In a blogpost discussing the push by many groups to get a financial transactions tax the Post told readers:
The White House believes it would be easy to evade, could hamper economic growth, and might make markets more volatile, not less so. Instead, Obama has proposed a new “financial crisis responsibility fee” on big banks, which would raise about $61 billion.
While it is not clear how the Post knows what the White House really believes, what we know is that financial transactions taxes are apparently not that easy to evade. The tax in the UK, which applies only to stocks (not derivative instruments like credit default swaps, options, and futures) raises between 0.2 and 0.3 percent of GDP annually. This would be between $30-$45 billion a year in the United States. Unless we assume that the Obama administration thinks our tax collectors are much less competent than those in the UK, then they presumably do not really “believe” that the tax will be easy to evade.
The reference to economic growth refers to outdated research by the European Commission (EC). The most recent study by the EC (sorry, no link) shows that a tax would lead to somewhat more rapid growth if the money was used either to reduce other taxes or finance public investment.
If the White House has any evidence that the tax would increase volatility they are keeping it secret from the world. The tax would simply raise transactions costs back to where they were 10-15 years ago. Financial markets were not obviously more volatile in 1995 than they are today.
Finally, the “financial crisis responsibility fee” proposed by the Obama administration would raise an order of magnitude less tax revenue than the financial transactions taxes of the size generally being proposed. The Obama administration surely understands that they are pushing a tax that will have much less impact on the financial sector and will raise much less revenue than a financial transactions taxes.
The Post does not know what the White House “believes” about financial transactions taxes. It knows what it says about financial transactions taxes. While what it says may reflect what it believes, it may also reflect the fact that the administration is hoping to raise money for its re-election campaign from Wall Street. Also, many officials in the administration may hope to work on Wall Street after leaving the administration. These are the facts that we know.
Economist Dean Baker is co-founder of Center for Economic Policy and Research and writes regularly on CEPR’s Beat the Press blog, where this post first appeared.