Rewriting the Rules of the American Economy by Joseph E. Stiglitz

Author:Joseph E. Stiglitz
Language: eng
Format: epub, mobi
Publisher: W. W. Norton & Company

Enact a financial transactions tax

Short-term financial transactions can contribute to economic volatility without providing any larger benefit to the economy as a whole. These transactions also point the financial markets toward a short-term focus over the interests of longer-term shareholders and stakeholders. A financial transaction tax would penalize short-term traders and incentivize longer holding periods, thus reducing instability and encouraging longer-term productive investment. Further, a financial transaction tax even at very low rates would raise considerable revenue.16

Before 1975 the financial sector charged a fixed brokerage commission on trades that, for consumers, functioned like a tax. There is little evidence that the elimination of this fee improved financial markets, and a variant of financial transaction taxes are currently employed without negative consequence in vibrant financial centers like London and Hong Kong, so there is little reason to believe that a tax on transactions would present a major disruption.17 Further, in the U.S. many brokerage houses and investment firms charge high transaction costs to consumers and have fought regulations that would reduce these costs—for example on managing retirement accounts. The difference, of course, is to whom the cost accrues. For the average investor in a 401(k), a financial transaction tax would present a minimal expense.18 Congress should pass a financial transaction tax designed to encourage productive investment.19

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