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Why, then should these people pay? - PowerPoint PPT Presentation


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Why, then should these people pay? HR 6258, like too many other proposals, says that those who caused the economic collapse should walk away free – and those who suffered should pay the cost. This is not political leadership. What would political leadership actually look like? .

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Why, then should these people pay?

HR 6258, like too many other proposals, says that those who caused the economic collapse should walk away free – and those who suffered should pay the cost.

This is not political leadership.

What would political leadership actually look like?

reframing the debate a revenue not a spending problem

Reframing the Debate: A Revenue, not a Spending, Problem

Northern Illinois Jobs with Justice/

Chicago Political Economy Group

raising revenue a modest proposal speculation sales tax sst
Raising Revenue - a Modest Proposal: Speculation Sales Tax (SST)
  • $1 on contracts traded on Chicago derivative exchanges (CME* and CBOE)
  • Proposal: both buyer and seller pay $1/ contract
    • Even on the smallest contracts, this is a $1 fee on a $30,000 contract (less than 0.0033%)
    • On larger contracts a dollar would represent even less, e.g., on the Eurodollar futures, a $1 fee on a $1,000,000 contract (0.00010% )
      • * CME owns the Chicago Board of Trade
what instruments would have an sst
What Instruments Would Have an SST?
  • Chicago Board Options Exchange (CBOE):
    • Stock index options (on S&P 500, Dow, NASDAQ, etc);
    • Exclude options on individual stocks (size and competition)
  • Chicago Mercantile Exchange (CME)
    • Stock index futures and futures options (S&P 500, Dow, NASDAQ, etc.)
    • Futures and futures options on interest rates products (T-bonds, T-Notes, Eurodollars, etc.)
    • Futures and futures options on currencies (Euro, UK pound, yen, etc.).
    • Futures and futures options on commodities (corn, wheat, soybeans, hogs, cattle, etc.)
counter arguments
Counter Arguments
  • You will be told:
    • “The CME will move out of state.”
    • But the CME would not pay any of the tax.
  • You will be told:
    • “Traders will take their business elsewhere.”
    • But where else can you trade these active and liquid contracts?
  • And, let’s look at the actual arithmetic of the SST.
the economic arithmetic of an sst i
The Economic Arithmetic of an SST: I
  • Consider 3 very active futures contracts:
  • Corn:
    • Each contract is for 5000 bushels
    • Smallest price change is $0.0025 = $12.50
  • S&P 500:
    • Each contract is 250 * the index (about $350,000)
    • Smallest price change is .10 index points = $25
  • Eurodollar:
    • Each contract of for $1 million
    • Smallest price change is ¼ basis point = $6.25
the economic arithmetic of an sst ii
The Economic Arithmetic of an SST: II
  • A hedger (e.g., farmer, portfolio manager) or a speculator would give up a fraction of the smallest first and last price change
    • $1 of $6.50, $12.50, or $25
    • Some claim that $1/ contract would drive away trading
  • If so:
    • Why hasn’t another exchange already started trading CME & CBOE contracts, waiving their fees and/or subsidizing the commission cost to take business from CME & CBOE?
sst a tax for the people not on the people
SST: A Tax for the People, not on the People
  • What is good tax policy:
    • A good tax should be small for any single event.
    • A good tax should fall on those able to bear the tax.
    • A good tax should tax activity that we want to limit or discourage.
    • A good tax should further economic or social justice.
  • A $1/contract SST meets these criteria:
    • The SST rate is very low for compared to the value of a contract.
    • The SST would fall primarily on high income individuals and wealthy institutions.
    • The SST would probably discourage some socially useless short term trading.
    • An SST taxes the sector that caused the financial crisis that led to the Great Recession.
  • Willie Sutton philosophy: “Because that’s where the money is”
who would not pay the tax
Who Would Not Pay the Tax?
  • This point needs repeating constantly: The SST is not a tax on the exchanges (CBOE and CME) . They would not pay any of the tax.
  • In Australia, Austria, Brazil, France, Hong Kong, Singapore, Switzerland, UK, etc.,

exchanges do not pay the financial transaction tax that is levied in those countries.

  • Only individuals and institutions that trade would pay the tax.
who would pay the sst
Who Would Pay the SST?
  • The SST is a tax is on the act of trading – like a sales tax for buying clothes, food, a car, etc.
    • It is on both buying and selling the derivative.
  • The SST is a very progressive tax because of who trades and thus who would pay the tax :
    • Institutions such as banks, hedge funds, broker-dealers
    • High-income individuals
    • Day traders