Tax the Speculators: An Old Idea Whose Time is Now


AFL-CIO President Richard Trumka's September suggestion for a tax on Wall Street to finance health care reform is an all-American solution to a uniquely American problem, and deserves both publicity and support. Although Trumka's idea has been lambasted by critics as everything from "sand in the wheels of commerce" to "Communist," taxes on America's financial sector have a long and honorable history in the story of US capitalism, and have always constituted an accepted cost of doing business during the country's periods of greatest economic growth and prosperity.

Contemporary ultra-right "tea-partiers" would do well to remember that American colonists protested the British "Stamp Tax" not primarily because it was taxation, but rather because it was imposed "without representation." However, according to eminent revenue tax researcher B. J. Castenholz, as soon as a unified and a more-or-less representative Federal Government was established, American revolutionary leaders found no problem in imposing a significant stamp tax of their own on stock transfers, as well as "bills of exchange, bills of lading, bonds, conveyances, insurance policies..., powers of attorney [and] promissory notes." These Federal stamp taxes were imposed from 1798 to 1817. Various states also imposed "stamp taxes" of their own; Maryland's lasted until 1856.

With the outbreak of the Civil War, the Lincoln Administration found itself in desperate need of revenue. In 1862 Congress re-imposed stamp taxes on all stock transfers and bond sales, foreign exchange transactions and a variety of "proprietary" goods, plus "sin" taxes on playing cards, tobacco and liquor. Tax stamps were required on virtually all receipts, personal and bank checks, and almost every official document. Internal Revenue tax stamps ranged from one cent to $200. Actual tax rates varied over time, but Castenholz' book, An Introduction to Revenue Stamps, includes photos of an 1864 doctor's itemized medical care receipt for $54.50 (including $2 for a wagon-trip to the graveyard!) bearing 5 cents in Federal tax stamps, and a $300,000.00 mortgage contract from 1871 with $300 in Internal Revenue stamps attached.

Federal stamp taxes on Wall Street financial transactions (and on everything else from matches to mortgages) continued with brief interruptions throughout the latter half of the 19th Century, all through the initial grand period of American industrialization and the formation of America's first truly great capitalist fortunes. Taxes on stock and bond transfers helped finance US imperial expansion into Cuba, Puerto Rico and the Philippines during the Spanish-American War and partially underwrote American participation in both world wars.

Today, many living Americans still can remember when red or blue Federal tax stamps still adorned cigarette packs and liquor bottles. Federal stock exchange stamp taxes remained in effect all through the 1950s (often cited as the era of America's peak prosperity and world influence) and were only repealed in the 1960s. Curiously, the only Federal tax stamps still regularly encountered today by ordinary citizens are "duck stamps," which must be affixed to state waterfowl hunting licenses.
Trumka's idea of taxing Wall Street and the speculators thus carries a red-white-and-blue pedigree as solid as any Daughter of the American Revolution. Of course, in this day of electronic stock-trading and online brokerages, the idea of an actual physical tax stamp on an actual paper stock certificate is impossibly antiquated, but his proposal to tax the "masters of the universe" who brought us the current economic crisis is as relevant as today's news. The practical points of taxing financial speculation are open to discussion, but would certainly not constitute or require a radical transformation of society. Britain and some other developed countries currently tax stock transfers, and the United States could do so tomorrow without the slightest economic disruption.

But how much could restoring this not-new tax bring in to the treasury? Today's big market speculators, armed with the latest cybernetic buy-sell programs that "flip" stocks with every twitch of the Dow, deal in amounts of money that are no longer merely astronomical, but have to be described as "cosmological." According to Yahoo Finance, on a typical trading day (December 5, 2009), total stock volume on all American stock exchanges was slightly over six billion shares, which when figured at $50 per share, would be worth $300 billion a day. Multiplied by an estimated 270 trading days a year, total annual stock market trades would exceed $81 trillion. In fact, reports that for the last year for which complete figures are available (2005), total annual US stock market trading volume was worth a bit over $21.5 trillion.

The current New York City sales tax is 8.375 percent. Why should one have to pay more tax on a $10 bag of socks than on a trillion dollars of stocks? Attention Deficit Hawks: Using's 2005 figure, a stock market tax of 8.375 percent would raise $1.8 trillion a year, enough to both pay for the wars in Iraq and Afghanistan and finance health care reform even at its maximum estimated cost, with enough left over to guarantee Social Security and Medicare, and to pay down the existing national debt of $12 trillion to a manageable amount over coming decades.

