Robin Hood Takes On Wall Street. Choose Your Side

April 28, 2014

By Joe Rothstein
Editor, EINnews.com

We think of the oil and gas industries as money gushers, and for global giants such as ExxonMobil and ConocoPhillips they are.

But profits from international oil are trivial compared with those generated by the financial sector. Most recent numbers peg the U.S. financial industry as 28 times more profitable.

When we think of tax loopholes, the oil and gas industries also come immediately to mind. But oil and gas has nothing to compare with the way financial fund managers are taxed. Every dollar of their fund income is treated as a 15% capital gain, which puts them in the same tax bracket as those who make from about $9,000 to $36,000 a year. How unfair is that? The AVERAGE top hedge fund manager last year was paid a billion dollars.

A new book by Michael Lewis, “Flash Boys,” shines a light on high-frequency trading---the way the Wall Street elite makes zillions trading milliseconds faster than anyone else. It’s like betting on the horse race the instant the winner’s nose hits the finish line.

High frequency trading and favorable tax treatment are just a couple of ways the financial industry has come to dominant the U.S. economy. And with money comes power. It used to be that the financial industry’s primary role was raising capital, allocating it efficiently to help start and grow businesses, underwrite home buying, and provide a variety of services essential to the economy.

But when you dig into the massive profits being made by Wall Street banks and funds these days you see a marked resemblance to gambling casinos. They make huge profits by betting on a huge scale. And when they lose? Think trillion dollar bank bailouts. Think too big to fail. Too big to tax.

Well, actually, there’s a growing movement to change the tax part of that mantra.

For context I turn to one of my favorite defenders of the little guy in battles with goliaths, commentator Jim Hightower. Here’s what Hightower said in a recent opinion column:

“When I buy a $3 pack of toilet paper here in Austin, Texas, I pay an extra 8.25 percent in sales tax. But if a high roller in the high frequency game buys $10 million worth of corporate stock, he or she pays zero tax on the sale.”

Take a millisecond to let what Jim Hightower says sink in. In most places, for most things, we pay a direct tax on our transactions. Nationally, that tax averages 9.25. When a Wall Street trader buys a million shares of IBM he or she pays nothing.

But spurred by “Flash Boys” and other grotesque excesses, there’s a serious push for an old idea---tax financial transactions such as stocks, currencies, bonds and treasury notes. The so-called “Robin Hood tax” would levy 50 cents on every $100 of financial instruments traded. With computer trading, such a tax would be easy to monitor and collect.

The tax would generate tens of billions of dollars for public purposes that are being starved by budget cuts even as wealth tilts dangerously to the few. And it would have the unquestionable desired result of putting the brakes on high frequency, huge volume, mindless trading that does nothing for the economy except threaten it.

Meanwhile, REAL banking, for business, mortgages and savings, would be unaffected. This would be a tax on Wall Street, not Main Street.

And it’s hardly a bizarro idea. It was first proposed by Nobel Prize winning economist James Tobin decades ago. The European Parliament has endorsed a financial transaction tax and EU countries are in serious discussion about how to implement it over the vigorous objections, naturally, of the same financial mega-industry that exerts so much political power in the U.S.

The EU estimates the tax would be worth 30 to 35 billion euros a year. The U.S. treasury gain could be that and more. If the EU and the U.S. act in concert industry threats to move offshore would be empty posturing.

Want to know more about this? Go to http://www.congressweb.com/robinhoodtax/6.

Want to help the effort, which already has the support of Bill Gates, Warren Buffett and hundreds of U.S. organizations? Get in touch with your member of Congress and tell him to put on his green three-cornered hat and sign up for the Robin Hood tax.

(Joe Rothstein can be contacted at joe@einnews.com)