James Pethokoukis

Politics and policy from inside Washington

Tobin taxes: a bad idea whose time should never come

Sep 2, 2009 21:57 UTC

American unions. Democrats, anti-globalization wreckers and British regulators may love the idea of financial transaction, or Tobin, taxes, but not me. Here is why (some of these points came from a great article by  Dan Matthison of Credit Suisse):

1)  Even a 0.10 percent tax would double the cost of US stock trading where the average commission cost is just under a dime. Welcome back to the pre-Internet early 1990s.

2) It would reduce market volumes and make the equity market less attractive. Kind of dumb thing to do in a time of constrained credit markets where it is tough to raise money.

3) That supposed $100 billion-$150 billion in revenue wouldn’t appear out of thin air. It would come from investment firms who would pass along costs to customers.

4) It would drive trading activity to less costly trading centers, such as the Toronto Stock Exchange (at least if we are talking about the US). Goodbye US jobs.

5) It is a solution in search of a problem. Trading didn’t cause the financial crisis. What did? As William Beuiter puts it:

The financial sector is too big throughout the overdeveloped world in part because much of it enjoys a free state guarantee against default on its unsecured debt. Retail deposits are explicitly insured, but at premiums that imply a taxpayer subsidy. Other counterparties of banks and other systemically important financial institutions also benefit from implicit default guarantees. The cost of capital to the banking sector is subsidised, causing the sector to be too large.

6) We are already going to raise cap gains taxes here in the US. A Tobin tax seems like piling on given the huge losses folks have suffered in their portfolios.

Bottom line: Tobin taxes were hijacked by anti-globalists (James Tobin himself says so) who view capitalism and the financial sectors as a leeches on the “real” economy and destructive to developing nations. (I wonder if China agrees?) Today, they are pushed by folks who are looking for a way to raise taxes in a politically palatable way. Just like instead of raising healthcare taxes in the US, we might raise taxes on healthcare insurance companies — who would then pass along the costs. Phony.

COMMENT

When they introduce this tax for sure I will take all my money out of the market. Already I believe this stock market is just a big Ponzi scheme where 95% of the listed companies are only there to fill their pockets. Start-up biotech companies paying themselves salaries of over a million dollars, many other start-up companies never make a dime and squander billions on salaries and bonuses.

Now they want to punish the little guy who is trading and who already pays taxes over the capital gains. People think 0.1% is small but I can tell you that it is impossible to ever create a trading system that can be profitable. For instance with ES mini futures now around 1000 you will have to pay 0.1% of 50000$ = 50$ on top of the commission of 2.4$. Buying and selling 1 future would cost you 104.8$. Before you will start making money the future has to move 2 points.

So they will force market participants to become “long term investors”. Now, we all know that this is just handing out money to these criminal listed companies who reward themselves outrageously and give nothing in return (in 95% of the cases).

Maybe it is a good thing. Introduce a tax and let this fraudulent system collapse all together. Let these criminal listed companies work for a change. Because I tell you when this tax is introduced I am out and will never come back.

Posted by Ed | Report as abusive

Why Dodd should stay on the Banking Committee

Sep 2, 2009 21:32 UTC

It certainly looks as if Senator Chris Dodd, at least, isn’t too big too fail. The powerful Connecticut Democrat and chairman of the Banking Committee trails his likely 2010 Republican opponent by nearly 10 points in polls and can’t even crack the 40 percent level, an ominous sign for an incumbent.

While history hints that next year should be tough anyway for Democrats like Dodd — the president’s party has lost an average of four Senate seats during midterms since the 1940s — the five-term lawmaker has plenty of troubles of his own.

There are questions about the circumstances surrounding his purchase of a pricey “cottage” in Ireland. And Dodd was only recently cleared of accusations that his mortgages from Countrywide Financial broke Senate gift rules.  Indeed, a Quinnipiac poll found that just 35 percent of those surveyed believe Dodd to be honest and trustworthy.

