Journalism in the Public Interest

The .03% Solution

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The unwritten rule of Washington debates about taxing and spending is to never consider anything new. But wouldn't it be wonderful if the pressure of the next few months' debate changed that?

Last month, 11 European countries, including France and Germany, moved forward on introducing a minuscule tax on trades in stocks, bonds and derivatives. The tax goes by many names. It's often called a Tobin tax, after the economist James Tobin. In Europe it goes by the more pedestrian financial transaction tax. In Britain, it goes by the wonderful Robin Hood tax, and is supported in an often clever campaign.

On this side of the Atlantic, there is a ghostly silence on a transaction tax in respectable political quarters. But that might change. This month, Sen. Tom Harkin, Democrat of Iowa, and Rep. Peter DeFazio, Democrat of Oregon, plan to reintroduce their bill calling for just such a tax.

A transaction tax could raise a huge amount of money and cause less pain than many alternatives. It could offset the need for cuts to the social safety net or tax increases that damage consumer demand. How huge a sum? Harkin and DeFazio got an estimate from the bipartisan Joint Committee on Taxation, which scores tax plans. It's a hearty one: $352 billion over 10 years.

The money would come from a tiny levy. The bill calls for a three-basis-point charge on most trades. A basis point is one-hundredth of a percentage point. So it amounts to 3 cents on every $100 traded.

And the bill contains some exemptions intended to make the tax more politically palatable. The first sales of stocks (initial public offerings) and bonds are exempted, so that the markets' capital-raising function isn't harmed. Initial investments and withdrawals from tax-protected accounts, like retirement or education funds, also have a measure of protection.

Critics of such a tax cavil that it will harm our capital markets and won't raise that much money. They argue that such a tax cannot be enforced; that it will depress trading, leading to lower asset prices; and that it will ultimately be passed on to retail investors.

These are anemic arguments, and are completely destroyed in an excellent piece of myth-busting by a group in Britain called Stamp Out Poverty.

Lots of taxes are hard to collect, but this doesn't seem like one of them. Sales taxes have decent compliance, and they are often collected by small businesses conducting commerce in cash. Trading, on the other hand, is conducted by large businesses on computers. This tax would be collected by the exchanges. If there's no exchange involved, the buyer owes it. It would be paid on any trade carried out in the United States or by any American entity or individual (a corporation's offshore subsidiaries can't get around it).

If there is truly a concern, then the tax could be modified so that if it hadn't been paid, neither the transaction nor any legal action arising from it would be enforceable in the United States judicial system. Voilà! Plenty of compliance.

But those who argue against the tax are blind to a sea change in the way society sees the financial sector. They should be asked to make an affirmative case for more frenzied capital markets activity, rather than just assume that tamping it down is malign.

Yes, trading costs have come down and trading has skyrocketed in the last decade and a half. What have we gotten for it? Bubbles, crashes, volatile asset prices and an outsize financial sector that extracts rents from the rest of the economy. Rising volumes and tighter spreads haven't delivered good economic growth, broad-based wage growth or good jobs.

Nor have they even helped the stock market. Where is the boom in newly public companies? The Standard & Poor's 500-stock index is only just now getting back to its peak before the financial crisis. The Nasdaq isn't close to the peak achieved in the year 2000. Stock market valuations are depressed.

So let trading costs rise again, if the Tobin tax would really lead to that. (Other factors, like brutal competition, might still keep them just as low.) Much of the trading that occurs in the market is socially useless. It might narrow slightly the spread between the prices at which securities and derivatives are bought and sold, but the minute there's a crisis, the traders flee. They provide the kind of liquidity that is available only when it is not needed.

The average American, who has limited exposure to the stock market, has little to fear from the tax and much to gain. And if some of the high-frequency trading flees offshore? Good riddance.

Alternatively, let's suppose that a transaction tax succeeds beyond expectations in bringing down excessive trading and doesn't raise as much as projected. Fine. The American capital markets will become less volatile and more connected to fundamentals. Pension fund and mutual fund managers will have an incentive to hold stocks longer and adjust their investing expectations. There is a scourge of short-term thinking in American business; a transaction tax leans against this malign influence.

But what if the tide of technology and investor attention-deficit disorder continues apace, and trading does not decline as much as the securities industry and its paid academic shills claim? That's fine, too. We'll take the revenue.

The politics of a transaction tax are fascinating. Harkin doesn't have the juice to get it done on his own, several Senate staff members and Washington observers explained to me. The transaction tax would need to be embraced by some senators on the relevant committees, like finance or banking. The Senate Finance Committee is a problem because Charles Schumer of New York, the heavyweight Democrat who serves on it, often acts as if his main constituency is Wall Street.

There have been hints of a possible anti-Wall Street/Big Bank coalition between Midwestern and Western Democrats and Republicans. The Ohio Democrat Sherrod Brown and the Louisiana Republican David Vitter don't agree on much, but they co-sponsored a bill calling for more bank capital. Charles E. Grassley, the Iowa Republican famous for skewering vested interests, serves on the Senate Finance Committee. Of course, Republicans have taken blood oaths never to support higher revenue.

If some kind of increase in taxes is inevitable, one that takes aim at high-frequency traders probably hits few Iowans and average Americans in general, while doing much good.

