Taxing Wall Street

by Pejman Yousefzadeh on November 28, 2009


Democrats seem to think that there is no problem we cannot adequately tax our way out of. They are entitled to their beliefs, but after a while, the constant repetition of “tax you, tax me, tax that fellow behind the tree” gets comical, and eventually, tiresome.

Now, Democrats want to tax Wall Street, placing a 0.25% tax on every financial transaction that takes place on the purchase of every financial instrument. I covered this earlier, and noted that the only effect of this tax will be to ensure that international financial activity migrates to more friendly jurisdictions, but apparently, that lesson will never take hold amongst the proponents of the tax.

Comes now David Harsanyi to pour on the snark:

Half of the $150 billion in tax revenue would go toward “reducing the deficit” — a confusing tidbit made all the more curious when you consider Fazio and Perlmutter have helped spend more of your money in the first year of this presidential administration than any in history, $3.52 trillion in fiscal 2009. Here’s a restorative idea: Spend less.

The other half would be deposited in a “Job Creation Reserve.” History tells us that any government reserves are actually sieves.

And after the impotent stimulus plan, few Americans, with good reason, believe government can create jobs that grow the economy. The latest Rasmussen Reports poll on the topic shows that 62 percent of Americans believe tax cuts are a superior way to create jobs and fight unemployment than stimulus. Only 21 percent believe that additional stimulus spending is a more effective tool.

For the investor (the person who risks the capital to create real live self-sustaining jobs), every investment, whether it results in a profit or not, would be taxed two more times.

What is near certainty is that this bill will succeed at driving traders to international markets that are escaping the stilted centralized economy that DeFazio and Perlmutter feel the need to champion.

It’s a given that this misguided vengeance against Wall Street is comfort food for populist legislators, but “Wall Street” isn’t stocked exclusively with revolting would-be criminals. It is made up of retirees, small-business owners, entrepreneurs and parents who invest in their kids’ college funds. At last count, nearly 50 percent of Americans are, on some level, invested in the stock market.

That last paragraph is an important one. Clearly, class warfare and resentment is driving the proposed implementation of the tax. Yet, as Harsanyi notes, the tax will only end up hurting the very Main Streeters its proponents claim to want to help.

Two things help craft the discussion and implementation of economic policy. The first is intentions. The second is results. Proponents of this tax claim to want to help the middle class, but in fact, their intentions are solely and exclusively centered around the fostering of class warfare and resentment. Misery, they figure, loves company, and if people concerned about their financial situation are allowed to share their miseries with politicians determined to exploit those people and their circumstances, winning electoral coalitions will develop! Oh sure, those very same politicians will never do anything to, you know, help free those people to have the opportunity to better their situations, but that’s not important. All that is important is that every two or four years, the generals in the class war go to their troops, remind them of why they should be angry, and win elections as a consequence. Lather, rinse, repeat.

But even if we assume that the intentions of the proponents of this tax are good ones, shouldn’t we be upset about the results? The migration of financial activity to more friendly tax jurisdictions will dramatically slow down our economy, and prevent the proponents of this financial purchase tax from collecting the revenue they claim to want. As if this is not enough, the tax won’t just punish the wealthy investment banker with the house in the Hamptons. It will also punish people saving for their retirement.

So this policy fails both on the grounds of intentions, and on the grounds of results. Why more people in Washington don’t see that–or at least, don’t pretend to see that–is a mystery. But at this point, I would not be surprised in the least to find out that there will be a Rose Garden signing of the financial services tax sometime soon in our future.

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