Breaking the Logjam ?

EU nations Move Towards a Financial Transaction Tax

By Bill Barclay, 

At our 2009 national convention, DSA endorsed a proposal for a federal jobs program that was to be funded by a financial transaction tax (FTT). An FTT is a small levy on the trading of stocks, bonds, currencies and derivatives based on these assets.

That event marked the beginning of what has been a long political struggle to implement an FTT. In the U.S., Representative Keith Ellison, co-chair of the House Progressive Caucus, proposed legislation to create an FTT and, more recently, has been joined by presidential candidate Bernie Sanders (HR 1464/S 1371) in proposing the tax. Sanders has proposed using revenues from an FTT to finance attendance at publicly funded colleges. This legislation, which would raise $350–500 billion annually, has not moved. Now, however, there has been a major step forward towards victory in the struggle to raise revenues by taxing financial instruments – but in Europe rather than in the U.S. 

Why an FTT?

Before describing this step it is worth reminding ourselves of both the reasons for and the importance of an FTT. The financial crisis of 2007/08 and the resulting Great Recession of 2007–09 were the product of a bloated and inefficient financial sector. During the several years leading up to the 2008 financial crisis, the share of corporate profits going to finance ballooned from less than 20% to almost 45% – and this from a sector of the political economy that employs less than 5% of the total labor force. And, of course, with a huge increase in money went a huge increase in political power. Finance is consistently one of the top three sectors both in political contributions and in terms of the number of lobbyists employed in Washington, D.C. – more than two people for every sitting Congressperson.

But our finance sector is also inefficient. Here is one simple measure of that inefficiency: the share of each dollar raised for investment that goes into the coffers of finance is greater today than it was a century ago, during the halcyon days of what Lenin and Hilferding labeled “finance capitalism.” This was the era of J. P. Morgan and John D. Rockefeller, of the trusts in steel, copper and other industries that were made possible by finance.

So, how can finance today be less efficient than in that era?  The answer in one word is “trading.” 

The financial sector is more efficient in its payments role – it no longer takes five business days for a check to clear your bank. It is also a safer place – and thus more efficient from the perspective of society as a whole – for you to store your accumulated wealth. In contrast to the 1930s, few of us rushed to our local bank during the 2007 crisis, seeking to draw out all our money because we were afraid that the bank would collapse and we would lose all our savings.

But it is in the financial markets where we see the inefficiency, waste and increase in risk taking that has made finance less efficient and more dangerous to the political economy a whole. A single simple measure captures what has happened: in 1975 the average share of stock was held for four years; today that holding period is less than a year. And, of course, for high-frequency trading (HFT) firms, the holding period can be measured in seconds. It is the explosion of trading in capital markets that accounts for the decline in the holding period of stocks and other financial assets, as well as for the increased leverage ratios that drove the collapse of Lehman Brothers, AIG and other firms. Trading is also a major source of the obscene levels of executive compensation that prevail in much of the financial sector.

So, while an FTT is not a complete solution to out-of-control finance, it is an essential step in that direction and, in addition, will raise a large amount of revenue from firms and individuals who can well afford to support the public good.

What did the EU nations do?

On December 8, ten nations announced an agreement on “core issues.”  Two in particular are important because, while they may seem technical in nature, they are key to an effective FTT.

First, the proposed FTT will apply on a “gross” rather than a “net” basis. That is to say, it will apply to all trades that occur, not just to those still in effect at the end of the trading day. This is a major defeat for the HFT constituency.

Second, in order to counter various tax avoidance tactics, the FTT will apply if at least one of the parties to the trade is a resident in one of the ten participating countries and/or if the asset traded is issued in one of these countries.

In addition, it looks as if the proposed FTT will apply to both the assets themselves as well as to derivatives based on the assets. This is very important, since it eliminates another way of avoiding the tax.

The ten EU nations now have six months to flesh out the rates, the use for the revenues and the time frame for implementation. This EU decision should be used by all to increase pressure on Congress, the president and all presidential candidates to move forward in the U.S. Time for us to stop being laggards on this issue.

