There are many inequities in our tax system, but here’s one that should really command the attention of a country still reeling from the aftershocks of the financial crisis and bank bailouts: the “financial services industry,” as it has come to be known, is badly undertaxed compared to other industries. While banks and financial companies reap more than 30 percent of the nation’s corporate profits, they pay only about 18 percent of corporate taxes and contribute less than 2 percent of total tax revenues, according to the Bureau of Economic Analysis and the International Monetary Fund.
As part of its broader budget plan, the Congressional Progressive Caucus is advancing a set of good ideas for leveling the playing field. In its “Better-Off Budget” blueprint, released today, the Progressive Caucus proposes:
- A Wall Street speculation tax, also known as a financial transaction tax — a very small levy on the trading of stocks, derivatives and complex financial instruments;
- A big-bank excise tax applied to the ten or so banks with assets of $500 billion of more; and
- The sharp reduction of a subsidy arrangement in which banks receive so-called “dividends” (totaling more than $1.6 billion last year) from the Federal Reserve.
In addition to these ideas, which explicitly relate to the financial sector, the Progressive Caucus budget includes broader provisions that would have significant effects on Wall Street. Two that stand out are an end to the preferential tax treatment of capital gains and an enforceable $1 million-a-year limit on the tax deductibility of corporate executives’ paychecks.
The net effect would be to make the tax system fairer overall and make sure that Wall Street does more to help the country recover from an economic calamity that was largely its doing. Several of the Progressive Caucus’ proposals would also set better incentives for the financial sector itself.
A tax on the very largest banks could, along with other policies, help address the “too big to fail” problem and the unhealthy trend of increased concentration – and reduced competition – in the banking industry. A small transaction tax could help nudge the industry away from high-frequency trading and ultra-short-term speculation toward a longer-term investment outlook and practices with a clearer value to the society at large. (A new report released today by Public Citizen refutes one of the key arguments used by the financial industry to keep that idea off the table: the claim that ordinary investors would be hurt.)
These ideas, of course, comprise just a small part of the Progressive Caucus budget, which contains many proposals to improve tax fairness, address income inequality and spur investment in infrastructure and clean energy. But their inclusion is one sign of growing, and widening, support for the basic concept of getting Wall Street to assume more of the tax burden. The big bank tax, for example, is similar to one advocated by the Obama administration, and not so different from one embraced by House Ways and Means chairman Dave Camp, R-Mich. Camp’s tax-reform plan also includes a more limited version of the proposal to cap the deductibility of corporate pay. (On this count, Camp and the Progressive Caucus are both, in a sense, just trying to put teeth into a law that supposedly established a $1 million cap – 20 years ago!)
Several of the Progressive Caucus’ ideas are also the subject of stand-alone bills in the House, the Senate or both. Those bills include two different transaction tax bills – one co-authored by Rep. Peter DeFazio, D-Ore., and Sen. Tom Harkin, D-Iowa, and the other introduced by Rep. Keith Ellison, D-Minn. – and companion bills on the deductibility of executive pay introduced by Sens Jack Reed, D-R.I., and Richard Blumenthal, D-Conn., and Rep. Lloyd Doggett, D-Texas. Meanwhile, 11 European countries are moving ahead with their version of a financial transaction tax.
The Progressive Caucus has done the country a service by putting these worthy proposals on the table. They should be taken seriously.
– Jim Lardner
Originally published on USNews.com,