It’s only a little past 8 a.m. but Sen. Elizabeth Warren is firing on all cylinders. Student loans issued between 2007 and 2012, the Massachusetts Democrat fumes, are on track “to make $66 billion in profits for the U.S. government.”
“That’s obscene,” Warren declares to TV host and conservative ex-Congressman Joe Scarborough, who also expresses outrage.
Warren’s comments came on April 1, but if there’s a joke here, it’s a cruel one on ordinary Americans: that $66 billion amounts to an enormous tax on just about everyone seeking a higher education. It’s a reminder that, incredibly, student loan debt now exceeds credit card debt in the U.S. And with tax season upon us, it’s a reminder that fixing tax policy and attending to tax fairness — keys to our country’s competitiveness and society’s success — are as urgent now as anytime in recent memory.
fixing tax policy and attending to tax fairness -- keys to our country’s competitiveness and civil society’s success -- are as urgent now as anytime in recent memory.
Taxes are especially hard to swallow when we working stiffs are also in effect subsidizing cash-rich corporate America. In the 1950s, when America’s middle class was thriving, some 30 percent of federal revenues were derived from corporate taxes, according to the White House Office of Management and Budget. In 2013, the corporate share of federal revenues had shrunk to 10 percent while personal income taxes had risen 16 percent to become half of Uncle Sam’s take.
It’s comical, really: For tax year 2014, this GE (Garry Emmons, me, your humble scribe) paid federal income tax at a rate about 20 times higher than that other GE (General Electric). When our nation puts me as a cash cow ahead of that other GE, be very afraid.
Here’s a better idea. The U.S. financial services sector, with many trillions in assets, reaps about 25 percent of all the profits generated by the American economy. Yet, while a huge part of Main Street commerce is subject to a sales tax regime, Wall Street is not. Enter the Financial Transaction Tax (FTT), which would impose a tiny fraction of tax on Wall Street activity, particularly on high-speed, high-risk and highly speculative trading.
Supporters — Bill Gates, Warren Buffett and Paul Krugman among them — say an FTT could help defray the costs of infrastructure, education or health care, or to fund overseas development programs. Advocates say a 0.5 percent rate (as in legislation introduced by Rep. Keith Ellison of Minnesota) could raise $300 billion annually from U.S. markets. At 50 cents per $100 on sales of stock (less for bonds), the Ellison bill’s tax bite is the equivalent of a flea on an elephant, about 10 times less than the sales tax on a tube of toothpaste.
Reflexively, Wall Street hates the idea, claiming the tax will raise the cost of capital and otherwise hinder its capital markets. Yet various forms of FTT are succeeding today in dozens of countries and markets, including some of the wealthiest (e.g., Singapore, Switzerland, Hong Kong). Soon, 11 nations of the European Union will join in the tax’s biggest test yet, a multinational version that will roll out next January. Some countries, such as Sweden, found they lost business to non-FTT markets and have scrapped their own versions. Reasonable people can disagree about FTTs; they will watch the EU grand experiment closely because an FTT’s success theoretically increases the more widely it is adopted. On the other hand, because it’s home to the world’s largest capital markets and the world’s reserve currency, the U.S. on its own would hold promise for an FTT.
Wall Street, a serial securities-law violator that too often has to be saved from itself, should view the FTT not as a threat but an opportunity.
Wall Street, a serial securities-law violator that too often has to be saved from itself, should view the FTT not as a threat but an opportunity. It should not be seen as opposing what may be a coming tsunami of U.S. public opinion and political pressure in favor of FTTs, as has happened in Europe. Instead, it should back the FTT, or create its own mechanism, with revenues to be set aside to fund low- or no-cost loans to students seeking college tuition assistance. Wall Street could credibly claim it is advancing higher education, which is key to boosting American competitiveness and the U.S. economy (thus increasing Wall Street’s earnings). Such a move would likely quiet calls for punitive sanctions, restore Wall Street’s terrible image, and help it to refocus on its core mission of backing the real economy (as opposed to socially useless financial engineering). Wall Street could even claim, as an enabler of bipartisanship (see the Warren/Scarborough agreement on student loans), to be helping to repair our democracy. It would be a public relations bonanza for the industry, and the right thing to do.
This tax season, the Financial Transaction Tax is overdue for elevation into the national conversation. After all, it just might be the tax everyone could learn to love ... even Wall Street.