The passion and commitment of financial transaction tax (FTT) proponents is commendable. Just a few years ago, the idea of an FTT in most developed countries was laughable. Today, it is making its way through the legislative process in 11 European countries. It is still unlikely to pass in the United States, but the likelihood has significantly increased in the past two years. Indefatigable legislators Senator Tom Harkin and Congressman Peter Defazio plan on reintroducing their previously DOA bill, the Wall Street Trading and Speculators Tax, according to a fawning op-ed piece by Jesse Eisinger on Propublica and posted on Dealbook.
The oft-cited merits of an FTT are hard to resist: If the tax could collect $352 billion in additional federal revenue, what better way is there to redistribute wealth than through collecting taxes on rich people trying to get richer? But the great beauty of the FTT is that it does not depend on anyone making money to collect revenue. Why punish people who actually know how to invest by raising the capital gains rate? It is an elegantly regressive tax because no one cares if the loser traders pay a little more for the privilege.
In fact, proponents believe the tax will also return our ADHD casino trading market to the mythical period inhabited by long-term investors when no one tried to make a quick buck flipping a stock. Publicly traded companies will no longer need to manage their businesses on a quarter-by-quarter basis because the tax will encourage folks to hold on to stocks through thick and thin. As the FTT works its magic in changing human nature, the tax revenue will fall, making it moot anyway. All of this good from a mere three basis points!