Why Don’t We Tax the Buying and Selling of Stocks?
Question: How much revenue would a 1 percent federal tax on the buying and selling of stocks produce? We have federal taxes on gasoline, so why not the selling of stocks?
Surely, someone who is spending $1,000 can afford a tax of $10. What, if anything, does the buying and selling of stocks currently contribute to the GNP? Or the GDP?
Paul Solman: You have no idea, I imagine, just how deep and timely your idea is. Nor what a long vintage it has.
Perhaps the greatest and most influential economist of the 20th century (and surely the most scathing), John Maynard Keynes, wrote a famous book in 1936 on how to deal with the Great Depression: The General Theory of Wages, Prices and Interest.
I would urge all readers of the Business Desk to look at Chapter 12 at the link above for its sharp wit and even sharper wisdom. I have managed to wedge short quotes from it into NewsHour stories over the years, most memorably one read (albeit anonymously) some months ago by the peerless Robert MacNeil.
But I’ve never used this quote, perhaps because I’ve never gotten a question like yours. The excerpt is long but, like all of chapter 12, worth your while. The subject is the overly volatile U.S. stock market (of the 1930s, mind you, when barely 1 percent of Americans were directly invested; today the number is nearer 50 percent).
KEYNES: It is usually agreed that casinos should, in the public interest, be inaccessible and expensive. And perhaps the same is true of Stock Exchanges. That the sins of the London Stock Exchange are less than those of Wall Street may be due, not so much to differences in national character, as to the fact that to the average Englishman Throgmorton Street is, compared with Wall Street to the average American, inaccessible and very expensive. The jobber’s “turn”, the high brokerage charges and the heavy transfer tax payable to the Exchequer, which attend dealings on the London Stock Exchange, sufficiently diminish the liquidity of the market…to rule out a large proportion of the transactions characteristic of Wall Street. The introduction of a substantial Government transfer tax on all transactions might prove the most serviceable reform available, with a view to mitigating the predominance of speculation over enterprise in the United States.
A later “Keynesian” economist from Yale, James Tobin, who won the Nobel Prize in economics, proposed many years later a similar idea, which came to be called the Tobin Tax. The idea was to tax all foreign currency transactions to put a damper on speculation in that market.
As to the stock market, the UK still has a transaction tax and in 1989, economist Lawrence Summers, now President Obama’s key economic advisor, published an academic paper: When Financial Markets Work Too Well: A Cautious Case for a Securities Transactions Tax. The idea was mentioned just the other day by economist Dean Baker, sometimes featured on this page and the NewsHour. “A nice little financial transactions tax like the one they have in the U.K. on stock trades may go far toward bringing i[nvestment] bank salaries more in line with what teachers earn.” Not the only reason for such a tax, Baker thought, but not a bad one.
Maybe you can push this idea elsewhere and call it the McHenry-Hepner Tax. This is, after all, the age of self-promotion.