But it’s Dodd’s role as Banking Committee chairman that may be his biggest problem. The position continues to link him to the financial meltdown, which has made virtually all incumbent politicians look feckless.  Not all incumbent politicians, however, have been the biggest recipient of campaign cash over the past two decades from Fannie Mae and Freddie Mac. Those would be the same failed mortgage giants whom Dodd called “fundamentally strong” just before their government bailout and takeover.

So it’s no surprise that Dodd is thought to be leaning toward giving up the chairmanship of the Banking Committee for that of the Health Committee, formerly run by the late Edward Kennedy.  Though being closely linked to that issue is hardly without risks — just ask all the Democrats who got the boot in the 1994 midterm elections — at least it’s something that average voters can easily relate to. Most Americans probably don’t dwell much on which government agency should monitor systemic risk.

But the departure of Dodd from Banking would be a real loss, if for no other reason than he is dubious about making the Federal Reserve the super-regulator of the American financial system. (His likely successor, Tim Johnson of South Dakota, is an unknown quantity.)  Earlier this summer, Dodd told Reuters that “those who are advocating the Fed’s role in all of this as a systemic risk regulator ought to be prepared to then concede a good chunk of independence of the Federal Reserve. I think that poses some serious issues.”

Indeed, it does. The more the Fed is involved in the regulatory process, the more it will be open to political scrutiny, since regulation creates winners and losers — both of whom probably have political action committees and Washington lobbyists.

As it is, the Fed has been in the congressional cross-hairs as never before because of its efforts to stabilize the credit markets and U.S. economy.  Witness, for instance, the hammering Fed Chairman Ben Bernanke took from a House panel concerning his role in the Bank of America-Merrill Lynch merger.  And then there’s the effort, one gaining momentum, to audit the Fed. That could open the central bank to far more intrusive congressional critiques of monetary policy.

It’s also worth mentioning that the Fed, despite its reputation as a regulator extraordinaire, has a poor track record at dealing with systemic risk, or even identifying it in a timely manner.  As noted Fed historian Allan Meltzer told a House panel in July, “I do not know of any clear examples in which the Federal Reserve acted in advance to head off a crisis or a series of banking or financial failures.”

Dodd, for now, appears to be cooking up his own approach, creating a U.S. version of the Financial Services Authority of Britain, that would actually strip the Fed of its regulatory portfolio.  Of course, a new regulator might not be any more prescient or proactive than the existing ones. But at least it wouldn’t compromise the independence of America’s central bank in the process.

COMMENT

Yes so he can get more sweetheart deals for himself. no closing costs cheap loans for his home here and abroad. he should be out. what will it take for the press to be shocked by these people and not worship him

Posted by urmil dhanda | Report as abusive

Same old, same old from Obama on healthcare

Sep 2, 2009 18:38 UTC

What is POTUS going to say that is any different, really. The risk of the Tune Out factor is growing. This, from a pro-ObamaCare blogger:

The problem is – Obama has already been specific about nearly all of this — frequently! The 8 insurance regulations he favors are not only in both bills, they’ve been the centerpiece of the “Health Insurance Reform” attempt at rebranding in August. Obama has already specified his preferred way of paying for reform — a cap on charitable deductions for those making over $250,000. And he spent an entire presidential campaign saying that he didn’t want to raise taxes on those making less than $250,000. None of these items are particularly suspenseful, and it would indeed be a surprise if he deviated from what’s been his normal script.

Granted, he hasn’t before specified the level of subsidies he wants to give to the uninsured. But if it’s 400% of the federal poverty line ($88,000 for a family of 4), it’s no surprise as both the House and the Senate Health, Education, Labor and Pensions Committee provide subsidies to that level. If it’s less than that – say the 300% that the Senate Finance Committee is rumored to be toying with – then it would be a surprise. It would also be a bad policy concession.

Did the Obama stimulus package actually slow the economy?

Sep 2, 2009 13:57 UTC

An interesting bit from the WSJ:

Dave Anderson, chief financial officer of Honeywell International Inc., said the stimulus package actually froze business activity at first as firms tried to figure out how they could benefit from the government spending. The $787 billion package “created actually a slowdown in order activity in terms of the flow that we would normally have anticipated,” Mr. Anderson said at a conference sponsored by Morgan Stanley. “We anticipate that that’s going to actually pick up in the second half of the year. I think it’s not unreasonable to see several hundred million dollars of orders.

