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For Immediate Release
January, 12 2015, 03:00pm EDT
Contact:
Alan Barber (202) 293-5380 x115
CEPR's Dean Baker: Democrats' Plan for Financial Transactions Tax Would Bring Financial Markets into 21st Century
WASHINGTON
Economist Dean Baker, a co-director of the Center for Economic and Policy Research (CEPR), issued the following statement about the financial transactions tax (FTT) component of the new tax proposal from Rep. Chris Van Hollen (D-MD):
"Representative Chris Van Hollen's proposal for a financial transactions tax, a key part of the new tax plan that he revealed this morning, is a move towards establishing a 21st century structure for financial markets. In the last four decades there has been an enormous reduction in the cost of financial transactions due to the development of computers and information technology. This has led to an explosion in trading volume. Much of this trading volume serves no purpose from the standpoint of the productive economy, yet it generates enormous incomes for the financial industry.
"Representative Van Hollen's proposal is a step to reduce this source of economic waste. As even the International Monetary Fund has recognized, the financial sector is a grossly under-taxed sector in the United States and other wealthy countries. So rather than 'picking winners and losers,' this tax would help even the playing field between the Wall Street and Main Street.
"While it will be important to see the specifics of the proposal, even a modest tax on financial transactions can raise a substantial amount of money almost exclusively by eliminating waste in the financial industry. Many analysts have noted that the 0.1 percent fee on stock trades in the Van Hollen proposal will imply a small cost to the vast majority of middle income savers. However, their assessment generally fails to note the decline in trading volume that would be expected to result from a rise in trading costs.
"Most research shows that the elasticity of trading volume to trading costs is close to one, which means that trading will decline in roughly the same proportion to the increase in trading costs. This means that if per-trade costs were to increase by 50 percent as a result of the proposed tax, then the typical 401(k) holder would reduce their number of trades by roughly 50 percent, leaving their total trading costs little changed. This means that virtually all of the cost of the tax free up resources for the productive sectors of the economy. In addition to reducing inequality, this should provide a boost to economic growth.
"It is important that Representative Van Hollen and the rest of the Democratic leadership have shown the courage to raise this issue. It can have a substantial impact in making a stronger economy with more widely shared prosperity."
The Center for Economic and Policy Research (CEPR) was established in 1999 to promote democratic debate on the most important economic and social issues that affect people's lives. In order for citizens to effectively exercise their voices in a democracy, they should be informed about the problems and choices that they face. CEPR is committed to presenting issues in an accurate and understandable manner, so that the public is better prepared to choose among the various policy options.
(202) 293-5380LATEST NEWS
G20 Leaders Reach 'Landmark Commitment' for Global Tax on Ultrarich
"Now is the time to turn words into action and launch an inclusive international negotiation, extending beyond G20 countries, on the reform of the taxation of the superrich," said economist Gabriel Zucman.
Nov 19, 2024
Acknowledging that "the era of the billionaire" is still in full swing across the globe, economic justice advocates on Tuesday applauded a "landmark commitment" by G20 leaders at the group's annual summit in Rio de Janeiro, where delegates agreed to cooperate on efforts to ensure the richest households in the world are taxed fairly.
The final communiqué out of the G20 Summit includes a commitment from 19 countries, the European Union, and the African Union, to "engage cooperatively to ensure that ultra-high-net-worth individuals are effectively taxed."
"Cooperation could involve exchanging best practices, encouraging debates around tax principles, and devising anti-avoidance mechanisms, including addressing potentially harmful tax practices," reads the communiqué. "We look forward to continuing to discuss these issues in the G20 and other relevant forums, counting on the technical inputs of relevant international organizations, academia, and experts."
The final text was brokered by Brazilian President Luiz Inácio Lula da Silva, commonly known as Lula, and the E.U. Tax Observatory noted that Argentina's right-wing president, Javier Milei, "failed to convince other G20 countries to block the communiqué."
The meeting took place less than a year after economist Gabriel Zucman, director of the E.U. Tax Observatory, published a report titledA Blueprint for a Coordinated Minimum Effective Taxation Standard for Ultra-High-Net-Worth Individuals, which informed G20 finance discussions leading up to the summit.
"A minimum tax on billionaires equal to 2% of their wealth would raise $200-$250 billion per year globally from about 3,000 taxpayers; extending the tax to centimillionaires would add $100-$140 billion," said Zucman, a leading expert on tax avoidance and reducing inequality, in the report.
Billionaires' effective tax rate is currently equivalent to 0.3% of their wealth, requiring them to pay a far lower rate than middle-class taxpayers.
Zucman hailed the agreement out of the summit in Rio de Janeiro as a "historic decision" and said concrete action by the world's governments must follow.
"Now is the time to turn words into action and launch an inclusive international negotiation, extending beyond G20 countries, on the reform of the taxation of the superrich," said Zucman.
