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Tax Wall Street to fix deficit

BY MATT HEINZE | NOVEMBER 28, 2011 7:20 AM

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Unless you've been trying to avoid the subject for the last year, you probably know that American budget reform has become something of a train wreck, especially when it comes to any discussion over increased revenues.

Last week, the failings of the so-called Congressional Supercommittee only reaffirmed this sentiment.

Tasked with finding a modest $1.2 trillion in cuts to the federal budget over the next 10 years, bipartisan lawmakers of the Supercommittee would have alleviated a small portion of the ever-increasing federal deficit. In typical fashion, however, committee members opted to kick the can further toward the cliff, even as politically palatable options remained on the table.

One such option, a small tax levied on Wall Street trading, which was proposed in both chambers of Congress by Sen. Tom Harkin, D-Iowa, and Rep. Peter DeFazio, D-Ore., would have single-handedly reached a quarter of the Supercommittee's reduction total. And while the Supercommittee has come and gone, the potential for such a mind-numbingly simple debt-reducer should not.

The foundation of the Wall Street tax is simple: By charging a meager 3 cents on each $100, the tax would substantially boost federal revenue while also making sure not to inhibit positive investment. To put that in perspective, a $1,000 transaction would be charged roughly 30 cents in taxes, meaning investors would be foolhardy to be put off by such a meager tax.

"Let me put it bluntly. We need the new revenue that would be generated by this tax in order to reduce deficits and maintain critical investments in education, infrastructure and job creation and there's no question that Wall Street can easily bear this tax," Harkin said of the legislation.

On the other hand, the tax carries the potential to bring in billions of dollars annually. That's in addition to the positive effects such a tax could carry in attempting to curtail high-risk Wall Street dealings, all while still negating the effect on retirement plans such as 401(k) investments.

"[The tax] has the potential to curb risky speculative trading that contributes little real economic value," consumer advocate and former presidential candidate Ralph Nader wrote earlier this month in an opinion piece in the Wall Street Journal. Nader further stated the tax would be a "good start" on keeping financial speculation in check.

Indeed, at a time when the Occupy movement seems omnipresent (you'll find yourself getting that impression if you often read The Daily Iowan), nothing would seem to make more sense from both a political and financial point of view. Wall Street remains as profitable and unpopular as ever, all while federal government coffers lie barren.

Several European countries have jumped on the idea of such a simple revenue booster, including the UK and Switzerland. The difference between European legislation and its streamlined American counterpart, however, is that European nations charge more.

Certainly, any potential "American Robin Hood Tax" would be met with the typical assortment of debt-reconciling scallywags, specifically the Grover Norquist followers who stubbornly resist any increase in federal revenue. But with the Bush tax cuts set to expire next December and the impending political calamity sure to ensue, real bipartisan deliberation over "revenue boosters" will be forced to occur and may provide the basis for a rational approach to the debt crisis.

Although the idea of any debt-reduction course may not be politically appetizing, policymakers would be hard-pressed to find one more appealing to the average, red-blooded American than an itty-bitty tax levied on Wall Street. After all, few other favorable option like this remain — supported by constituents without cutting headlong into divisive defense spending or schismatic social entitlements.

Short of ending the Bush tax cuts, Congress has few good ideas remaining to attack at the debt crisis other than to show world that we're willing to add to the revenue column. That, and kick the can closer to the cliff.


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