We all know who ends up paying any tax and it is not the corporations.  Instead, like all taxes, this will end up on the backs of the consumers in some way.  There is no such thing as a free lunch, even on “high-frequency” traders,

elaine hill

Feb. 6, 2013, 2 p.m.

Now this sounds doable

If I made my entire salary from one trade, my tax would be $10.50 a year.
Multiply my salary by ten, my tax would be $105.00. This Wall Street would complain about? Wall Streets arrogance knows no limits.

“But those who argue against the tax are blind to a sea change in the way society sees the financial sector”

Better open theirs eyes.

Do the information technology infrastructures exist to assess real time transactions in the American financial markets?

It is about time to go WHERE the money is!  The biggest problem with our current system is there is total lack of respect for the income of people who live earning wages! Yet,investment income and stock earnings are glorified and virtually untouchable for taxes!

This idea makes a lot of sense to me, which may be while a bright idea will never be undertaken.  It may well be that the tax would be passed on to consumers unless some mechanism were implemented to prevent that very real problem.

There will be unintended consequences of this “great idea.”  There are millions of transactions every day.  No one can know the true cost.

In some markets, liquidity will dry up, causing a general rise in the prices related to that market.  These price increases will be needed to cover the increased risk.  As stated earlier, consumers will pay for the tax in one way or another; corporations will not voluntarily reduce their operating margins….

Wallace Turbeville

Feb. 6, 2013, 3 p.m.

First of all, most transactions are executed on exchanges and electronic platforms that can easily be used to assure collection. For OTC derivatives, the transaction data is required to go to central repositories, another collection point. And second, the thought that that high frequency trading provides meaningful liquidity to any market is a fallacy. Wha it does do is disrupt market functions by whipping back and forth all day long. A financial transaction tax makes enormous sense.

It doesn’t say anything in the article about 401k plans being taxed with a specific amount, although it does mention a measure of protection. That could affect how much people put into it if they know it’s going to be taxed, even a miniscule amount, because of the mindset of how people view taxes. Much better to be up front about it, I think, so that people will be clear about what it is and what to expect.

I didn’t expect this to actually happen, but I thought something like this would be a great idea to unravel the economic hit in 2008 as soon as I saw that the banks were claiming to own derivatives that were worth several dozen times the value of the entire planet.

But they’ll balk at even that tiny amount and do what they can to work without it.

And it’s unfortunately a point that governments always miss.  It doesn’t matter quite so much how “rich” someone is, though a progressive tax does make objective mathematical sense.  The people you want to tax heavily are the people who make money without contributing anything to the economy!

Another tax burden?!!!  The politicians will just steal that money, like they have done with plenty of others.  No matter how “noble” the intended cause, the tax funds will never get there to punish the culprits and stop future ones.  The federal government could easily use its huge tax revenues to implement any consumer-protection plan possible.  We don’t need to victimize investors any more with another tax.  And when the tax purpose fails, we have just another burden and no benefit.  And no easy repeal.

Walter D. Shutter, Jr.

Feb. 6, 2013, 4:29 p.m.

Now let’s just look at the numbers:  The author says this “Robin Hood” tax will raise about $352 billion over ten years.  If we divide $352 billion by 10 that results in additional tax revenue of $35.2 billion per year. When last I looked, the feds spent about $3.5 trillion in 2012.  During the same year, the feds raised about $2.4 trillion in revenue(mostly in taxes) and borrowed about $1.1 trillion.
I’m sorry, I was going to give you more numbers but my pocket calculator just went on strike.
My point is this:  We don’t have a revenue problem; we have a spending problem. Government spending is out of control.  Government spends all that it takes in and then some. A new source of revenue would not help as it would be quickly spent.  Giving Congress Critters a new source of revenue would be like putting a junkie in a locked room with a mason jar full of morphine.

The Tobin tax should be welcomed by everyone, save the high volume, computer traders who really do not contribute anything to the economy or the markets. If it gets rid of much of this computer trading where stocks are held for seconds or minutes, it will be good for the retail investor.

Catherine G. Tripp

Feb. 6, 2013, 4:34 p.m.

It’s not going to hurt the little guy - I do my own investing, and do not churn that portfolio as brokers were wont to do, and they charged me dearly for it too.  Another good source of revenues would be to fine the Ratings Agencies a hell of alot more than the $5 billion proposed yesterday.  Those smug bastards hiding behind the First Amendment.  Looks like your 2007 article exposing this corruption has finally paid dividends, Jesse!

mayor linsey in nyc proposed a similar tax on trading to save nyc many years ago

This type of tax exists in the financial markets in Colombia and has existed since the late 90’s.  The government is fond of it as it was and is a good way to raise revenue.  The existing financial institutions like it because it stifles legitimate new competition and restricts funds movement between institutions (movements are taxed as they happen).  Large bank (corporate) customers like it since all of their competitors are subject to the same costs and so there is no unequal playing field which can be gamed.  Small businessmen are happy for the same reasons (level playing field).  The financial engineers and lawyers are happy as they can sell engineered products to lower or eliminate the tax legally.  The politicians are happy as the select few large corporates lobby and receive special exemptions in exchange for support.

The only unhappy souls are the final consumers who are not really aware that the financial tax has been wrapped into the costs of everyday goods and services. 

Oh and of course the country becomes uncompetitive and entrepreneurship suffers as no one wants to invest new capital in creating ventures which compete against a financial industry with such ingrained benefits.

