The economic crisis we're enduring is very costly. America faces a critical choice: Who should pay the bill?
We can stick it to the poor by ripping our safety net. We can kick the can down the road by short-changing public education and infrastructure. Or we can find more equitable, forward-looking solutions.
One place to look for new revenue: the financial sector that got us into this mess in the first place. Wall Street is one of the most under-taxed sectors of our economy.
Think about the tax bills that ordinary Americans pay when they buy things they need every day. When they fill up their gasoline tanks so they can get to work, they pay an average tax of 13.2 percent a gallon. When they buy a winter coat, they pay state sales tax of an average of 5.6 percent.
Compare that with the tax rate hedge-fund investors pay when they buy 100,000 shares of stock. The fees are so small it takes an expert with a magnifying glass to find them in their financial statements - $0.0042 per transaction.
One way to remedy this imbalance is through a financial-speculation tax. This would place a very small levy (0.25 percent or less) on each trade of stocks, derivatives, currency or other financial instruments. In addition to generating big money for urgent needs, the tax could discourage the short-term speculation that can lead to bubbles.
One Washington think tank has estimated the potential revenues from a financial-speculation tax at $177 billion a year.
Some argue that such a tax would destroy thousands of day-trader jobs, since they operate on razor-thin margins - picking up pennies off each of their hundreds, thousands, even millions of trades per day. Many of those jobs probably would disappear.
But I think that it's time to take a hard look at the social value of such financial activities. Wall Street's oversized paychecks have been a strong magnet for the best and brightest among our university graduates, including many with engineering and math degrees. Instead of working to develop renewable-energy technologies or more efficient transportation systems, they spend their days designing computer programs to swap one currency for another or inventing newfangled derivatives like the ones that blew up our economy.
In other words, making money from money. What the financial sector is supposed to do is serve the "real economy" - the part that produces goods and services we all need. Instead, Wall Street now dominates the rest of the economy. And big-time speculators are in the driver's seat. A small speculation tax would target these high-flyers, raising the cost of their risky activities enough to discourage the most dangerous behavior. For ordinary investors the costs would be negligible, like a tiny insurance fee against the crashes caused by speculators.
The future health of the U.S. economy may very well depend on how we decide to pay for this crisis. It seems only fair that those most responsible for the mess should bear the bulk of the clean-up costs.