Bill Barclay  co-chairs Chicago DSA, is a founding member of the Chicago Political Economy Group, serves as DSA National Member Organizer and represents DSA on Illinois' LaSalle Street Tax Coalition

Individually signed posts do not necessarily reflect the views of DSA as an organization or its leadership. Democratic Left blog post submission guidelines can be found here


 

DSA Queer Socialists Conference Call

May 25, 2017
· 33 rsvps

Join DSA's Queer Socialists Working Group to discuss possible activities for the group and its proposed structure. 9 pm ET/8 pm CT/7 pm MT/6 pm PT.

 

What Is DSA? Training Call

May 30, 2017
· 40 rsvps

If you're a new DSAer, have been on a new member call, but still have questions about DSA's core values/strategy/core work and how to express these ideas in an accessible way to the media, as well as to friends, family and others who might be interested in joining DSA, this call is for you. 

We will talk through the basics of DSA's political orientation and strategy for moving toward democratic socialism, and also have call participants practice discussing these issues with each other. By the end of the call you should feel much more comfortable thinking about and expressing what DSA does and what makes our organization/strategy unique. 8 pm ET; 7 pm CT; 6 pm MT; 5 pm PT. 70 minutes.

Film Discussion: Rosa [Luxemburg]

May 31, 2017
· 92 rsvps

Join DSA member Jason Schulman to discuss the film Rosa, directed by feminist filmmaker Margarethe von Trotta. View it here at no cost before the discussion. Marxist theorist and economist Rosa Luxemburg (1871-1919) played a key role in German socialist politics. Jason edited Rosa Luxemburg: Her Life and Legacy and has a chapter in Rosa Remix. 9 ET/8 CT/7 MT/6 PT.

Film Discussion: The Free State of Jones

June 11, 2017
· 26 rsvps

Join Victoria Bynum, Distinguished Professor Emeritus of History, Texas State University, San Marcos, to discuss The Free State of Jones. STX Entertainment bought the film rights to Bynum's book of the same title. She also served as a consultant and appears in a cameo scene. What was the Free State of Jones? During the Civil War, an armed band of deserters led by Newt Knight, a non-slaveholding white farmer, took to the swamps of southeastern Mississippi and battled against the Confederacy in an uprising popularly known as “The Free State of Jones.” Joining Newt in this rebellion was Rachel, a slave. From their relationship, there developed a controversial mixed-race community that endured long after the Civil War had ended. View the film here for $6 before the discussion. 8 ET/7 CT/6 MT/5 PT.

Introduction to Democratic Socialism

June 13, 2017
· 5 rsvps

Join Bill Barclay, Chicago DSA co-chair, and Peg Strobel, National Political Committee and Feminist Working Group co-chair, on this webinar for an overview of what we in Democratic Socialists of America mean when we talk about "socialism," "capitalism" and the goals of the socialist movement. 9:30 PM ET; 8:30 PM CT; 7:30 PM MT; 6:30 PM PT.

  1. This webinar is free for any DSA member in good standing.
  2. You need a computer with good internet access.
  3. Your computer must have headphones (preferred) or speakers; you can speak thru a mic or use chat to "speak".
  4. If you have questions, contact Bill Barclay, chocolatehouse@sbcglobal.net.
  5. If you have technical questions, contact Tony Schmitt, schmittaj@gmail.com, 608-355-6568.

Film Discussion: Pride

September 10, 2017
· 7 rsvps

Join DSA members Eric Brasure and Brendan Hamill to discuss the British film Pride (2014). It’s 1984, British coal miners are on strike, and a group of gays and lesbians in London bring the queer community together to support the miners in their fight. Based on the true story of Lesbians and Gays Support the Miners. The film is available for rent on YouTube, Amazon, and iTunes. 8 ET/7 CT/6 MT/5 PT.

Film Discussion: Union Maids

September 24, 2017
· 5 rsvps

 

Join DSA member and labor historian Susan Hirsch in discussing Union Maids (1976). Nominated for an Academy Award, this documentary follows three Chicago labor organizers (Kate Hyndman, Stella Nowicki, and Sylvia Woods) active beginning in the 1930s. The filmmakers were members of the New American Movement (a precursor of DSA), and the late Vicki Starr (aka Stella Nowicki) was a longtime member of Chicago DSA and the Chicago Women's Liberation Union. It’s available free on YouTube, though sound quality is poor. 8ET/7CT/6MT/5PT.