Preposterous.  On a $100,000 trade, the charge would be $30.00.  That is 4x what it currently costs at your average Internet brokerage.  Try to put a 5x cost increase on consumers in any market and see how it goes.

High-frequency trading has been an enormous explanation for why bid/ask spreads have fallen to $0.01 on US stocks from 8-16c a decade ago.

Byard Pidgeon

Feb. 6, 2013, 6:08 p.m.

I am a low income person who has some stocks, and trades to supplement that income. I welcome such a tax on trading; it’s long overdue.

Ralph Nader has been proposing a tax on Wall Street transactions for years. Of course, he has been ignored. It wouldn’t have hurt to mention it in this story. It is relevant to the fact that it hasn’t been done yet.

Whoever is complaining about a $30 charge for $100,000 of purchasing stock should buy $99,970 worh of stock. Perspective, crescent. Plus you’ll have the satisfaction of not getting charged as much tax, the less that’s spent. Pick the right stock and you’ll make your $30 back no problem. It’s such a small tax, .03%.

By the way, my last comment wasn’t in condemnation of the tax, I meant it needs clarifying for people with 401Ks.

An excellent idea, long overdue. Those who suggest that all taxes are ultimately are paid by consumers may be correct, however it ignores the fact that those same consumers get goods and services for those taxes. I doubt few of the tax grumblers would suggest that those benefits are allocated equally. The only conclusion possible is that those at the top will pay, those at the bottom benefit. It should make the deficit grousers happy too, though somehow I doubt it.


Feb. 6, 2013, 9:20 p.m.

This is not a new tax. We’ve had this before with great success. People who say this tax would. Be passed on to consumers are either complete fools or flat out liars being paid to post propaganda. It would come out of high end investment firms profits. Believe me they will not starve. They will not stop investing. They may be forced to scale back high frequency trading but that’s not investing anyway. That’s just harvesting.

A very interesting and compelling idea! I just found another article (published in December of 2012) which can be found by googling: “Simon Thorpe’s Ideas on the Economy H.R. 3313: Wall Street Trading and Speculators Tax Act”. In it, Thorpe discusses DeFazio’s and Harkin’s bill, and argues that the revenue generated could far exceed the 352 billion/ten year estimate. (up to 1.3 trillion/year) I have no idea whether or not Thorpe is a credible source, but those who can follow his numbers might be equipped to make that judgment.

He also brings up Nader’s point that residents in all but five states pay exorbitant sales taxes. (Ours in Washington State is the most regressive in the nation, pushing 10%), so the percentage amount being discussed here is microscopic by comparison.

It makes sense to me, bringing forth some small stability, but it will still not give business any conscience.

Easy to do.  Let’s do it…and I make a lot of option trades in a year.  Somewhere along the line the stock exchanges started charging a penny or two per trade, so why not try this source for public good as well?

I support any kind of Wall Street Transaction tax, on all trades, including those on derivatives.

I would also suggest that it could be phased in, rather than a flat rate of 0.03%. Stocks and derivatives could be treated differently, because of the volume differences. On derivatives, 0.001%, and yearly rising by that much or so, to reach eventually to 0.1%. Stocks that are traded daily could be taxed at that rate, and held for more than a month, double that amount. But all transaction rates ought to eventually end up at the same rate of up to 0.5%, or even 1%.

A huge advantage is that this will stabilize the astronomical price fluctuations in Wall Street, so that individuals can “faithfully” invest, rather than trade as pure casino gambling, which ought to be illegal.

In spite of the recent housing bubble, home prices are remarkably stable. But stock prices do fluctuate by several folds. See how the stellar companies’ share prices during the past 12 years. GE, Microsoft, Intel, Cisco, and Pfizer, to name a few. These companies are still solid, as they were 12 years ago. But their share prices dropped dramatically during the past 12 years. If that were the case, how can anyone with confidence invest in stock market? But we all do, either passively or actively. The total daily dollar volume of Wall Street trades must come down to - it may sound foolish and reckless - from billions, or even trillions to under $100-500 million. A lot of tycoons may lose their means to enrich themselves. So be it. Remember the agony of hardworking famers, who were feeding the populace, during the Great Depression!

This is such a screaming no-brainer that it makes me crazy.

If the size of our financial sector were cut in half overnight, we would all get along just fine, except for a few sharpies in New York who would see their multimillion-dollar bonuses cut.

The public used to trust and admire financiers. But they pissed it away out of sheer, monstrous greed. To hell with them.

Mike Germaine

Feb. 7, 2013, 9:53 a.m.

Ridiculous. Every confiscatory tax we have now started out as a “tiny levy.”

not good at all

Feb. 7, 2013, 10:53 a.m.

This wont be good - it will temporarily ease the system, and it will make it as if it was working. All the while the system will be doing more of what it did in the past 30 years - make rich richer, poor poorer and concentrate all wealth in a tiny 1% of the society, and even less. (The concentration trend of capitalism never stops, even at the top). So, a decade later we will have a worse situation. The system must be fixed.

