Working Paper from
香港风景The Potential Revenue from
Financial Transactions Taxes
Dean Baker, Robert Pollin,
Travis McArthur &
Matt Sherman
December 2009
WORKING PAPER SERIES
The Potential Revenue from Financial Transactions Taxes
Dean Baker
Center for Economic and Policy Rearch (CEPR)
***********************
Robert Pollin
Department of Economics and Political Economy Rearch Institute (PERI) University of Massachutts, Amherst
******************.edu
Travis McArthur
Center for Economic and Policy Rearch
Matt Sherman
成功佛Center for Economic and Policy Rearch
December 2009
The economic crisis of the last two years has led to rious concerns about the sharp growth in the
federal government’s fiscal deficit as well as the government’s overall debt burden as a share of total
U.S. GDP. Many analysts also believe that an excessive share of the economy’s resources is being
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consumed by the financial ctor. A financial transactions or trading tax is a policy tool that can ad-
dress both issues: raising a substantial amount of revenue and reducing the size of financial trading in
the U.S. economy relative to the economy’s level of productive activity. This paper calculates the
revenue potential from a t of financial trading taxes. It updates an earlier t of calculations, using a
similar methodology.1 The rationale for the tax rates lected is explained more fully in that paper .法制建设
Table 1 shows the revenue that can be raid from taxing the trades of each major category of finan-
cial asts traded in U.S. markets: stocks, bonds, foreign exchange, and derivative asts (i.e. options,
forwards, futures, and swaps). It shows revenue under alternative assumptions as to the responsive-
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ness of trading volume to the tax. The first scenario assumes that trading volume does not change at
all after the tax is implemented, the cond scenario assumes a 25 percent reduction in trading vol-
ume, and the third scenario assumes a 50 percent reduction in volume. The calculations are bad on
the level of trading in U.S. financial markets in 2008. (The basis for the calculations is explained in
the appendix.)
As Table 1 shows, most of the revenue projected from the tax would come from stock transactions.
If there were no reductions in trading from the 2008 level, then a tax of 0.5 percent on each stock
transaction would rai almost $220 billion a year. If trading fell back by 50 percent, then the tax
would still rai almost $110 billion a year on stock trades. The cond largest source of revenue is
bond trading. Assuming no reduction in trading volume, a tax applied at a rate of 0.01 percent for
each year to maturity would rai $52.4 billion annually. Assuming a 50 percent reduction in trading
volume the tax would rai $26.2 billion. The third largest source of revenue is a tax on trades in
swaps. Assuming no reduction in trading volume, a tax applied at the rate of 0.01 percent for each
year to maturity would rai $46.3 billion annually. With a 50 percent reduction in trading volume,
the revenue would be $23.2 billion.
TABLE 1: ESTIMATED R E V E N U E F R O M F I N A N C I A L T R A N S A C TI O N S T A X E S B Y S O U R C E Assumed reduction in trading volume知母的功效
0% 25% 50%
Transactions in 2008 (billions of $) Revenue (billions of $) Stocks and equities 43,325.6 216.6 162.5 108.3
Bonds 262,143.9 52.4 39.3 26.2 Options premiums 1,680.3 8.4 6.3 4.2
Foreign exchange spot transactions 156,634.5 15.7 11.7 7.8
Futures (notional amount outstanding) 71,449.7 14.3 10.7 7.1
Swaps (notional amounts outstanding) 115,867.8 46.3 34.8 23.2
Total 353.8 265.3 176.9
1
Pollin, Robert, Dean Baker, and Marc Schaberg. “Security Transactions Taxes for U.S. Financial Markets,” Eastern Eco-
nomic Review, Vol. 29, No. 4 (Fall 2003): 527-558, www.peri.umass.edu/236/hash/aef97d8d65/publication/172/.
Applied across the full range of financial asts listed in Table 1, a t of transactions taxes could rai $353.8 billion annually bad on 2008 trading volumes. If trading fell by 50 percent in respon to the tax, then the tax would rai $176.9 billion. In the context of a 10-year budget horizon, assum-ing a 50 percent reduction in trading volume, this t of financial transactions taxes would rai more than $1.7 trillion.
Appendix
Data for transactions are bad on 2008 trading volumes. This is both becau it is the most recent year for which full year data are available and also becau volumes were unusually depresd in 2009 due to the plunge in stock prices and other events associated with the economic crisis. Trading vol-ume in 2008 was down considerably from 2007, so the year does not provide an abnormally high ba year for our calculations. The following ctions outline the tax rate structure and sources ud for the calculations in Table 1. A fuller explanation of the methodology and justification for the rate structure can be found in Pollin et al, 2003.
Equities. The assumed tax rate for equities is 0.5 percent on a transaction, or 0.25 percent on each side. The data on trading volume for equities are taken from the NASDAQ Monthly Market Sum-mary, available at /Trader.aspx?id=MonthlyMarketSummary and NYSE Technologies: Market Data, available /nydata/default.aspx?tabid=115. Bonds. Data on trading volume in bonds were taken from the Securities Industry and Financial Mar-kets Association’s “Average Daily Trading Volume in the U.S. Bond Market,” available at www.sifma/uploadedFiles/Rearch/Statistics/SIFMA_USBondMarketTradingVolume.pdf. It was assumed that the average transaction involved a bond with 2 years to maturity, implying a 0.02 percent tax rate. (The data available do not give trading volumes by years to maturity.)
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Options. Data on options trading were obtained from the Options Clearing Corporation’s “Monthly Volume Reports,” available at /webapps/monthly-volume-reports. Trad-ing volume was summed over all options. The tax rate applied was 0.5 percent of the premium price, the same as the rate on stock trades.
Foreign exchange. Data on foreign exchange spot transactions were obtained from the Foreign Exchange Volume Survey done by the New York District Federal Rerve Bank, available wyorkfed/fxc/2009/fxc012709.pdf. The assumed tax rate is 0.01 percent on each transaction.
Futures and forwards. Data on the outstanding volume of commodity futures and forwards were obtained from U.S. Commodities Futures Trading Commission’s “Quarterly Index Investment Data,” available at v/marketreports/IndexInvestment/index.htm. Data on foreign ex-change futures and forwards was obtained from CME Group, CME Group FTP Data, available up.com/CmeWeb/ftp.wrap/webmthly. It was assumed that all forwards and future were turned over an average of once a year (the data provide information on the value of outstanding fu-tures and forwards, not turnover). The tax rate applied is 0.02 percent on each transaction.
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Swaps. Data on swaps were taken from Bank of International Settlements, available at www.bis/statistics/derdetailed.htm. Following the pattern with bonds, the tax rate for swaps is assumed to 0.01 percent for each year until maturity. The calculations assume an average life to ma-turity of 1.5 years and therefore a tax rate of 0.015 percent. The data provide the volume of out-standing swaps. The calculations assume an average turnover of 2 times per year.
