Bloomberg Adds Financial Transactions Tax to His Platform
Democratic presidential candidate Michael Bloomberg has proposed a financial transactions tax (FTT) as part of a broader set of financial sector reforms.
Bloomberg joins several other Democratic presidential candidates in calling for a tax on the sale of financial assets, suggesting the policy is becoming more mainstream among Democrats.
The purpose of the FTT proposal, according to the Bloomberg campaign, is threefold: to raise significant revenue, to reduce wealth inequality, and to curb abusive activity by financial institutions.
“The financial system isn’t working the way it should for most Americans,” Bloomberg said in a statement. He said that if elected, he would seek to implement policies that would “harness the power of the financial system to spread opportunity and drive economic growth in every community” — among them, a 0.1 percent tax on all financial transactions.
The tax would be phased in gradually, starting at 0.02 percent, “to monitor and minimize unintended consequences,” he said.
The phased-in design aligns with a recent FTT proposal by Antonio Weiss of the Harvard Kennedy School and Laura Kawano of the University of Michigan that is cited by the Bloomberg campaign. Weiss and Kawano explained in their paper that phasing in the proposal would give policymakers time to monitor the effects of the provision on markets, address inevitable tax avoidance techniques that pop up, and recalibrate the level of the tax if necessary.
The Bloomberg campaign also cites a paper by Lily Batchelder and David Kamin, both of the New York University School of Law, discussing options for raising revenue by taxing wealth. That paper estimates that an FTT with a 0.1 percent tax rate on all financial assets would raise $810 billion between 2021 and 2030. The authors acknowledge, however, that revenue estimates of any large-scale FTT proposal are “relatively uncertain” and based largely on assumptions about the effect of the tax on trading volume.
A December 2018 report by the Congressional Budget Office similarly found that a 0.1 percent FTT would provide revenue of $777 billion between 2019 and 2028.
The FTT is in addition to Bloomberg’s main tax platform, which he released earlier this month. That plan calls for generating $5 trillion through tax increases on high-income taxpayers and corporations and repealing elements of the Tax Cuts and Jobs Act.
Bloomberg isn’t the first candidate to propose an FTT in the 2020 election cycle. Sens. Elizabeth Warren, D-Mass., and Bernie Sanders, I-Vt., feature one as part of their tax platforms. And in interviews, former Vice President Joe Biden and former South Bend, Indiana, Mayor Pete Buttigieg have expressed support for the proposal.
But Bloomberg’s decision to endorse an FTT could come as a surprise to some.
“Bloomberg has not introduced any new thinking about the idea but has perhaps drawn attention to it as a person from the world of finance who most observers assume would oppose it,” Steve Wamhoff of the Institute on Taxation and Economic Policy told Tax Notes.
FTT proposals have circulated for many years, and much depends on the technical details of how the proposal is designed, Wamhoff said. “It is difficult to know how strong an FTT introduced by Bloomberg as president would be unless he provides a much more detailed proposal.”
Hold Your Horses
Not all tax observers see an FTT as a panacea for budget deficits and financial sector excesses.
A Tax Foundation report evaluating FTTs last month agreed that such a tax would be a significant revenue raiser, but it was skeptical of claims that an FTT would discourage risky financial activity. It also warned that the tax could increase market volatility.
A 2016 report by the Urban-Brookings Tax Policy Center on FTTs similarly found that while the potential for an FTT to accomplish many progressive policy goals all at once makes it “very tempting,” it would also discourage all trading, not just those activities viewed as negative; it would create new economic distortions; and it wouldn’t target the types of financial excesses that led to the 2008 recession.
“If the goal is to have the financial sector pay the costs of its past or future bailouts and compensate the rest of the country for the costs imposed in the financial crisis, a [financial activity tax] or VAT [on financial sector firms] might be more effective and less distortionary,” the report concluded.
This and That
Several other smaller tax proposals made it into Bloomberg’s financial reform plan.
One proposal calls for increasing access to basic financial services by starting a pilot program that would offer low-cost or free bank accounts to taxpayers when they sign up for public benefits, including the earned income tax credit.
Another proposal would prevent tax refunds from being confiscated from individuals who have defaulted on government-backed student loans for failed for-profit colleges.
Bloomberg also said his administration would prioritize regulatory oversight of cryptocurrencies, including clarifying how virtual currency is taxed.