When you say a financial transaction tax could raise a huge amount of money and cause less pain than many of the alternatives, you highlight precisely why this is such a terrible idea. While it is simplistic and an easy sell to the general public, it ignores that the painful alternatives involve reducing government spending so that the “entitlement” programs (many of which are not an “entitlement” but due to people who have paid their taxes) can survive long term based on even- handed and fair applications, that the tax code needs repair and the securities market structure requires thoughtful fixes to make capital raising and trading safer and more effective.  It is much easier to continue to paint every trader with the same brush and ignore the work that needs to be done.  Capital markets actually matter.  I have no doubt that a transaction tax would cause a huge contraction in the economy and that long-term it would hurt consumers in part because it will affect the trillions that individuals hold in their retirement funds and mutual funds.  If a transaction tax passes, I’ll be the first to put my retirement funds in a standard bank account. Aside from the tax itself, when the liquidity contraction hits, watch the markets swing, baby.  Why would you pave a path that will facilitate government officials continuing to ignore the roads that require fixing in order for our nation to travel safely into the future?  I expect our legislators like your article very much.

J, if you seriously believe this:

“I have no doubt that a transaction tax would cause a huge contraction in the economy and that long-term it would hurt consumers in part because it will affect the trillions that individuals hold in their retirement funds and mutual funds.”

then either you are part of the problem, or you have drunk deeply of Wall Street’s Kool-Aid.

As for the tired “we don’t have a revenue problem, we have a spending problem” meme, two simple facts tell the story:

1. Government revenue as a share of GDP is at its lowest level in decades.

2. Government spending is higher than usual—as it should be—due to the Great Recession (and an unfunded war).

As poor Paul Krugman keeps repeating ad infinitum, yes, long-term we need to get health care costs under control (a situation which is already improving all by itself). But there is simply no emergency right now, and slashing spending will only prolong the recession and increase the suffering of millions of unemployed (even Republicans agree with this one: note how freaked out they are about the prospect that mandatory defense cuts will cost hundreds of thousands of jobs).

The advocates of austerity now now now keep predicting bad things that keep not happening. Their credibility is zero.

Given that 11 European countries are going forward with the plan, and given the speed with which we manage to enact legislation in this country, I would imagine the eleven test cases abroad will be well into the process by the time we get around to it. By then we’ll be armed with evidence regarding whether or not their economies contract,  liquidity dries up, and they’ve hurled us all into a global depression. Those such as “J” who are concerned might start stuffing their mattresses now. I suspect most of us will simply go with what seems a sensible plan to increase revenues which, for a change, doesn’t target needed programs.

Rob Lewis is correct: “Government revenue as a share of GDP is at its lowest level in decades”. Krugman is spot on, and the Rand Paul types with their bumper sticker “logic” simplistically likens the process in finding balance in our national/global economy to that of balancing a family budget - while neglecting the reality that families need jobs so they have budgets to balance.

Given that 10% to 30% of government spending is waste, fraud, and abuse, there’s no public benefit to hiking any kind of tax.  We have yet to identify a country whose government does not overspend with waste, fraud, and abuse.  Anybody have any country to the contrary?

As for Colombia, if the government wants some more money, it should just tap the cocaine mega-billionaire cartels and leave the average public alone.


Feb. 7, 2013, 7:06 p.m.

I think this tax is a wonderful idea, both as a source of revenue and a small drag on high speed trading, which I believe is dangerous and distorts the market for investors.

That said, I detest the term Robin Hood tax. This is a perfect way to immediately create a totally adversarial environment and turn off anybody related to business. It shouldn’t be about social engineering, it should simply be about a more balance revenue approach and a small tax to support regulation of financial transactions and the unfunded cost they currently represent to the nation.

Oh, Carl Olson, I simply must have your source for the factoid that “10% to 30% of government spending is waste, fraud, and abuse”. Won’t you please be good enough to provide it?

Jess - Glad to see this story getting attention.  As a reference, see NYT article from ten years ago; the tax is attributed to Prof Edgar Feige of Wisconsin, and was 10 times higher; 0.03%.  As such, the transaction tax replaced all other taxes, instead of being a separate levy on HFT.  Link to article:

Small thing, perhaps not worth noting. I’m a regular reader of The Trade (one of the best blogs on the Internet) and Eisinger, but I’m curious why every column has to start with the non-relevant note that the picture isn’t subject to the Creative Commons license. Aren’t there any pictures you could use to avoid having the first sentence be about copyright issues?

That makes me sound like a curmudgeon. But it’s the 20th+ I’ve read it.

That said, I’m a big fan of the 0.3% tax. We need to do this.

*.03% tax.

charles hoffman

Feb. 8, 2013, 10:31 a.m.

the easiest way to destroy the fin serv industry is to impose taxes on transactions

we already have an income tax and a tax on capital gains
adjusting those taxes is a far more appropriate way to raise revenues .

we tax income - not activity t

charles hoffman: I submit that a little “creative destruction” is exactly what the financial services industry needs!

Really, who does the industry “serve” now, except themselves? How is anybody better off because stocks can be traded thousands of times per second? How do incredibly complex derivatives—that not even the people selling them fully understand—serve the actual needs of the greater economy? The answer is, they don’t. Throw in the “too big to fail” implied warranty that we taxpayers are on the hook for, and the whole mess is a bloated, corrupt cancer on civilization, that makes a few people unimaginably wealthy, and the rest of us worse off.

I cant see how this tax will raise any revenue, when HFT drys up and the volume traded gets decimated. HFT will do something else , while the avg. Joe will end up being taxed.

