Dodd-Frank isn’t dead, but it’s certainly limping. More than three years after its passage into federal law, several of its key financial reform provisions have yet to be implemented. In the face of this inaction, some progressive members of Congress have revived their push for taxation in the financial industry — chiefly with H.R. 1579, also known as the Inclusive Prosperity Act of 2013 or the “Robin Hood Tax.”
The bill, proposed by Rep. Keith Ellison (D-Minn.), would tax transactions of financial securities and derivatives and is projected to raise “up to $300 billion a year in revenue.” As one of two proposed financial transaction taxes in Congress, it will tax stock trades at 50 cents per 100 dollars, which its advocates hope will both bolster shrinking municipal budgets and rein in irresponsible spending in the financial sector.
On Tuesday, a coalition of 161 unions and advocacy groups led thousands of workers through Midtown Manhattan in support of the bill. Starting with a rally in East Manhattan’s Dag Hammarskjold Plaza and continuing with a march past major government and financial institutions, activists and labor leaders spoke at length about the importance of reform in an industry that has, thus far, largely resisted regulation.
At the rally, National Nurses United (NNU) Co-President Karen Higgins, a nurse for 38 years, cited the increasing incidence of adult diseases in children as one of the reasons she supports the bill. Higgins claimed that child hypertension, diabetes, and obesity are signs of the government’s failure to adequately fund preventative services and of the effects of growing income inequality at a time when the cheapest meals are provided by the fast food industry. “All the programs that are helping people are the ones [governments] are cutting,” she added, explaining her support for increased taxation of the sector “which got us into this whole financial debacle to begin with.”
At one of the march’s many stops, TWU Local 100 Chief of Staff Steve Downs explained to the audience outside the Manhattan Transit Authority that interest rate swaps have lost the transport authority hundreds of millions of dollars a year since the financial collapse. The MTA, he said, has to pay interest to its Wall Street creditors at a pre-crisis rate, despite the fact that rates have dropped precipitously in the past five years. Downs claimed that this fiscal burden has trickled down to MTA employees and riders alike. “They’re willing to demand more concessions from their workers,” Downs said. “They’re willing to demand higher fares from their riders. They’ll renegotiate with suppliers of tools, tires, and gasoline. But they absolutely refuse to renegotiate interest rate swaps they have with JPMorgan and other Wall Street banks.”
The authority’s reluctance to ask for concessions from its lenders instead of its workers is arguably representative of the outsize influence the financial sector has come to wield in the setting of public policy. That influence has prevented previous proposals for financial transaction taxes from advancing, so passage of H.R. 1579 could also symbolize, in the eyes of the bill’s supporters, the financial industry’s potentially decreasing power.
One source of past opposition was the Investment Company Institute, a “national association of U.S. investment companies” whose members “manage total assets of $15.4 trillion and serve more than 90 million shareholders,” and whose CEO called the tax “dubious” and harmful to American savers. In 2012, according to finance watchdog OpenSecrets.org, the institute spent $1.6 million in campaign funding; this year, their contribution of $11,000 was the largest in Rep. Richard Neal’s (D-Mass.) campaign. Neal is a member of the House’s Ways and Means committee, where previous versions of the Inclusive Prosperity Act have died for the last two years. In April, Neal also expressed his disapproval of the financial transaction taxes pending in eleven Eurozone countries during treasury secretary Jack Lew’s testimony on the president’s budget, asking Lew “what [the] treasury is doing to protect US investors from this European tax.”
Although this year’s version of the bill faces many of the same obstacles, it has picked up 17 co-sponsors since February — one more than it ended with last year. In rallying support for his bill, Ellison has also pointed to repeated calls from both Congress and the public for deficit reduction. “If you really care about reducing the deficit,” Ellison asked on the bill’s introduction, “how about asking Wall Street speculators to pay their fair share?”
But opponents of the bill claim that the Robin Hood Tax won’t actually curb exorbitant Wall Street spending — instead, they say, it will hurt middle-class Americans. “[The tax] won’t necessarily hurt big banks so much as it will hurt the average investor,” said the Heritage Foundation’s Curtis Dubay. “It will cut way down on liquidity,” which could negatively affect share prices, “and it will reduce returns for average investors saving for their retirement.”
Supporters of the tax maintain, though, that applying a fee to individual trades will only deter high-frequency traders from engaging in the types of transactions the Roosevelt Institute’s Mike Konczal calls “frothy,” or insubstantial: intermediary trades with very low margins that make money for traders without adding value. These trades act as a legal type of front-running — the illegal broker practice of buying stock with advance knowledge of price fluctuations — whereby automated trading algorithms attempt to beat trends in the hopes of making money on slim margins.
The practice has grown to such levels that firms can now pay stock exchanges to co-locate their servers on the floor, in the hopes that the shaved nanoseconds will lead to better performance on their trades. According to the Center for Economic and Policy Research’s Nicole Woo, traders are “literally cutting the rest of us in line” by employing these systems. Woo questions the merits of high-frequency trading for the purposes the stock market used to serve: Whereas capital allocations were previously made on the merits of a company’s business model, therefore rewarding business practices that benefited the wider economy, Woo says, “Now it’s these computer programmers and other traders just skimming profits off the top.”
Regardless of whether or not the tax reduces the volume of potentially unstable trades, it will collect revenues. This nobody disputes. Some economists, however, believe that the extra money isn’t necessary, citing the current federal budget as evidence. “As the [Congressional Budget Office] showed [Tuesday],” said Dubay, “there’s plenty of revenue coming into Washington for Washington to spend on what it needs to be spending on.”
In the meantime, though, schools and hospitals are closing all over the country — and supporters of the Inclusive Prosperity Act, like those who gathered in Manhattan on Tuesday, believe the bill’s raised revenues could go a long way toward saving them and other struggling public services.