Missing the fiscal cliff? Don't know what to talk about at the dinner table?
Get ready, the Bipartisan Policy Center has predicted that on February 15, 2013, the U.S. Treasury will take in an estimated $9 billion in revenue, but is committed to pay out $52 billion.
Yup, that's right. The debt ceiling is upon us again and Republicans are showing every sign that they will once again attempt to hold the country hostage to force a "grand bargain" they hope will result in major cuts to Social Security and Medicare.
Asked about future deficit reduction talks, Senate GOP leader Mitch McConnell (R-KY) told the Sunday news shows: "The tax issue is finished, over, completed. That's behind us. Now the question is, what are we going to do about the biggest problem confronting our country and our future? And that's our spending addiction."
Not so fast, say Senate Democrats. In The Hill on Monday, they signaled that they were not interested in any more cuts unless they were offset by revenue. Liberal Senator Ben Cardin (D-MD), a member of the Finance Committee which has jurisdiction over tax reform, and others say they are looking to raise $1 trillion in new revenue and that the ratio of spending cuts to higher tax revenues "should be about even" in any new deficit-reduction deal passed by Congress.
With the fiscal cliff agenda unfinished and the debt ceiling looming, this is a dangerous time for the middle class and for baby boomers who don't want to eat cat food when they retire. Since who gets taxed and how is a key part of the austerity battle in 2013, we need to put new ideas on the table before whacking grannie becomes a bipartisan consensus.
Tax Financial Transactions
As Democrats start looking to raise revenue in ways that won't harm our weak recovery they should take a look at what the European Union is doing. This year, 11 countries are preparing to implement a tiny tax on the sale of stocks and other financial products, called a financial transaction tax. The levy is often called a "Financial Speculation Tax," as it would have the greatest impact on high-volume, high-speed speculative traders who hold stock for 20 seconds and little impact on average Americans who hold their stocks for many years.
The United States had a financial transaction tax until Wall Street killed it in the 1960s. We still have a tiny one that helps fund the Securities and Exchange Commission. Now the idea is picking up steam in Washington. Numerous bills have been introduced that contain some form of the tax. It has become a standard in the alternative budget proposed by the Congressional Progressive Caucus, and caucus co-chair Representative Keith Ellison (D-MN) last year introduced HR 6411. This bill, the Inclusive Prosperity Act, would set the rate at 50 cents on every $100 of stock trades with a lesser amount on other trades of bonds, derivatives, and other financial instruments. Economists estimate that the bill would generate a whopping $350 billion every year. If Senate Democrats are looking for $1 trillion in new revenue, this one tax could get you there in just a few years according to a 2011 study by economist Robert Pollin.
Pollin, co-director and and Professor of Economics at the Political Economy Research Institute (PERI), University of Massachusetts-Amherst, explains it is a lot like a sales tax for Wall Street: "Financial market traders would pay a small fee to the government every time they purchased any financial market instrument, including all stock, bond, options, futures, and swap trades. This would be the equivalent of sales taxes that Americans have long paid every time they buy an automobile, shirt, baseball glove, airline ticket, or pack of chewing gum, eat at a restaurant, or have their hair cut."
Bad Ceiling Feeling
Economist Paul Krugman is not the only one with a "bad ceiling feeling." Unlike the faux "fiscal cliff" deadline, the debt ceiling is the real deal, handled incorrectly defaulting on the U.S. debt -- or even coming near defaulting on the U.S. debt -- could have disastrous consequences for the economy.
Krugman is very worried about the way Obama handled the faux deadline: "He gave every indication of being more or less desperate to cut a deal before the year ended -- even though going over the fiscal cliff was not at all a drop-dead moment, since we could have gone weeks or months without much real economic damage." The stakes are high. Krugman worries that Obama will "go down in history as the wimp that gave it all away."
While progressives are biting their nails about Obama, Wall Street is worried too. They are lobbying against any taxes that might affect them in Congress and in the media. While proponents of the financial transaction tax would rather not see it taken up as part of a deficit reduction package of any sort, it is usually only in times of high drama and high stakes that we get the things that drive Wall Street crazy.
At this point, the push for the tax should go into hyperdrive.