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Rep. DeFazio Aims to Tax Trading

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Rep. Peter DeFazio, D-Ore., is doing it again—partnering with Sen. Tom Harkin, D-Iowa, to present a bill to tax trades of stocks, bonds and derivatives. The two previously tried in 2009 to propose such a measure, but it failed. However, although businesses are already preparing to oppose any such tax, the political climate may have changed enough for it to squeak by.

Politico reported that a similar proposal to tax trades has gathered support in Europe, with France and Germany its big supporters. With the congressional supercommittee in need of ways to slice at least $1.2 trillion from the national debt in the next ten years, this time the bill could be a starter.

Tom Quaadman, executive director for financial reporting policy and investor opportunity at the U.S. Chamber of Commerce, said in the report, “In reality, a proposal like this is going to be on the table in some regard.”

DeFazio’s previous attempt to push through such a measure was estimated to bring in a potential $150 billion a year in revenue. It had the added advantages of sparing social programs like Social Security, Medicare and Medicaid from cuts.

Although the Obama administration has said previously that it did not support such a tax, the fact that Europe is embracing the notion may change that stance, as Damon Silvers, policy director at the AFL-CIO, pointed out in the report: “What’s happened in the last week is that a financial transaction tax has become politically plausible because of Europe. The question is not ‘if,’ but ‘when.’”

While businesses protest that it would amount to a sales tax that would be passed along to the consumer, and that the financial services industry might depart the U.S. for friendlier shores to avoid it, with a like measure in place in Europe it would be difficult to avoid altogether without relocating financial businesses to such places as Dubai or Singapore. The tax before the European Commission, which was welcomed by EC President Jose Manuel Barroso, is expected to raise $77 billion a year.

Dean Baker, a co-director at the Center for Economic and Policy Research, has said such concerns are overblown. In a report earlier in the year, he pointed out that the U.K. has a tax of 0.25% on each side of stock transactions, and it has not harmed the country’ s market.

“The existence of the tax has not prevented the U.K. from having a vibrant financial market,” he said in the report. “Apparently investors view the benefits of trading on the London exchange as being valuable enough to outweigh the cost of the tax. Presumably, this would be even more true in the case of the United States.”

He also said that the U.S. had previously had a tax on transactions, adding, “The reality is all you’re doing is raising transaction costs back to where they were 15 or 20 years ago.”

The proposal is still in work, with aides working to calculate how to maximize revenue and minimize market impact.