Me: This sounds similar to what seems to happen when cutting taxes. If the start date is a ways off, economic activity is delayed.

COMMENT

Still, the average working person lives in fear of losing what little is left. So far, the only time blue collar types were mentioned was back in Feb. when government told GM “get those workers and retirement agreements fixed and we’ll hand over the bucks.” China is doing better than Americans with all the money so far spent. GM is partnering over there now. Thanks a lot!!

Posted by RH Pyle | Report as abusive

5 scenarios for healthcare reform

Sep 2, 2009 13:28 UTC

Former Bush White House economist Keith Hennessey lays some odds on how healthcare reform will proceed from here:

I see five possible paths for the President and Democratic Congressional leaders.  I will list them in the order in which I think they will be considered, and I will assign my subjective probabilities to each.

  1. Cut a bipartisan deal on a comprehensive bill with 3 Senate Republicans, leading to a law this year;  (10% chance)
  2. Pass a partisan bill through the regular Senate process with 59 Senate Democrats + one Republican, leading to a law this year;  (10% chance)
  3. Pass a partisan bill through the reconciliation process with 50 of 59 Senate Democrats, leading to a law this year;  (25% chance)
  4. Fall back to a much more limited bill that becomes law this year;  (50% chance)
  5. No bill becomes law this year. (5% chance)

And here is his bottom line:

You can’t make the insurance “reforms” work by themselves.  In addition, insurance reforms without the individual mandate would cause insurers to awaken from their confused slumber and enter the debate with vigor (in opposition). … For this reason, I think it’s easier to “build up” to a smaller bill.  There will clearly be a bipartisan consensus to increase Medicare spending on doctors (the so-called “doc fix”).  I will guess that this path leads to $100B — $200B of spending over 10 years:  more Medicare money for doctors, combined with expansions of Medicaid for the poor.  To offset the deficit effect, they would cut Medicare Advantage and nick at other Medicare providers, and maybe do some of the Kerry tax increase proposal.  This would be an “incremental” package that advocates would argue is a small step in the right direction.  I would oppose such a package, but it might be able to get 60 votes, and could almost certainly get the 50 votes needed through reconciliation, and without any significant procedural hurdles.  … This is what Democrats do when all else has failed, to make sure the President has something to sign.  It’s a failure path that they would unconvincingly argue is a first step toward a larger reform.

COMMENT

~ WHEN THE LAUGH OF $ATAN WA$ HEARD IN THE PEOPLE$ HALLS OF U$ CONGRE$$ ~

THIS OLD WORLD ORDER OF ABUSE AND NEGLECT OF OUR POORER AMERICANS NEEDS ENLIGHTENED POLITICAL MINDS AND HEARTS TO VIEW GOD DIFFERENTLY THEN $$$…. NO MATTER WHAT THEIR POLITICAL PARTY AFFILIATION ???

WHEN WILL OUR WEALTHY ELITE AMERICANS ABATE THEIR ASSAULT ON POORER AMERICANS WITH THEIR MONETARY CONTROL OF OUR IVORY TOWER U.S. CONGRESSIONAL LEADERS OF THE NEW WORLD ORDER ???

THERE ARE NOT MANY MORE DISTRACTIONS LEFT WHICH ARE AVAILABLE FOR OUR WEALTHY ELITE AMERICANS TO HIDE BEHIND IN NOT TAKING PROPER CARE OF ALL OUR AMERICANS IN A HUMANE FASHION !!!

RALPH NADER ATTEMPTED TO EDUCATE AMERICAN VOTERS ABOUT U.S. CORPORATE POWER IN AMERICA AND HOW THEY CONTROL OUR CONGRESSIONAL PEOPLE THROUGH THEIR POCKET BOOK (POLITICAL DONATIONS). * WITHOUT THE DOUGH $$$ THESE U.S. CONGRESSIONAL LEADERS OF THE FREE WORLD DO NOT GET RE~ELECTED TO CONGRESS.*TO STAY IN POLITICAL OFFICE IN AMERICA,ONE HAS TO BARTER YOUR VOTES IN CONGRESS AND REPRESENT POWER INTERESTS IN RETURN FOR THE BUCK$.