Oh, Rob Lewis.  Can you cite me any example of any government program in any country at any time that is NOT riddled with at least 10-30% waste, fraud, and abuse.  So why fan the flames of public losses by feeding more taxes?  Give us all just one example.  The ball is in your court.

Byard Pidgeon

Feb. 8, 2013, 8:39 p.m.

Carl Olson…I’ve worked in government agencies, large and small, and private corporations, large and small…and I have seen by far the most waste, fraud and abuse in the private sector.
The difference is that the private sector hides all the waste, or considers it a cost of doing business. The most waste, fraud and abuse was always in private corporations working on government contracts.
Now, I realize from your postings that your ideology doesn’t want to accept this…but I was there…not hearsay…I experienced it first hand.

When the Federal Income tax was first legalized it was supposed to be a 1% tax on those making over $20,000 and up to 6% for those making over $500K.  Of course, if that remained the case we would have a small government that was still somewhat under the control of the people.  The Tobin tax would start off small but within a decade would be out of control.

Such a tax is currently applied to any equities changing hand in India. It is primarily collected by exchanges from brokers on all their trades and passed on to the govt. Very easy to collect, though the quantum is not very high - about a billion dollars annually.

But what the govt did along with imposition of this tax is to make capital gains tax free on stocks held for a year or more, thus punishing speculators and high frequency traders and rewarding investors.

Carl Olson:

Though I hate myself for getting involved in a flame war with someone who clearly lacks even a rudimentary grasp of logic, I can’t let your absurd assertions pass unremarked.

First of all, the ball is not in my court! As the originator of the completely unsubstantiated assertion that 10%–30% of all government programs goes to waste, fraud, and abuse, the burden of proof is on you, sir. The ball has not left your court. Nor is it likely to leave.

Secondly, you want me to prove that there is a government program somewhere that is NOT riddled with abuse as you claim. Ever hear the principle that you can’t prove a negative? Really, it’s something you ought to know if you’re going to get involved in an argument over facts.

Despite that, I’ll toss you a statistic: I believe that private health insurers consume about 15% of the money that passes through them in administrative costs. For Medicare, I believe the figure is 3%.

Here’s what I think: that “10% to 30%” figure is an offhand assertion you heard somewhere (wild guess: Rush Limbaugh?), and it fit with your prejudices, so you adopted it as something you “know”.

Rob Lewis: I’ll continue to expand on your last post even though we both realize trying to crack through entrenched, logic free opinions is fruitless.

A recent government program which is aptly titled, “Affordable Health Care Act” (Obama-Care) was set up for the purpose of -{{GASP!!}}- reducing waste, fraud, and abuse. Thus wasteful, fraud ridden, and abusive private “health” insurance companies are now being held to account through the act. Among the many reforms and cost-cutting measures, insurance companies selling to individuals and small employers must now show that 80% of the premium must be spent on benefits and quality improvement. If they don’t meet these goals, because their administrative costs or profits are too high, they must provide rebates to consumers.

Of course dollar-wise, if we’d chosen single payer instead, we’d have cut costs far more than we have with the current clean-up effort.

Fox “News” supports corporations/business interests. Providing their audience with accurate information does not serve their purpose.

For Rob Lewis and Carolyn,

1.  What is your estimate of % for waste, fraud, and abuse in government programs?  Where between 10% and 30%, or what?  It certainly is not near 0%.

2.  Obama-Care is not a good example of government thriftiness, inasmuch as it is subsidized with $600+ billion taken away from Medicare.
Why would private health insurers permit substantial waste, fraud, or abuse in their own expenditures.  They have the most incentive to cut down and stop it so that the company’s net income does not suffer.

3.  Medicare and Medicaid have no aggressive programs to stop waste, fraud, and abuse.  Maybe the lobbyists for those profiting from the waste, fraud, and abuse are currently winning the money war in Washington.  We certainly don’t want to help them keep on winning.
Can we agree on this?

I would not offer my own estimates since I rely on accurate information. I’ll leave the manufacturing of “estimates” up to you, Rush Limbaugh, and Fox “News”.

On your assertion that Medicare and Medicaid have no aggressive programs, please refer to the 2009 team effort of the DOJ and Dept of Health and Human Services (HHS) by googling: “Health Care Fraud Prevention and Enforcement Action Team (HEAT)”

Re: Your soundbite on the $600 billion “subsidy” please google “Keeping Medicare and Medicaid Strong? - Center for Medicare Advocacy, Inc.” Reading and understanding it takes awhile, since instead of being simplistic, it’s packed with information and sources are cited. Well researched, credible, accurate presentations are done that way.

As far as the general topic of “waste, fraud, and abuse in government goes, the evidence is clear we can only have honest government when we vote in enough people who will provide us with it. That would require well informed voters who choose candidates who work in behalf of constituents rather than satisfy corporations which are all to eager to feed their coffers and campaign for them. Campaign finance/lobby reform, of course, would go a long way to help correct the problems we have.

As far as recourse to curb “waste, fraud, and abuse” in private industry, only federal and local government legislation can help. (ie: The Affordable Health Care Act, the new Consumer Protection Agency which still doesn’t have a head due to corporate-owned GOP foot dragging, OSHA, EPA, etc.)

Wayne Schindler

Feb. 10, 2013, 8:31 a.m.

Two issues with this.  Author seems to believe that low trading costs have brought us bubbles in the marketplace. The cost of trading had little to do with the 2008 financial crises and I’ve seen no evidence to even suggest this.

