BEFORE “OCCUPY WALL STREET”
NOTES ON PRIOR NEW YORK CITY PROTESTS AGAINST ECONOMIC CRISES
One of the signs in the remarkable October 5 2011 demonstration (depicted in the images on the Gotham Center's home page) read "You Wanted Demands??" – a reference to the complaint that the Occupy Wall Street movement had been insufficiently precise as to what it wanted, and to the plethora of quite precise demands emblazoned on the great crowd's placards. I don't share the concern for spelling out plans at this point. There are lots of blueprints floating around. But the essential precondition of real change is the tangible demonstration of massive disgust with the status quo so well evidenced by the demonstration itself.
But in the interest of honing one obviously popular slogan – Tax the Rich! – to give it a sharper cutting edge, I re-present here a proposal I advanced ten years ago, for what's now being called a Financial Transaction Tax, as was historically known as a Stock Transfer Tax or, as it was refashioned by a Nobel Prize winning economist, the Tobin Tax. It's a proposal targeted precisely at Wall Street, and one that, in addition to raising a good deal of money, might have the admirable side effect of reining in over-exuberant speculation. The proposal would need to be updated and shaped to deal with existing circumstances, which are in constant flux. And it would need to be constructed carefullly, by economic experts, which I am not, to withstand the variety of hysterical objections that would certainly be launched against it. But it still seems worth considering, especially as it's now being advanced by the European Commission – see here
– and a version of it has long been in effect in London (the Stamp Duty Reserve Tax), with no ill effect.
A Financial Transations Tax
[excerpted from Mike Wallace, A New Deal for New York (2002).]
Finally we should revisit the stock transfer tax. A time honored American revenue source, it was applied by the federal government during the Civil War, the Spanish American War, and WWI – and we are, are we not, in a quasi-wartime condition? New York State adopted its own stock transfer tax in 1905 – despite threats from the New York Stock Exchange that if passed it would instantly decamp for New Jersey (yes, even then) – and it generated substantial income, all of which, beginning in 1965, was given to New York City. In the so-called Fiscal Crisis of the 1970s, however, the Exchange gained sufficient leverage to win repeal of the tax. The state stepped in to provide an annual consolation prize, which amounted to $114 million in 2001, the year in which even this payment was gratuitously eliminated by Governor Pataki.
What almost no one realizes is that tax is still in place, still collected to serve as technical backing for bonds issued back in the Fiscal Crisis, only to be immediately returned. As the tax was and is keyed to volume, and the market binged wildly upward during the 1980s and 90s, its earning power has shot up exponentially. During the 2000-2001 state fiscal year, the state collected (and instantly rebated) 7.6 billion dollars, and in FY 2002-03 it’s expected to reap (and return) over $8 billion – enough, obviously, to entirely wipe out our $5 billion deficit, leaving lots left over for schools and housing.
Why not reinstitute even a small portion of that tax, on a short term, sunseted, emergency, patriotic, wartime basis, with the goal of making New York a more competitive place to do business, and a more enjoyable place to live life. Rebating 90% rather than 100% would still leave a $800 million revenue stream, sufficient to back the sale (by a newly created New York City Investment Trust Fund) of $10 billion worth of municipal bonds (at 5%). This Fund would be strictly dedicated to: a) building schools; b) building affordable housing (the two might fruitfully be combined by giving bonuses to developers who include turnkey schools in their apartment towers); and c) paying for a spanking new New York Stock Exchange, relieving us of the $1.1 billion burden [which Mayor Giuliani was then proposing to hand the assembled brokers to keep them from fleeing westward]. I’ll bet Jim Lebenthal [a municipal bond specialist] would be interested.
Such a tax-and-fund policy could galvanize the construction trades (who in return for receiving a prevailing wage, and in recognition of their dwindling ranks, might be willing to open up their apprenticeship and pre-apprenticeship training programs). The tax would also reduce market volatility by discouraging speculative short-term gambling, and predispose large investment funds to pay more attention to long term investments. Finally, as the tax is paid by the seller of stock – not the brokers on the NYSE – it would allow investors from around the country (and the planet) to make a modest contribution toward rebuilding Lower Manhattan (The Whole World is Helping).
It’s possible the NYSE would once again threaten to skip town, arguing such a tax would cause it irreparable damage. If so we might remind it that in 1999, when several European exchanges joined forces and abolished transfer taxes in an effort to capture business from NYSE and the London Stock Exchange, an excitable group of the latter’s members insisted that England immediately eliminate its hefty tax, lest the fiscal roof fall in. The British Government refused, being made of sterner stuff than the one in Albany. The London Exchange, despite the tax (applicable since 1986 to electronic trades), continues to flourish mightily. Any serious examination of the viability of a local equivalent, however, would have to determine how readily it might be circumvented, especially in an era when shuttling income to tax-free offshore havens has become a fine art. Ideally the stock tax should be made national again.
[For more on this, and other proposals, see A New Deal for New York (2002), available, free, at http://www.gothamcenter.org/newdeal]