"Regular people know that they got done in by excesses on Wall Street, and they see a Democratic administration shoveling trillions of dollars to the same Wall Street banks that caused the mess. . . . What is overdue is a little bit of populist retribution against the people who brought down the system " and will bring it down again if the hegemony of the traders is not constrained.
--Economist Robert Kuttner arguing for a "Tobin taxIn the midst of the worst recession since the Great Depression, Goldman Sachs is having a banner year. According to an October 16 article by Colin Barr on CNNMoney.com:
"While Goldman churned out $3 billion in profits in the third quarter, the economy shed 768,000 jobs, and home foreclosures set a new record. More than a million Americans have filed for bankruptcy this year, according to the American Bankruptcy Institute. A September survey of state finances by the Center on Budget and Policy Priorities think tank found that state governments faced a collective $168 billion budget shortfall for fiscal 2010. Goldman, by contrast, is sitting on $167 billion in cash . . . .
Barr writes that Goldman's "eye-popping profit resulted "as revenue from trading rose fourfold from a year ago. Really. Revenue from trading? Didn't we bail out Goldman and the other Wall Street banks so they could make loans, take deposits, and keep our money safe?
That is what banks used to do, but today the big Wall Street money comes from short-term speculation in currency transactions, commodities, stocks, and derivatives for the banks' own accounts. And here's the beauty of it: the Wall Street speculators have managed to trade in practically the only products left on the planet that are not subject to a sales tax. While parents in California are now paying 9% sales tax on their children's school bags and shoes, Goldman is paying zero tax to sustain its gambling habit.
That helps explain Goldman's equally eye-popping tax bracket. What would you guess " 50%? 30%? Not even close. In 2008, Goldman Sachs paid a paltry 1% in taxes " less than clerks at WalMart.
Speeding Tickets to Slow Day Traders?
The fact that Wall Street's speculative trades remain untaxed suggests a tidy way taxpayers could recover some of their billions in bailout money. The idea of taxing speculative trades was first proposed by Nobel Prize winning economist James Tobin in the 1970s. But he acknowledged that the tax was unlikely to be implemented, because of the massive accounting problems involved. Today, however, modern technology has caught up to the challenge, and proposals for a "Tobin tax are gaining traction. The proposals are very modest, ranging from .005% to 1% per trade, far less than you would pay in sales tax on a pair of shoes. For ordinary investors, who buy and sell stock only occasionally, the tax would hardly be felt. But high-speed speculative trades could be slowed up considerably. Wall Street traders compete to design trading programs that can move many shares in microseconds, allowing them to beat ordinary investors to the "buy button and to manipulate markets for private gain.
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