Second, this is yet another “government needs more revenue” article diguised as “let’s get them greedy investors” article.  Why are some looking for more ways to tax, instead of finding ways to get spending under control? 

The federal government is in a out of control spending mode and giving the feds more money to solve the budget problem is like giving an alcholic more booze to solve his drinking problem.

For Rob Lewis, carolyn:

Parting shots:

1.  Come on, you’d have to admit to at least a 10% waste, fraud, and abuse rate in government programs.

2.  Advocates of government health care would subject us to the specter of doctors being government employees.  Yikes, save us all!!!!

Carl Olson:

1. This reminds me of Republicans in Congress who keep screaming that we have to cut spending, but refuse to name any specific cuts (because they want to blame them on Obama). You know your “10% to 30%” figure is a crock, so you want me to name a figure. I won’t do that.

What I will say is that IF the figure is 10%, that’s not an unreasonable overhead for doing things that the private sector either doesn’t do at all (e.g., build infrastructure), or does very badly (e.g., health security). In fact, there are specific cases where I HOPE that the level of waste is at least 75%. Our country, and the world, desperately need breakthroughs in energy technology. The private sector is not investing nearly enough in R&D. I think the government should shovel money at every promising new energy startup, in the full realization that much of that money will be “wasted” when the technology doesn’t pan out (it won’t really be wasted because it will still generate economic activity and jobs). Private venture capitalists are tickled pink if they hit one “home run” for every TEN companies they invest in. Yet one insignificant stumble by the government, Solyndra, provoked paroxysms of fake outrage from Republicans, who are always on the lookout for any opportunity to crucify the President (because he’s, you know, a black Muslim Kenyan socialist). Who actually cares about our future? And who is just trying to score cheap political points (while safeguarding the profits of Big Oil)?

2. Personally I would trade our system of health care for that of ANY other advanced country in a heartbeat, no matter who pays the doctors. England’s National Health Care is beloved by its citizens, despite its problems. No conservative there would dare to suggest eliminating it. In fact, if you asked the citizens of these countries whether they’d like to trade their health care system for ours, most of them would laugh at you. Here in the U.S., many people find it impossible to even imagine a society where getting seriously ill doesn’t risk bankruptcy.

Remember the conservative policy memo that was circulating a few years ago? Its exact wording eludes me, but it was along the lines of “We’d better not let universal health care pass—people might like it too much.” Tells you all you need to know.

The right has spent the last 30+ years selling the “government is inherently incompetent” canard, and far too many people reflexively believe it. Right now, they’re selling deficit hysteria in the hope of exploiting it to slash social programs. Ever wonder why, if the deficit is such an emergency, Republicans won’t even consider a single penny of additional taxes to help address it? Even though government revenue as a share of GDP is at the lowest level in decades? It’s because they don’t really give a damn about the deficit, except as a club with which to attack Social Security and Medicare.

Rob: Great post! I’ll add to it by supplying Carl with a few examples I’ve thought of which might expand his horror at the thought of “doctors being government employees” - in our very own country! Who Knew? They seem to be everywhere!:

Military doctors, public health services, Veterans Administration, county hospitals, and university operated medical training and treatment centers. Research hospitals which are at the forefront in creating medical breakthroughs rely on government funding for biomedical research and are currently bracing themselves for anticipated deep cuts due to the currently clueless “gov’mint hating” GOP dominated Senate. As Rob pointed out, the private sector no longer does research and development. Stockholders demand immediate positive returns on their investments and long term research doesn’t pay off quickly enough.

The US is falling behind as a result. Fox won’t tell you that since they’re funded by short term, short sighted, corporate interests. The rest of our corporate owned main street media isn’t much better, but at least doesn’t manufacture their own “evidence” (lies) for their audiences. 

Please also note: We via our tax dollars (government) pay doctors for the care of all recipients of Medicare and Medicaid. It’s no wonder corporate powers want to get rid of a system we all have paid into and leave us all (well, those of us who can afford it) dependent upon the financial decisions of profit driven “healthcare” company stockholders. This would mirror the very system we’ve managed to partially extricate ourselves from via the Affordable Health Care Act. Charles Dickens redux.

Again, government revenue as a share of GDP is at the lowest level in decades. Perhaps the .03% solution (the informative purpose of the article above) may be of some help in beefing up our federal financial resources.

Expanding on our Federal Government efforts to reduce fraud in our health care system, I’ve just found an extensive and updated list of successful prosecutions.

They can be found by googling: “Office of Inspector General US Department of Health & Human Services Criminal and Civil Enforcement Archive.”

Absolutely fascinating reading and a great example of our government at work! Eight prosecutions so far this month, 39 prosecutions for the month of January.

Carl: To head off any confusion on your part, please take note that those who are committing fraud are not government employees - are instead those from the private sector (corporations, companies, and individuals) who have defrauded our government (that entity which you’ve been thoroughly trained to distrust - and which you think of as “them” instead of “us”).

Rob, there’s a reason nobody mentions where the waste is.

Donald Rumsfeld said (Sept. 10th, 2001, the speech fairly easy to find on the DOD website, as I recall) very clearly that the Pentagon wastes about two trillion dollars a year on duplicated effort (my example, not his, the most powerful air force in the world is the US Navy Air Force!) and layers of bureaucracy (eighteen approvals to get a suggestion from the field onto the Secretary of Defense’s desk).

