Bernie Sanders, the Vermont senator who is running against Hillary Clinton for the Democratic presidential nomination, has proposed a US Financial Transaction Tax (FTT).
Sanders spoke about the tax at a press conference on Monday, May 18th. A link to his presentation is here. The FTT is supported by an organization called “The Robinhood Tax”. From their website:
“…the financial crisis and the recession have left a massive hole in the US’s public finances. Jobs and the community services we rely on are at risk in the US while many other developed and developing countries face a similar struggle…But there is another way. Robin Hood supporters believe that banks, hedge funds and the rest of the financial sector should pay their fair share to clear up the mess they helped create…”
According the the Robinhood Tax website, supporters of the organization include Bill Gates, Al Gore, Ban Ki-Moon, Lawrence Summers, Paul Volcker, Warren Buffett and others.
The idea is to use the money raised to pay for tuition at state colleges and universities. The Senator said the tax would raise around $300 billion — although Sanders said it was hard to come up with an accurate estimate. The legislation would also allow the $1.3 trillion in existing student debt to be refinanced at lower rates. Sanders said that a number of countries have tuition-free higher education. He mentioned several Scandinavian countries, among others. He gave a shout out to Chile, noting they will be putting a plan to pay for university education into place soon, paying for it by raising corporate taxes.
Sanders termed the tax a “speculation fee” on Wall Street houses and hedge funds. There was no mention of about individual investors, mutual funds, pension funds or other types of investors. The fee would be 50bp on stock trades, 10bp on bond trades, and an undisclosed, although smaller, fee on derivatives trades. Sanders noted that many countries already have an FTT in place.
European FTTs have gotten a lot of press in the past couple years. The impact on securities financing business was uniformly characterized as devastating. When last heard, the FTT was tabled but many have said to never underestimate the political/popularist attractiveness of this kind of levy.
A European Commission website “Taxation and Customs Union, Taxation of the financial sector” said
“…Annual revenues are estimated to be around EUR 30 to 35 billion, or 0.4 to 0.5% of the GDP of the participating Member States…”
Unlike the US FTT, which is targeted to fund higher education (although the Robinhood Tax website lists many other objectives, including jobs, secure retirements, infrastructure, research and innovation, etc.), the European FTT had a different purpose (from the EU website):
“…the sector should pay back at least part of what the European tax payers have pre-financed in the context of the bank rescue operations…”
Last, but not least, the tax would be used as a tool to change market economics. A May 18th article in Bloomberg “Bernie Sanders Wants to Tax Stock Trades to Pay for Free College” by David Knowles, said:
“…The Robin Hood tax would also slow the growth of automated high frequency trading, which makes the stock market more dangerous,” the press release stated. “A small tax would make risky HFT unprofitable, and help reduce the excess speculation on commodities like food and gas that drives up prices, which will protect the economy from computer-generated collapses and market manipulation…”