. Most of those those jobs would be connected to building and repairing infrastructure across the nation.
And for the first time, DeFazio is getting some support in the Senate. Sen. Tom Harkin, D-Iowa, has agreed to offer an identical measure in that chamber next week.
''There is no question that Wall Street can easily bear this tax,'' said Harkin, who joined DeFazio at a news conference announcing the legislation.
"Last year, the U.S. taxpayer bailed out Goldman Sachs to the tune of $10 billion. This year, Goldman Sachs has set aside nearly $17 billion for bonuses. We need a shift in priorities in this country to ask not what America can do for Wall Street, but ask what Wall Street can do for America,'' he said.
"Main Street bailed out Wall Street so it's time for Wall Street to return the favor,'' DeFazio said at a news conference where he was joined by Harkin and seven House co-sponsors.
DeFazio and his allies said the tax would only to apply to high volume traders and not average
investors or people who have retirement accounts such as 401(k)s. Nor would it affect education or health savings accounts.
Under his proposal:
* Stock transactions would be assessed a tax of one-quarter-of-one percent (0.25 percent);
* The tax on futures contracts to buy or sell a specified commodity of standardized quality at a certain date in the future, at a market determined price would be 0.02 percent;
* Swaps between two firms on certain benefits of one party's financial instrument for those of the other party's financial instrument would pay a 0.02 percent tax;
* Credit default swaps where a contract is swapped through a series of payments in exchange for a payoff if a credit instrument (typically a bond or loan) goes into default would also pay a 0.02 percent levy.
* The tax would not directly strike the average or small investor, DeFazio said. Tax-preferred retirement accounts such as IRAs and 401(k)s would be exempt as would the first $100,000 in trades.
Despite those safeguards, prospects for passage are not good. Treasury Secretary Timothy Geithner said the Obama administration is opposed to the idea as is Wall Street's influential banks and investment houses. Moreover, DeFazio has problems within his own party.
"The imposition of such a tax would place a huge new tax burden on our fragile economy and could drive up an already high 10.2 percent unemployment rate,'' the letter said. "It also may have serious unintended consequences on our financial markets by raising the cost of credit and private investment for businesses and governments alike."
It continued: "Proponents of a transaction tax argue that a small 0.25 percent tax on stocks would be paid for by the highly paid financial traders and would not affect most Americans. This is simply not true. A tax on stock transactions would affect every single person who owns and invests in stocks from small business owners to senior citizens," the letter said.
Channeling his best, sarcastic voice, DeFazio rejected those suggestions. He pointed out that the United States imposed a transaction tax between 1914 and 1966. Moreover, the tax was doubled during the Great Depression yet the Stock Market and the economy thrived.
Great Britain, he said, currently levies a transaction tax that his higher than the one he proposes. "No one has fled London (stock market) because they're paying twice what we're proposing.'' DeFazio also offered the support of British Prime Minister Gordon Brown, recently called for a global transaction tax.
DeFazio and Harkin both pointed out that Goldman Sachs recently set aside $17 billion to pay bonuses to its employees. The average payout was $700,000 per worker.
DeFazio acknowledged the tax would drain some revenue from those firms. But he did not seem concerned. "Maybe the average bonus would drop to $400,000 or $500,000 per employee. Heaven forbid. It's time for them to live in the same world as Main Street.''