But historically, going up against the military isn’t exactly a career-maker.  That seems doubly true for Republicans.

On the other hand, it’s not so much the amount that’s spent, but what it’s spent on.  National broadband networking would be a huge boost to the economy.  Buying and releasing patents on core energy technologies would spur corporate development of the next generations.  Instead, we spend money on drones.  And we spend money on “protecting” the housing market, from, as far as I can tell, prices being affordable.

So, there’s waste.  Just not where the small-government, big-business types want to look.

I disagree on the Affordable Health Care Act, though.  That basically says that the government will fine anybody who isn’t a customer of a highly abusive corporation.  That ain’t health care, it’s a persistent windfall for the insurance industry.

I’m not a fan of big government, but I’d much rather face the idea of “running medicine like the DMV” than putting insurance companies in the driver’s seat.  I can get in and out of the DMV in an hour with a problem solved.  I know people who have spent a decade trying to get an insurance company to pay for their dead wives’ surgeries.


Except for the fact that I don’t particularly trust anything Rummy may have said, I don’t disagree with you. I would note, however, that much of the DoD waste is mandated by Congress, whose members want the jobs created in their districts (Oh, wait: government spending CAN’T create jobs, according to many on the Right. Hmm.)

Congress is elected by the people, so if the people want to eliminate this waste, they need to let their representatives know in no uncertain terms.

But inside the Beltway, Defense spending is virtually untouchable due to the power of the Military-Industrial Complex lobby. Instead, we’re being told that social spending is the “real problem” and we all have to sacrifice. Bull.

John: I think most of us who keep informed understand that waste in government is caused by those we elect to office. They create the waste - and as far as the military industrial complex is concerned, have made it endemic. Only an informed voting population can alter this - along with lobby/campaign finance reform - a reinstatement of the Fairness in Media Doctrine - and an education system which emphasizes critical thinking skills, taught by those who actually possess them.

None of us “likes” the Affordable Health Care Act, but at least we’ve finally put a dent in the free-wheeling ability for the “health care” insurance racket to do what they want when they want it. The requirement that one has to tie health coverage through their employment - along with the costs of COBRA between jobs - is ludicrous. 

We have anti-trust laws which aren’t being used. Too big to fail shouldn’t exist. We’re being held hostage by the big telecoms who charge us too much and strangle competitiveness. The FCC needs someone like Susan Crawford to bust it open and get us going on a nationwide fiber optics network. A lot of the infrastructure is already there, unused. Verizon laid out a ton of it before they bailed and moved their attention to the quicker results of wireless (stockholder demands). I have fiber optics buried in the street in front of my home, but no carrier for it. So I’m held hostage by Comcast.

None of us are fans of “big” government, but the bulk of today’s “big” government is the waste caused by corporate-led, competition-stifling” legislation written and paid for by corporations and their lobbyists/legislators who run Washington DC. We have the power to fix it if we smarten up a bit.

“11 European countries, including France and Germany, moved forward on introducing a minuscule tax on trades in stocks, bonds and derivatives.”...”A transaction tax could raise a huge amount of money”

If it raises huge amounts of money; then it is not a minuscule tax.  In this way, income tax could be described as minuscule if it was defined in terms of how many pennies tax you paid for each second that you worked instead of how many dollars of tax that you paid for each year that you worked.

The total tax burden of a government includes the current tax payments, the future tax payments incurred because of borrowings, and the interest paid.  Today the US government is paying about $800 million in interest.  It is not going into any productive program—regardless of what the waste, fraud, and abuse might be there.

So the U.S. total tax burden is hitting highs, and the public is losing out.

The national government debt of nearly $17 trillion is the accumulation of past borrowings.  This has got to be reduced pronto!  Right?  And NOT by adding even more taxes!

Carl Lewis: Since government revenue as a share of GDP is at the LOWEST level in decades, I (again) respectfully submit you don’t know what the &*%!! you’re talking about. You’re completely LEAVING OUT our flexibility in determining how much revenue we bring in to the federal level.

The .03 transaction tax would help to INCREASE badly needed revenues, and, (oh my!) help PAY DOWN our national debt.

I’m guessing you’re sitting in that Rand Paul camp of inane “small government solutions” - which any qualified economist will tell you, if it were enacted, would bring this country and the global economy to its knees. I’m very grateful that those who hold this view are in the minority.

What part of “Federal government revenue as a share of GDP is at the lowest level in decades” don’t you understand? In 2010 it was 14.9%—the lowest in more than 60 years.

No doubt you’re one of those people who thinks that Obama has raised your taxes, when the reverse is true (unless you’re in the lucky top 1%).

And tell me again why it’s an emergency that we reduce the debt pronto? Do us all a favor and look at this chart:

The national debt—again, as a percentage of GDP—was much higher at the end of WW II than now. It declined steadily through the prosperous Fifties and Sixties—a time of considerably higher taxes than today—and only started rising with the election of Ronald Reagan. He and Bush I doubled the debt, Clinton reduced it substantially, it rose again under Bush II, and has spiked under Obama for three and only three reasons:

1. Bush’s irresponsible tax cuts
2. Bush’s unpaid-for wars
3. Bush’s Great Recession.

Take away these three things, and the deficit almost vanishes.

Facts, as they say, are stubborn things.