Along with Milei, the Biden administration pushed back this year as the G20 weighed Zucman's tax proposal. Treasury Secretary Janet Yellen toldThe Wall Street Journal in May that the "notion of some common global arrangement for taxing billionaires with proceeds redistributed in some way—we're not supportive of a process to try to achieve that. That's something we can't sign on to."
As Common Dreamsreported Tuesday, the U.S. is one of eight countries that are contributing to an international loss of $492 billion in taxes each year as multinational corporations and ultrawealthy individuals underpay. The eight countries—which also include Australia, Canada, Israel, Japan, New Zealand, South Korea, and the U.K.—oppose a United Nations tax convention.
Jenny Ricks, general secretary of the Fight Inequality Alliance, said that particularly with U.S. President-elect Donald Trump set to take office in January, "we live in the era of the billionaire."
"We need to move to the era of the 99%," said Ricks. "This shift won't come easily. The U.S. elections have shown how the superrich can use their wealth and power to influence policies and shape the outcomes of elections. Leaders like Trump in the U.S. and Javier Milei in Argentina are actively working to derail international cooperation, while politicians around the world fail to oppose the vested interests that continue to benefit from such unequal societies."
"We will fight harder than ever before to transform the rhetoric on taxing the rich into a global reality," she added. "We need more equal societies in which the richest no longer hold all the power and wealth, with devastating consequences. We need to redistribute the wealth of the superrich to fund vital public services and the response to climate change. Such a transformation is essential to creating the alternative we seek to today's broken system."
Viviana Santiago, executive director of Oxfam Brazil, applauded Lula's government and the G20 leaders for responding "to people's demands worldwide to tackle extreme inequality, hunger, and climate breakdown, and particularly for rallying action on taxing the superrich."
"G20 governments deserve praise for their groundbreaking commitment to cooperate on taxing the world's superrich. But we won't rest until this delivers real change for people and planet," said Santiago, adding that governments now ostensibly supporting a tax on billionaires' wealth should also "be championing a $5 trillion climate finance goal at COP29," the U.N. summit set to wrap up in Baku, Azerbaijan this week.
"How can they argue that climate justice is unaffordable with a deal to raise trillions of dollars by taxing the superrich on the table?" she asked.
Quentin Parrinello, policy director at the E.U. Tax Observatory, asserted that negotiations on the tax proposal "must now extend to a much more inclusive space than the G20."
"Such reforms don't happen overnight, but time is pressing," said Parrinello. "This agenda is even more important today, with the risk of geopolitical fragmentation and looming wealth concentration fueling inequality and undermining democracy."
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Tax Dodging by Super-Rich, Big Corporations Costs Nations Half a Trillion Per Year: Study
"The U.K. and the U.S. are both among the biggest enablers and the biggest losers of this lose-lose tax system," said the chief executive of the Tax Justice Network.
Nov 19, 2024
A study published Tuesday estimates that tax dodging enabled by the United States, the United Kingdom, and other wealthy nations is costing countries around the world nearly half a trillion dollars in revenue each year, underscoring the urgent need for global reforms to prevent rich individuals and large corporations from shirking their obligations.
The new study, conducted by the Tax Justice Network (TJN), finds that "the combined costs of cross-border tax abuse by multinational companies and by individuals with undeclared assets offshore stands at an estimated $492 billion." Of that total in lost revenue, corporate tax dodging is responsible for more than $347 billion, according to TJN's calculations.
"For people everywhere, the losses translate into foregone public services, and weakened states at greater risk of falling prey to political extremism," the study reads. "And in the same way, there is scope for all to benefit from moving tax rule-setting out of the OECD and into a globally inclusive and fully transparent process at the United Nations."
The analysis estimates that just eight countries—the U.S., Canada, the U.K., Japan, Israel, South Korea, Australia, and New Zealand—are enabling large-scale tax avoidance by opposing popular global reform efforts. Late last year, those same eight countries were the lonely opponents of the United Nations General Assembly's vote to set in motion the process of establishing a U.N. tax convention.
According to the new TJN study, those eight countries are responsible for roughly half of the $492 billion lost per year globally to tax avoidance by the rich and large multinational corporations, despite being home to just 8% of the world's population.
"The hurtful eight voted for a world where we all keep losing half a trillion a year to tax-cheating multinational corporations and the super-rich," Alex Cobham, chief executive of the Tax Justice Network, said in a statement Tuesday. "The U.K. and the U.S. are both among the biggest enablers and the biggest losers of this lose-lose tax system, and their people consistently demand an end to tax abuse, so it's absurd that the U.S. and U.K. are seeking to preserve it."
"It's perhaps harder to understand why the other handful of blockers, like Australia, Canada, and Japan, who don't play anything like such a damaging role, would be willing to go along with this," Cobham added.
