Economists argue for tax on trades to make the financial sector more helpful

Two reports published Thursday by progressive think tanks back a financial transactions tax (FTT), arguing that such a tax on trades could make the financial sector more helpful to all Americans.

“If the tax is dedicated to funding higher education, as some have suggested, this would amount to transferring resources from the financial sector to the education sector,” Dean Baker, co-director of the Center for Economic and Policy Research, wrote in a report published by The Century Foundation. “This is likely to be a far more productive use of those resources.”

Similarly, a report from the Economic Policy Institute (EPI) argues that “through generating tax revenues, decreasing the fees Americans pay on their investments, and shrinking unproductive parts of the financial sector, an FTT would help Wall Street work for Main Street.”

The papers were released after the Democratic Party adopted a platform endorsing a FTT “to curb excessive speculation and high-frequency trading.” The platform also states that there is room for Democrats to have varying views on a broader FTT.

During the Democratic primary, Bernie Sanders supported a broad FTT to pay for free tuition at public colleges, and Hillary Clinton backed a tax on high-frequency trading. And earlier this month, Rep. Peter DeFazio (D-Ore.) introduced legislation that would tax most trades at a rate of 0.03 percent.

Baker said that an FTT could raise more than $105 billion a year and said that the full amount of the tax would be borne by the financial industry rather than individual stock holders.

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