I am an active trader and don’t really mind the idea of a very small transaction tax. But for me, a $13.50 tax on buying 100 shares of AAPL would be meaningful. My SEC fees and commission on that trade would be $7.00 at most, so adding a tax that would be double that seems excessive.  But among people who trade, it is a very tough sell when the fees we already pay do not seem to provide protection for the small individual investor (see MF Global, Peregrine, etc) and when, like bank fees, the added amounts will just be passed along to the customers of mutual funds and other fee based managed investments. I understand the arguments concerning the financial industry overall and do think high frequency trading does pose a threat to the stability of markets.  I’d be a lot easier to convince if the tax itself was less “tiny”, say one basis point, and if other things like eliminating the carried interest deduction were accomplished first.  I’ve heard Mr DeFazio speak on this subject and I’ve found his comments offensive. He may think he’s just going after big rich guys, but he’s going to catch an awlful lot of regular folks in his net.  I don’t understand why they don’t at least start with things that really would just effect whales.

This makes sense to me. 30 cents on every $1000 doesn’t seem excessive.

Nobody likes to pay taxes, least of all those that earnthe most and are able to avoid them! Casinos pay taxes, why should the largest casino ” Wall Street” be exempt??? Why so timid, miniscule??

A $15 tax on a $50,000 transaction (your 100 shares of AAPL) is “excessive”? Really? It’s a rounding error.

The original idea of investing is that you evaluate companies and their risks and potential rewards, make your choice, and sign on. Momentum trading is close to an abuse of the concept because it doesn’t care about the inherent value of a company and merely seeks to exploit other investors. High-frequency trading is nothing but a rigged casino set up for the benefit of those few who can afford to play. Tax it!

Should we exempt transaction taxes on Fed’s purchases of securities? They already get 6% of the interest on each security bought. And they are Federal government agency.  Exempt financial purchases of Federal agencies?

I see the transaction tax/fee the same as the service charge added to your restaurant bill. It’s 10 -15 or 20%, immaterial of how small or large the final bill is. Some of you may remember the practice of paying for the automatic plate cover charge, when you sat down in certain restaurants. Presumably, the owner,if honest, passed some or all the money to the service personnel. The transaction tax (surcharge) ofcourse flows to the government and the hope is that they would put it to good use. So, It’s the cost you pay to place your bets for a chance to win. My bet, however. is that this congress does not have the majority to even implement this miniscule amount of tax.That, to me, is sad, when there is talk of cutting entitlements.

Im a daytrader of 10 years and pay on average 100,000 in taxes per year. If this was enacted I would be out of business. No more of the US government getting 100,000 of my money plus no transaction for me…..How many brokers in the US like scottrade, etrade, ameritrade would have massive layoffs because of this?? There are hundreds of brokers in the US that serve just the individual and these would just go under….THis tax hits the active trader hard and there are lots of us out there. Active trading is a big part of the economy, much bigger then 10-15 years ago. We pay lots of income taxes and create lots of jobs with our commissions and fees….If this was enacted active trading would go away along with all of our commissions and taxes….I think instead we should tax all nursers, doctors, lawyers, grass cutters, real estate agents, police, fireman, ect….This tax unfairly targets day traders.

phil: please see my previous comment about investing, momentum trading, and high frequency trading.

No offense to you personally, but I submit that daytrading is part of the problem. Just like the vast drain of tax attorneys on the economy is part of the problem with our Byzantine tax code. If we simplified the code, they’d have to find something actually productive to do. What, at the end of the day, is the social good of daytrading? OK, it generates “economic activity”. So do cancer clinics. Should we wish for more cancer?

And if all those brokers go out of business, well, good riddance (though I suspect they would more likely downsize and consolidate rather than disappear completely). Like all gatekeepers in the Internet age, their status is already threatened.

Phil: I suspect a .03 tax per trade wouldn’t put much of a dent in your wallet or the amount you owe the IRS.

I would actually prefer it did, since too many “investors” are actually gamblers (as you are). Long term investors buy into the future earnings of companies which used to have large research and development departments to help them develop new products, refine others, and find the means to expand their markets. Currently, due to stockholder demands (which are driven by heavy trading), companies which consider laying money aside for long term projects face massive sell-offs from the plethora of short term traders who rapidly buy and sell due to short term goals: quarterly profits.

Since I don’t believe I’ve ever had to even pay the IRS any short-term capital gains taxes in my 40+ years of investing, I guess I’m not very worked up over your dilemma of adding 0.03 % for each trade you execute.

“This tax unfairly targets day traders”...what arrogant, blatantly self interested bullshit. Day traders pay more tax because they make more trades…if you don’t want to pay the taxes, start actually investing instead of gambling.
Day traders don’t give a rat’s ass about any effects of their gains or losses except to themselves. They’re not creating lots of jobs, probably just the opposite by thinking and acting only in the shortest, most self interested terms, and thereby distorting the market and often penalizing the very companies that actually do provide jobs.
I wish more people of the working classes…people who live on hourly wages or low salary…were reading this comment section, so they could read in person about the self interest and greed that are bringing down our society.

Jesse Eisinger

About The Trade

In this column, co-published with New York Times' DealBook, I monitor the financial markets to hold companies, executives and government officials accountable for their actions. Tips? Praise? Contact me at .(JavaScript must be enabled to view this email address)