As Bernie Sanders sees it, Wall Street got a big boost when U.S. taxpayers bailed out some of the largest financial institutions in 2008. Now it's time for Wall Street to return the favor.
Sanders has proposed something he calls a speculation tax, a small levy on every stock, bond or derivative sold in the United States.
The revenue would go toward free tuition at public colleges and universities and would also be used to pare down student debt and pay for work-study programs, as well as other programs, Sanders says.
While Hillary Clinton has proposed a similar tax on high-speed trading, Sanders' plan would go much further.
Both candidates say their tax would cut back on computer-generated, high-speed trading, which is often accused of destabilizing the markets and giving an unfair advantage to large firms.
"These high-frequency traders ... make enormous amounts of money, billions and billions of dollars, and do nothing of any social value for the economy," said Len Burman, co-director of the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution. "They're just kind of the modern-day equivalent of skimming pennies out of the till."
The idea of a tax on financial transactions is anything but new. Over the years, versions of it have been proposed by economists John Maynard Keynes and James Tobin. The United States actually had such a tax until 1966, as do numerous countries today. The European Union is expected to impose one as soon as next year.
Under the Sanders proposal, trades would be taxed at a rate of 0.5 percent for stocks and 0.1 percent for bonds. A stock trade of $1,000 would thus incur a cost of $5.
Burman believes the tax "would have mixed effects."
"On the one hand, it will raise the cost of investment," he said. "It's going to be a little bit more costly to get capital to businesses and others who have got useful things they want to do with it, and that's a cost to the economy.
"On the other hand, to the extent that it discourages unproductive trading ... that's a good thing for the economy."
Given the huge size of the financial markets and the enormous volumes of trading that take place today, such a tax could also raise a lot of revenue, although estimates of exactly how much vary widely.
Robert Pollin, co-director of the Political Economy Research Institute at the University of Massachusetts, Amherst, who has studied the issue for years, said the Sanders proposal mirrors a tax proposed by Democratic U.S. Rep. Keith Ellison of Minnesota in a bill called the "Inclusive Prosperity Act."
Pollin believes such a tax could raise as much as $340 billion a year over the next decade. But the Tax Policy Center said the potential revenue would be less than one-tenth of that.
One reason for the big disparity between the estimates is that no one really knows how Wall Street firms would respond if such a tax was imposed.
John Cochrane, senior fellow at the Hoover Institution at Stanford University, said many firms would find ways to get around the tax, by routing transactions through overseas markets, or trading options instead of stocks, for instance.
"It'll induce some very clever financial innovation of how to get around it," Cochrane said, "because there's ways to trade without incurring the tax, and, as a result, I don't think it'll gain much revenue."
"The cleverness of our financial engineers shouldn't be underestimated," he added.
Although the tax would be imposed on big banks and other large financial institutions, at least some of the pain would end up getting passed on to small investors, through higher costs to pension and insurance funds that invest in Wall Street, Burman said.
But Warren Gunnels, policy director for the Sanders campaign, argued that if Wall Street firms pass on the cost to investors, tax credits would be available to help low- and moderate-income people defray the cost.
DAVID GREENE, HOST:
Democratic presidential candidate Bernie Sanders has promised to get tough on Wall Street if he is elected president. He would do that in part by imposing a small fee, or tax, on some financial institutions. He'd use the revenue to pare down student debt and provide free tuition at public colleges. One big question, though, is how much money we're actually talking about. Here's NPR's Jim Zarroli.
JIM ZARROLI, BYLINE: Sanders calls his idea a speculation tax, but it would apply to all trades involving stocks, bonds and derivatives. And he says it would be a way for taxpayers to get something back for the money they lent big banks during the financial crisis.
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BERNIE SANDERS: The American people bailed out Wall Street. Now it's Wall Street's time to help the middle class.
ZARROLI: Sanders spoke after the New Hampshire primary. The idea of a financial transactions tax is not new. Versions of it were proposed by John Maynard Keynes and Nobel prize-winning economist James Tobin. The U.S. actually had such a tax until 1966. And today, many countries, including Great Britain, impose one. Sanders says reinstating such a tax in the U.S. would accomplish two goals. First, it would cut down on unnecessary trading that can destabilize the markets. Len Burman of the Urban-Brookings Tax Policy Center says an argument can be made that a lot of computer-generated, high-speed trading serves no economic purpose.
LEN BURMAN: These high-frequency traders make enormous amounts of money, billions and billions of dollars, and do actually nothing of any social value for the economy. There's kind of the modern-day equivalent of skimming pennies out of the till.
ZARROLI: A tax on high-frequency trading has been proposed by Hillary Clinton. But unlike Sanders' plan, it wouldn't apply to other kinds of transactions. How much revenue would be raised by these taxes is unclear. Robert Pollin of the University of Massachusetts at Amherst says the speculation tax proposed by Sanders would cut trading by a lot. But even so a lot of money would come in.
ROBERT POLLIN: I would estimate that given the tax rates in the Sanders' bill, it would be in the range of $340 billion a year in revenue.
ZARROLI: The Tax Policy Center, on the other hand, estimates that the revenue would be a small fraction of that. The estimates vary in part because no one knows for sure how Wall Street would respond. John Cochrane of the Hoover Institution says that if a transaction tax is imposed, investors will do what they can to avoid it. They can go to overseas markets to trade, for instance.
JOHN COCHRANE: Many things are traded internationally. So you want to buy and sell a German bond, well, you can do that in the U.S. You can do it in London. You can do it in France.
ZARROLI: In fact, France, Germany and the rest of the EU are about to impose a tax of their own. But, Cochrane says the point is that a lot of people would find ways to get around the tax.
COCHRANE: I mean, the cleverness of our financial engineers shouldn't be underestimated.
ZARROLI: There's another argument against the tax. Although it would be imposed on big Wall Street firms, Len Burman says some of the pain would probably end up getting passed on to small investors.
BURMAN: Well, there's a lot of trading that's done for people's retirement accounts, and that would be affected by this money that's in your life insurance or other insurance plans that's invested in Wall Street that would be affected by the tax.
ZARROLI: The Sanders campaign says if Wall Street firms end up passing on the tax, there would be tax credits to offset the cost for low- and moderate-income individuals. It also says the tax would benefit pension funds by cutting back on unnecessary trades that drive up pension expenses. In the meantime, it would raise a lot of revenue for education, even if it's not clear exactly how much. Jim Zarroli, NPR News, New York.
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GREENE: And later today on All Things Considered, we'll look at the generation gap among women in their support of Hillary Clinton. Transcript provided by NPR, Copyright NPR.