Alliance for Democracy

White House and Congress Should Back Financial Speculation Tax but deeper reforms needed‏

Posted in Financial crisis, Financial Speculation Tax, neo-liberal, Rep DeFazio, Tobin Tax by Alliance for Democracy Portland OR on April 15, 2010

Well, tax day has come and gone again.  You paid your taxes but have a sick feeling that you have been suckered because you know that wealthy people and the financial “too big to fail” institutions have not paid their fair share. In fact, you know that they have continued to profit from the misery of main street.  How do we get those who benefited most from the casino economy to pay even their fair share now?  How do we structure the financial and economic system to be more fair, to encourage economic development for main street and move in the direction of a more equitable society?  One proposal, a Financial Speculation Tax, was introduced in Dec. 09 and now has 29 co-sponsors.  The bill (HR 4191), sponsored by Rep Peter DeFazio, is known as the Let Wall Street Pay for the Restoration of Main Street Act of 2009.  None of our other Oregon or Washington representatives have signed on to co-sponsor.

Such a tax would impose a very small tax on the short term speculative transactions of the very wealthy.  While it would discourage such transactions, its major effect would be to generate an estimated $175 billion revenue annually.

So here is your day after tax day assignment:  Call your US Representative and tell them to co-sponsor HR 4191.  (800.828.0498).  See the press release below for more details.

Having said that you should take this action does not mean that this type of action would solve the current economic crisis or really address it in any meaningful way.  Such measures do not address the root causes.  What are the root causes?

One is capitalism itself.  Another is neoliberalism, a historically specifically stage of capitalism.  I just read an interesting examination of the structural roots of the economic crises in Monthly Review magazine ( in an article written by Tom Palley, addressing the development and consequences of neoliberalism. Tom is a structural Keyanian economist and was a speaker here in Portland in Oct last year at the EconVergence conference.

Neoliberalism resulted from the elevation of Ronald Reagan to the American presidency, an event which heralded the end of the Detroit Agreement (DA).  DA was a historic compromise between labor and capital following WWII in which labor compensation was tied to increases in productivity.  But that tie between labor and capital meant that capital could not earn the profit levels which capitalists felt they were entitled to.  President Reagan signaled his support for breaking that tie early in his first term with the destruction of the airline pilots union.

The tie had meant that as the factories became more productive, the workers got more pay and benefits and were thus able to bay the goods being produced. This created a society of general prosperity.  Broking the tie caused the working class’s purchasing power to dimenish with a lowering of demand for goods.  It also meant that more and more power and wealth moved up to the top.  For the middle class, it meant less support for education, health, social services.  For the poor, it meant they would continue to be poor.  They were abandoned, left to their own devises, as food program, public housing, schools and education and welfare came under increasingly intense attack.  Taxes on the poor increased while taxes which affected the wealthy decreased.  Tax loopholes and tax haven became the name of the game for the wealthy and their corporations.

But there was a major crises in this new arrangement.  The working class could not afford to buy the goods that the capitalist produced.  It was necessary to increase borrowing and debt.  And so America went from a nation of savers to a nation of borrowers.  It was only easy credit which kept the system moving.  The economic system during the Clinton administration, characterized by free trade agreements and globalization, was most noted for the disappearing manufacturing sector with its high paying jobs in exchange for low paying service sector jobs and increasingly easy credit for Americans so they could continue to fuel the global economy.  Increasingly, the home ceased to be a home but became an investment, a tool used to borrow to meet basic or consumer needs, or both.  The homeowners’ equity became the basis for new and expanded debt, fueling for a time an expanding economy. The money and wealth continued to move up and up and up while the middle class increasingly became the debted class.

The system prior to neoliberalism was characterized by high employment, high wages, and big government.  Neoliberialism replaced that with high unemployment, low wages, increasing levels of debt and small government

Per Tom Palley, “This dynamic (is) intrinsically unsustainable, as it rlies on rising debt and house prices at the same time that ordinary household income is being squeezed.  Once households are unable to borrow further, owing to hitting borrowing limits or owing to an end to house price inflation, the system quickly stops.”

In the end ever an increasing level of debt cannot be sustained and it will collapse.  And so here we are today.

The solution for the economic crisis rests on reversing the neoliberal model and returning to an economy based on the Detroit Agreement.  Such a program calls for an end to globalization, manufacturing for the local or at least national market, an end to income and wealth disparities, high employment, an increasing role for government.  Again from Palley, we must “reverse neoliberalism and restore the link between wages and productivity growth.”

Which takes us back to  the Financial Speculation Tax.  While we need to support such efforts and many of the other efforts at reform of the financial sector, they do not take  us to the heart of the economic problem. That heart is structural in nature and can only be addressed by direct frontal attacks on the neoliberal model adopted at the federal level by President Reagan and continued by every administration, since including the present one.  President Obama has enthroned Larry Summers and Tim Geithner to guide the economic recovery.  But they are the servants of Wall Street, of the financial industries and are not interested in looking at the structural reforms required to have a recovery on Main Street, not just Wall Street.

