Supercommittee of the One Percent Won't Even Think of Taxing Wall Street

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Dean Baker

Dean Baker is co-director of the Center for Economic and Policy Research

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November 1st, 2011 1:11 PM

Supercommittee of the One Percent Won't Even Think of Taxing Wall Street

If anyone still questioned who owns Washington, the Congressional supercommittee charged with reducing projected deficits by $1.2 trillion seems determined to end any doubts. According to press accounts, both the Republicans and Democrats on the committee support a plan to reduce average Social Security benefits by 3 percent.

While whacking our parents and grandparents with a big cut in Social Security benefits apparently draws bipartisan support, the supercommittee will not even score a plan to tax Wall Street financial speculation. No committee member from either party is prepared to make a simple request to the Joint Tax Committee of Congress that would allow a speculation tax to be one of the items considered in the mix.

It's hard to know which part of this picture is worse. The plan to cut Social Security benefits at a time when seniors are more dependent than ever on them is incredibly pernicious. The people who would see their benefits cuts under this proposal paid for their benefits contributing to Social Security over their entire working career.

Most retirees have little other than Social Security to support them in their retirement. In large part, this is due to the economic mismanagement of the supercommittee types. If they or their friends, like former Federal Reserve Board Chairman Alan Greenspan, actually had been doing their jobs, we would not have had the huge housing bubble that wrecked the economy. The collapse of this bubble caused most of the wealth that retirees and near retirees had accumulated in their home to disappear, leaving them with nothing other than Social Security to sustain them in retirement. Now, they want to cut Social Security as well.

This particular cut is especially pernicious since it will hit the oldest and poorest beneficiaries hardest. A person who is in their 90s and has been getting benefits for 30 years would see a reduction in benefits of close to 9 percent under the new cost-of-living adjustment formula apparently supported by members of the committee.

The benefit cut is being justified by claiming that the current cost-of-living adjustment exceeds the true rate of inflation. In fact, the Bureau of Labor Statistics index that measures the cost of living of the elderly indicates that the current adjustment understates the rate of inflation experienced by retirees. There should be no doubt, this is a proposal for cutting Social Security benefits; it has nothing to do with making the cost-of-living adjustments accurate.

While the supercommittee has plenty of time to think of ways to make life more miserable for seniors, it won't even countenance the idea of taxing Wall Street speculation. In spite of the repeated pledges that everything is on the table, taxing Wall Street speculation is absolutely off the table.

In order for a tax bill to be considered by Congress, it must be scored by the Joint Tax Committee (JTC). While many members, including some very senior members from both houses, have requested a score from the JTC of a bill taxing financial speculation, the supercommittee has the JTC completely tied up meeting its requests. By refusing to include a financial speculation tax (FST) in its scoring request, the supercommittee is preventing this idea from even being included in the discussion.

Given the role of Wall Street in both creating the conditions for the crash and prospering at the expense of the other 99 percent, it might seem reasonable to include a tax on speculation in the mix of items to consider. This is not a radical proposal. The European Commission is currently on the edge of approving a FST. Its leading proponents are the conservative leaders of Germany and France.

It is easy to see that this could be a very substantial source of revenue. The United Kingdom already has a FST. It raises the equivalent of 0.2 to 0.3 percent of gross domestic product ($30-$40 billion a year in the United States), by just taxing stock. If options, futures, credit default swaps, and other derivative instruments were also taxed, it is easy to believe that we could raise three to four times as much money in the United States.

But the supercommittee doesn't want to think about a proposal that would impose serious costs on Wall Street. It is more interested in taking away Social Security and Medicare benefits from the old and disabled.

This contempt for the 99 percent coupled with protection for the 1 percent is the reason Congress has an approval rating of 9 percent. When both parties in Congress work against the interest of the overwhelming majority in order to protect a tiny elite, it is not surprising that most of the country would return the contempt.

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