By BOB HERBERT | January 12, 2009
A trillion here, a trillion there …
President-elect Barack Obama is warning us to expect trillion-dollar budget deficits “for years to come.”
The economy is in a precipitous downturn and no one, on the left or right, is advocating tax increases that would jeopardize a recovery.
In the meantime, we’re spending money as fast as we can: the Troubled Asset Relief Program ($700 billion and counting); Mr. Obama’s proposed stimulus program ($800 billion and counting); and important initiatives still to come, like an overhaul of the way we pay for health care.
China, which has purchased more than $1 trillion of American debt, is getting antsy. As Keith Bradsher of The Times has reported, the global downturn has prompted Beijing “to keep more of its money at home, a move that could have painful effects for U.S. borrowers.”
Mr. Obama has tried to assure the public that his administration will be as careful as possible with its monumental spending, promising to invest wisely and manage the expenditures well. And he has made it clear that he is aware of the minefields that accompany mammoth long-term deficits.
At some point, however, someone is going to have to talk about raising revenue. The dreaded T-word is going to come up: taxes.
Well, there’s a good idea floating around that takes its cue from the legendary Willie Sutton. Why not go where the money is?
The economist Dean Baker is a strong advocate of a financial transactions tax. This would impose a small fee—ranging up to, say, 0.25 percent—on the sale or transfer of stocks, bonds and other financial assets, including the seemingly endless variety of exotic financial instruments that have been in the news so much lately.
According to Mr. Baker, the co-director of the Center for Economic and Policy Research in Washington, the fees would raise a ton of money, perhaps $100 billion or more annually—money that the government sorely needs.
But there’s another intriguing element to the proposal. While the fees would be a trivial expense for what the general public tends to think of as ordinary traders—people investing in stocks, bonds or other assets for some reasonable period of time—they would amount to a much heavier lift for speculators, the folks who bring a manic quality to the markets, who treat it like a casino.
“It raises money in a way that comes primarily at the expense of speculation,” said Mr. Baker. “The fees would be a considerable expense for someone who is buying futures, or a stock, or any asset at 2 o’clock and then selling it at 3. The more you trade, the more you pay.
“For the typical person holding stock, who is planning to hold it for a long period of time, paying the quarter of one percent on a trade is just not that big a deal.”
The fees, though small, could amount to a big deal for speculators because in addition to the volume of their trades they often make their money on very small margins. Someone who buys an asset and then sells it an hour later at a one percent appreciation might feel quite pleased. He or she would be less pleased at having to pay a quarter-percent fee to purchase the asset in the first place and then another quarter percent to sell it.
This, according to Mr. Baker, is part of the beauty of the transfer tax; it tends to curb at least some speculation. “It’s a very progressive tax,” he said, “that discourages nonproductive activity.”
A hallmark of the Bush years has been the rampant irresponsibility—by the White House, Congress and the general public—when it comes to matters of finance. The costs of the wars in Iraq and Afghanistan were placed on credit cards and off the books. Their ultimate overall costs will be in the trillions.
Incredibly, President Bush and Congress cut taxes in wartime, which is insane.
Budget deficits and the national debt are streaking toward the moon. And the only remedy anyone has come up with for fending off Great Depression II has been deficit spending on a scale reminiscent of World War II.
Excuse me, but did somebody say the baby boomers are about to start retiring?
Maybe the piper will never have to be paid. Maybe the deficits will someday magically right themselves. Maybe some prosperous future generation will be more than happy to clean up the mess we left behind.
If none of that is true, we should start looking now for some real money somewhere. A stock transfer tax is not a bad place to start.