David e. Delk, Alliance for Democracy – Portland Chapter, 503.232.5495
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Date: Thu, 15 Apr 2010 13:55:37 -0400
Subject: PRESS RELEASE: White House and Congress Should Back Financial Speculation Tax

CEPR logo


White House and Congress Must Back Financial Speculation Tax, Diverse Array of Groups say on Tax Day

As G20 Summit Looms, Wall Street and Economic Experts, Labor Leaders, Consumer, Development and Global Health Advocates Come Together, Say Small Levy on Financial Transactions Is Idea Whose Time Has Come

For Immediate Release: April 15, 2010
Contact: Angela Bradbery (Public Citizen) 202-588-7741
Susannah Cernojevich (Global AIDS Alliance) 202-789-0432 ext. 211
Doug Gordon (Americans for Financial Reform) 202-822-5200 ext. 237
Laura Rusu (Oxfam America) 202-459-3739  

Washington, D.C.– The White House and Congress should embrace a financial speculation tax, an idea whose time has come because it would help curb excessive speculation and raise billions of dollars for critical needs, a diverse array of groups said at a press conference today, Tax Day.

The groups – which included Wall Street and economic experts, labor leaders, and consumer, development and global health advocates – called on President Barack Obama and Treasury Secretary Timothy Geithner to support the financial speculation tax, and on Congress to move swiftly to enact it.

“Wall Street should pay to clean up the economic mess they made – that’s why the AFL-CIO and the global labor movement support a financial speculation tax that encourages long term investment that creates jobs,” said Damon Silvers, director of policy and special counsel for the AFL-CIO.

Added John Fullerton, a former managing director at JPMorgan, who also spoke at the press conference, “Short-termism is now widely recognized as a core illness in our financial system. The financial transactions tax is not a cure all for this or any disease, but at the margin it will shift capital allocation away from short-term speculative activities toward longer-term investment while improving system resilience and raising much needed revenue in the process.”

U.S. Sen. Tom Harkin (D-Iowa) said that “At a time when the deficit is rising, we must find ways to reduce the debt without putting a heavy burden on average Americans or cutting necessary services. A small transaction tax can raise substantial funds with virtually no effect on middle-class families. And it has the added effect of dampening down overly speculative trading, which is partially to blame for the recent economic crash.”

A financial speculation tax, also known as a financial transactions tax, is a very small levy on financial short-term transactions. It would curb excessive speculation by big banks, but with minimal impact on long-term investors. It also would raise an estimated $100 billion a year for creating jobs, important public investments like rebuilding our nation’s crumbling infrastructure, providing global health and development aid, and mitigating the impact of climate change. Other countries have a form of the tax, and the U.S. had it until the mid-1960s.

“It makes sense to tax what we don’t like,” said Robert Weissman, president of Public Citizen. “A speculation tax promises to slow the dangerous churning on Wall Street, pare down an oversized financial sector and raise $100 billion annually in a very progressive fashion. That’s a winning formula, and why a speculation tax is likely to become the law of the land, despite intense Wall Street opposition.”

“Greed and negligence led to a deep economic recession that thrust 100 million people around the world into absolute poverty,” said Raymond C. Offenheiser, president of Oxfam America. “The financial speculation tax would not only help prevent the next crisis, but also help raise much needed funds to help pick up the pieces of the millions of people around the world who suffered the consequences and invest in the resiliency of communities on the front lines of climate change.”

Added Paul Zeitz, executive director of the Global AIDS Alliance, “In countries hardest hit by poverty and disease, especially in Africa, many rely on the public health sector for health care. But, the economic crisis has put access to these services in jeopardy. In addition to
fighting for full funding of U.S. government global health commitments, we must also look to innovative financing mechanisms, like a financial speculation tax, to help continue providing life-saving medicines to treat the growing impacts HIV/AIDS, tuberculosis, malaria and expand access to treatment of long neglected diseases.”

Momentum for enacting a financial speculation tax is already strong in Europe. It will be on the agenda at G20 finance ministers’ meeting in Washington, D.C., on April 23 and the G20 leaders’ meeting in Canada in June.

“The reckless behavior of a severely bloated financial sector has given us the worst economic downturn in 70 years,” said Dean Baker, co-director of the Center for Economic and Policy Research. “A tax on financial speculation would raise close to $100 billion a year, while downsizing the financial sector and restoring it to its proper role in the economy, which will help ensure that this sort of calamity does not happen again.”

Added Sarita Gupta, executive director of Jobs with Justice, “Jobs with Justice will be in the streets today in over 40 cities demanding that Congress tax Wall Street to pay for jobs. Wall Street bankers recklessly gambled away our economy, and they should be made to pay for recovery programs like the Local Jobs for America Act.”

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