Why Don't the Deficit Hawks Want to Tax 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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September 26th, 2011 7:05 PM

Why Don't the Deficit Hawks Want to Tax Wall Street?

The intensity with which the country's leading deficit hawks continue to ignore financial speculation taxes (FST) is getting ever more entertaining. While deficit hawks like Wall Street investment banker Peter Peterson, Morgan Stanley Director Erskine Bowles and The Washington Post never tire of preaching the virtues of shared sacrifice, somehow sacrifice for Wall Street never features as a part of this story.

The refusal of this group to consider FST is becoming more striking because most of the world appears to be moving in this direction. Last spring, the European Parliament voted by an almost four to one margin in support of FST. The European Commission, the executive body of the European Union (EU), is now making plans to implement a modest tax beginning in 2014.

Even with the low tax rates being considered by the commission (e.g. 0.05 percent in each side of a stock trade), it is estimated that an EU-wide tax could bring in as much as $60 billion a year. Two of the leading proponents of a FST in Europe are German Chancellor Angela Merkel and French President Nicholas Sarkozy, both of whom are leaders of the conservative parties in their countries. Still, even liberal deficit hawks here do not want to talk about FST.

We learned from Ron Suskind's new book on the making of economic policy in the Obama administration, that a FST was considered at the very top levels. According to the book, Obama himself even leaned in this direction. But the deficit hawks never discuss FST.

Last week, Bill Gates added himself to the list of FST supporters. In a report that he was asked to prepare for the G-20 on funding development assistance, he cited an FST as one possible mechanism. But the deficit hawks never discuss FST.

The deficit hawks manage to ignore FST even when they pop up in front of their faces. Two summers ago, Peter Peterson helped to finance a lavish full day set of town halls in dozens of communities around the country.

The town halls were supposed to come up with ways to reduce the budget deficit after being lectured by expert deficit hawks. While cuts to Social Security and Medicare were hugely unpopular, a FST was one of the most widely favored paths for reducing the deficit. Yet, the deficit hawks never discuss FST, even though they won considerable support at their own venue.

In short, FST are a route to reducing long-term deficits that has won support both among the general public and among policy experts and leading political figures around the world. Yet, they are somehow excluded from discussions of the deficit in policy circles in the United States. Could this have to do with the fact that so much of the support for deficit reduction comes from Wall Street?

It is difficult not to believe that Wall Street's outsized role in pushing deficit reduction has some impact on the route the debate takes. After all, if the Farm Bureau was sponsoring most of the research on deficit reduction and financing the campaigns of the leading deficit hawks, it is reasonable to believe that lower farm subsidies would not be a prominent item in debates on the deficit.

What is most remarkable in this picture is the complete failure of the media to identify Wall Street's role in pushing this deficit reduction agenda. For example, Erskine Bowles, who was a co-chair of President Obama's deficit commission, is never identified as a director of Morgan Stanley.

It is entirely possible that this role has no influence on Bowles' views on the deficit, but it still seems that public should know about it. If a commission member were receiving $350,000 a year from the United Auto Workers or the American Federation of State, County and Municipal Employees, it is difficult to imagine that the media would not include this fact as part of the commissioner's standard identification.

The media also see little reason to balance the Wall Street influence with people presenting an alternative perspective. For example, the Post ran a news article on the budget last week featuring the views of two people who headed Peter Peterson-funded organizations. These views were complimented by the views of an unnamed Republican staffer and a longtime corporate lobbyist. This was Fair and Balanced reporting at the Post.

In short, it is hard to understand why taxing financial speculation never appears on the agenda of the deficit hawks or gets mentioned in budget reporting, if the issue really is deficit reduction. On the other hand, if this is all about using an economic crisis to push a longstanding agenda to cut Social Security and Medicare, then everything suddenly makes sense.