A proposal to tax financial transactions

Stock market ticker board blurred at edges
Editor's note:

The report below is a chapter from the book, “Tackling the tax code: Efficient and equitable ways to raise revenue.” Read the full book here.

The Problem

With high and rising public debt, an aging population that will place increasing demands on federal spending, and a need for new investments in public goods like infrastructure and R&D, the federal government requires more funding to sustain economic growth and opportunity. The existing array of taxes have limited revenue potential, can be inefficient, and place an excessive burden on low earners. It is therefore important to examine new potential sources of tax revenues and consider the roles they could play in our overall tax system.

The Proposal

To raise revenue, Antonio Weiss and Laura Kawano propose a new tax: a financial transaction tax (FTT). The tax would apply to a broad range of assets—including stocks, bonds, and derivatives—in order to raise as much revenue as possible while also preventing potential distortionary effects. Certain assets (such as U.S. government bonds and new equity issuances) would be exempted for efficiency reasons. The tax would start at 2 basis points and be phased in over four years until it reached its target level of 10 basis points. Prior to each annual adjustment, the U.S. Department of the Treasury would consult with other regulatory agencies to monitor the effects of the FTT.

The authors did not receive financial support from any firm or person for this article or from any firm or person with a financial or political interest in this article. Neither is currently an officer, director, or board member of any organization with a financial or political interest in this article.