TJN released its study as G20 nations—a group that includes most of the "hurtful eight"—issued a communiqué pledging to "engage cooperatively to ensure that ultra-high-net-worth individuals are effectively taxed." Brazil, which hosted the G20 summit, led the push for language calling for taxation of the global super-rich.
The document drew praise from advocacy groups including the Fight Inequality Alliance, which stressed the need to "transform the rhetoric on taxing the rich into global reality."
The communiqué was released amid concerns that the election of far-right billionaire Donald Trump in the U.S. could derail progress toward a global solution to pervasive and costly tax avoidance.
The new TJN study cites Trump's pledge to cut the statutory U.S. corporate tax rate from 21% to 15% and warns such a move would accelerate the global "race to the bottom" on corporate taxation.
"People in countries around the world are calling in large majorities on their governments to tax multinational corporations properly," Liz Nelson, TJN's director of advocacy and research, said Tuesday. "But governments continue to exercise a policy of appeasement on corporate tax."
"We now have data from these governments showing that when they asked multinational corporations to pay less tax, the corporations cheated even more," Nelson added. "It's time governments found the spines their people deserve from their leaders."
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Senate Finance Chair Says GOP Push for Medicaid Cuts Spotlights 'Real Trump Agenda'
"The votes are tallied and Trump is headed back to the White House, so his campaign trail populism is over and done with," said Sen. Ron Wyden.
Nov 19, 2024
The Democratic chairman of the Senate Finance Committee said Monday that GOP plans to target Medicaid and federal nutrition assistance to help offset the huge cost of their tax agenda encapsulates the economic agenda of the incoming Republican trifecta led by President-elect Donald Trump, who postured as a working-class champion during the 2024 race.
"You couldn't come up with a better distillation of the real Trump agenda than paying for tax breaks for the rich by gutting Medicaid and increasing child hunger," Sen. Ron Wyden (D-Ore.) said in a statement after a Washington Postreport detailed internal Republican discussions on a possible Medicaid work requirement, cuts to the Supplemental Nutrition Assistance Program (SNAP), and other potential changes to the programs that provide health insurance and food aid to tens of millions of Americans.
"Following through on this plan would cause real hardship and increase the cost of living for millions of working families, but the votes are tallied and Trump is headed back to the White House, so his campaign trail populism is over and done with," said Wyden. "Ultra-wealthy political donors want their massive tax handouts, and as far as Trump and Republicans are concerned, everybody else can go pound sand."
The Trump-led Republican Party has made clear that a new round of tax cuts is at the top of its agenda as it prepares to take control of the House, Senate, and White House in January. In recent weeks, the GOP has discussed using the filibuster-immune reconciliation process to ram tax legislation through Congress before individual provisions of the party's 2017 tax cuts expire at the end of next year.
Trump also campaigned on slashing the corporate tax rate, even as he appealed to working-class voters who aren't reaping the benefits of record corporate profits.
Such tax cuts would likely add trillions to the U.S. deficit, according to the nonpartisan Congressional Budget Office, leading the GOP to seek out offsets in programs they've long demonized.
"Trump wants to strip healthcare from poor people and increase grocery bills."
Sen. John Cornyn (R-Texas) suggested to reporters last week that Republicans could aim to transform Medicaid's funding structure by instituting block grants—a change that analysts say would likely result in devastating cuts.
Edwin Park, research professor at Georgetown University's Center for Children and Families, wrote Monday that under a block-grant structure, states would "either have to dramatically raise taxes and drastically cut other parts of their budget including K-12 education or, as is far more likely, institute deep, damaging cuts to Medicaid eligibility, benefits, and provider and plan payment rates."
"That includes not just dropping the Medicaid expansion, which covers nearly 20 million newly eligible parents and other adults," Park wrote, "but gutting the rest of state Medicaid programs that serve tens of millions of low-income children, parents, people with disabilities, and seniors."
The Post reported that Republicans are also looking to curb SNAP benefits in the face of a nationwide hunger crisis. According to the latest federal data, 75% of households receiving SNAP benefits live at or below the poverty line and nearly 80% include either a child, an elderly person, or a person with a disability.
Sen. Elizabeth Warren (D-Mass.) wrote on social media Monday that members of her party "must unite and fight back" against the GOP's push for draconian cuts to SNAP and Medicaid.
"Trump wants to strip healthcare from poor people and increase grocery bills," Warren wrote. "Here's the new Republican plan to pass tax giveaways for Trump's billionaire backers and giant corporations on the backs of struggling Americans."
Sen. Ed Markey (D-Mass.) added that "making it even more difficult for people to get healthcare or afford food in order to give tax cuts to the same greedy companies that are driving up healthcare and food costs is disgusting."
"We were elected to serve the American people," wrote Markey, "not feed corporate America's bottom line."
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