Left-leaning group: Taxes on financial trades could reduce inequality

The left-leaning Institute on Taxation and Economic Policy on Monday released a paper arguing a financial transaction tax (FTT) could reduce wealth and income inequality, as several Democratic presidential candidates have released proposals calling for those types of taxes.

An FTT “has the potential to curb inequality, reduce market inefficiencies, and raise hundreds of billions of dollars in revenue over the next decade,” the Washington-based group wrote in its report.

{mosads}FTTs would be imposed on financial trades, such as those involving stocks, bonds and dividends. They have been floated by White House hopefuls like Sens. Bernie Sanders (I-Vt.) and Kamala Harris (D-Calif.).

Legislation to create the taxes has been introduced by progressive lawmakers in both chambers of Congress.

The proposals from presidential candidates have prompted several groups to release papers about FTTs. Last month, the U.S. Chamber of Commerce published a report arguing the taxes would hurt the business community and retirees, while consumer advocacy organization Public Citizen argued that higher-income people would have more costs associated with the taxes than those on the lower end of the income spectrum.

In its report, the Institute on Taxation and Economic Policy (ITEP) argued it’s possible that the higher costs of financial trades produced by an FTT would be fully borne by investors, and that a portion of the higher costs are borne by the owners and employees of financial institutions. Under either of those options, an FTT would be progressive and help reduce inequality, the group said.

Since most financial assets are held by the wealthiest households, “a tax on stocks would be well targeted at the wealthiest Americans,” ITEP said.

Critics have argued that the tax would hurt middle-class retirement savings. But ITEP countered that any impact of the taxes on retirement savings would be minimal.

“An FTT could reduce unproductive trades, those not in the interest of investors and that serve no purpose other than to generate fees for financial institutions,” the group wrote. “In this case, households with retirement savings could see lower costs, rather than higher costs, resulting from an FTT.”

ITEP also argued the revenue from an FTT could be used to make public investments that “would be progressive, narrowing resource gaps between the most vulnerable families and the most fortunate.”