POORER AMERICANS HAVE NEVER HAD THE $$$ LOBBY TO INFLUENCE THIS CORRUPT POLITICAL CONCEPT (of horse trading political votes for political contributions) TO ACHIEVE PROPER HEALTH ~CARE OR LEGAL REPRESENTATION FOR ALL OUR MIDDLE ~ CLASS AND WORKING POOR AMERICANS.

AMERICAN IVORY TOWER U.S.CONGRESSIONAL LEADERS OF THE FREE WORLD HAVE PASSED FEDERAL LEGISLATION IN WASHINGTON DC TO SPEND 50 BILLION AMERICAN TAX $$$ ON THE INTERNATIONAL FIGHT AGAINST AIDS OVER THE NEXT FIVE YEARS WHILE THEIR OWN AMERICAN CITIZENS ARE BEING TOLD BY THIS SAME U.S.CONGRESS THAT NATIONAL HEALTH CARE AND PROPER LEGAL REPRESENTATION FOR MIDDLE CLASS AND WORKING POOR CITIZENS IS UNAFFORDABLE.

*** WEALTHY ELITE AMERICANS (WHO ARE ONLY 1% OF OUR USA POPULATION) SADLY ALSO CONTROL HOW OUR U.S.CONGRESS SPENDS THEIR BUDGET TRILLION$ AND HAVE OBVIOUSLY FOUND MORE WORTHY INTERNATIONAL CITIZENS THEN OUR OWN DESPERATE AND NEEDY POOR TO ASSIST !!!

~Poorer Americans Nationwide only get 400 million $$$ per year for legal representation allocated them by CONGRESS~

Middle Class and Working Poor Americans are unable to afford proper legal representation in their Civil, Criminal and Family Courts of law all across America causing tremendous hardships nationwide,but these great minds and callous hearts in our American Congress have found others Worldwide more needy then their own citizens who are being falsely incarcerated,wrongfuly executed,losing their homes or apartments,losing child custody or visitation with their children etc�

Not being afforded proper legal representation by our U.S. Congress has created a total breakdown of the American judicial system for our poorer Americans because the our U.S. Courts punish all of us little people if we are not assisted with proprer legal counsel.*It is a known fact that our average Middle Class and Working Poor Americans without proper legal representation in all of our American Courts of law lose their legal cases to the better financed who are able to afford lawyers.

Lawyers For Poor Americans is now actively in the hunt for International Countries and Leaders Worldwide to help raise 5 Billion Dollar$ for our slighted poorer Americans who have had their own American Congress turn their backs on their desperate needs in not affording them proper legal representation.

Troy Davis and Mumia Abu ~ Jamal are 2 perfect examples of American citizens who never had proper legal representation or defense investigations afforded them by our U.S. Congressional Leaders Of The Free World in their initial criminal trials in (Georgia and Pennsylvania) who might very well have to pay the ultimate price of possibly being completely innocent and falsely executed in the near future.

These two poorer Americans are among tens of thousands of legal cases nationwide that never were afforded proper legal representation or proper defense investigations at their initial trials……**We the public really have no idea if these men are innocent or guilty until they both are given fair legal representation at their new future trials.

Improper murder trials take place in Third World Countries all the time. *** Why should average Middle~Class and Working Poor Americans in the Wealthiest Country Of The World be treated as if they are living a Third World Life Style ??

This is the first of many www International pleas by Lawyers For Poor Americans for other leaders and countries to help raise the needed monie$ to correct these blatant injustices that have been inflicted on poorer Americans for the last few decades.

Lawyers For Poor Americans has many other written articles that can be viewed with any www search engine by our name or our telephone number.

Lawyers For Poor Americans is a www lobby group of volunteers that sing out about the decades old neglect,abuse and injustices being inflicted on our poorer Americans that have become Crimes Against Humanity issues for the International World Court to investigate.

lawyersforpooreramericans@yahoo.com
(424-247-2013)

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