The most cogent objection being made to this (an objection that is not entirely off base) is that what is traded on the stock market is not "real money," not true wealth, but rather "paper worth," virtual wealth existing only on a balance sheet. This is what allows traders to "earn" millions overnight without ever finding a single new oil field, opening a single new gold mine, or (heaven forbid!) doing a lick of work, and why the market can "lose" a cool billion or two in a few hours without a single factory or store burning down anywhere in the country. In this sense, stock market "wealth" is indeed "monopoly money," a fictitious number that would immediately lose most of its value if a large number of investors simultaneously left the game table and tried to cash in their balance sheets for "real" money. Taxing "virtual" wealth in real money is in this sense materially problematic.

However, no one would deny that even though grotesquely "leveraged" and inflated, stock market virtual wealth does indeed represent a much smaller core amount of true money, billions of dollars of concrete wealth in plants and machinery, materials, inventory and cash on hand, real wealth that corporations have extracted and will extract from workers and consumers. It is that real percentage that can and should be subject to real taxes. An astute analyst would also point out that the National Debt itself is composed of "virtual money," in the sense that no one could ever collect even an infinitesimal fraction of that amount, at least without taking ownership of a state or two - an amount which virtually everyone agrees, sooner or later must be "inflated away" if the United States is not to go into default or go the way of the old USSR.

Researcher Joshua Honigwachs estimated in 2005 that the total monetary value of the United States would not exceed $100 trillion. Figures like $300 billion a day in the stock market, a $12 trillion debt, or $21 to $81 trillion in annual stock trades have little or no relation to anything in the reality that we experience in daily life, where mortgage, groceries, hospital bills and credit cards must be paid for in actual green dollars earned by the sweat of our brows.

However, if Trumka's suggestion were to be accepted, even a stock market tax at the 1871 rate (0.1 percent, or one thousandth of the principal amount traded) would still raise at least $20 billion a year, enough to pay the additional cost of the president's 20,000-troop surge In Afghanistan if nothing else.

And then there is foreign exchange speculation, which even the most die-hard apologist for capitalism usually admits is utterly unproductive or even destructive, as in the recent case of the Icelandic bubble and collapse. The euro, a thoroughly capitalist project, was specifically designed to expel the harmful parasite of intra-European currency speculation from the body of European capitalism. According to Wikipedia, 70 to 90 percent of all foreign exchange transactions are speculative, while daily foreign exchange volume is in the range of $3.98 trillion. Since currency trading goes on 24/7, 365 days a year, annual trading volume could approach $1.5 quadrillion, more than twice the estimated market value of the entire planet. However, the difference here is that trading takes place, at least theoretically, in "real" currency, dollars, euros, yen or pesos, not in absurdly inflated "paper" stock values. (In reality, speculative trades most often take place using currency the speculator does not own, could not afford, and may not even exist - orders-of-magnitude more dollars are traded than are actually in circulation!)

Any experienced international traveler knows that major credit and debit cards charge between one percent and four percent for foreign currency purchases or cash withdrawals, even between the United States and Canada. A one percent (or even 0.1 percent) tax on all bank foreign exchange transactions (a large portion of which involve dollars, and almost all of which go through a central exchange in London), would generate uncounted billions overnight, easily sufficient to cover "Cadillac" health reform for all, plus maybe a leftover war or two, while costing travelers less than their credit card charges (or for business types, a few grand for every million exchanged, mere "chump change" for those who deal in such amounts). Unproductive speculation would be somewhat discouraged, while weaker nations' currencies would be slightly better protected from predatory attack.

A Nov. 26 Op Ed by Paul Krugman in the New York Times argues that the time for taxing speculators has arrived. Speculation is more rampant than ever before, and quick-buck, "ultra-short-term finance" scam artists are rotting the foundations of our economy. He suggests that US Treasury Secretary Timothy Geithner and other figures in the Obama administration are so beholden to Wall Street that such a necessary tax is highly unlikely in the short term. However, as Trumka told POLITICO. com, "It'll stop the short term churning that these guys go through, and make money out of just selling to each other back and forth three times a day." Such a reform would pay for health care reform without penalizing those who already have adequate health care protection.

Trumka's voice needs to be heard loud and clear in Congress and in the White House. To pay for health care reform, tax the speculators, not working people!

Photo: (Courtesy AFL-CIO, Flickr, cc by 2.0)

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