October 28, 2015
By Tim Worstall
Bernie Sanders is, as we all know, arguing for a teenie, tiny, tax on all Wall Street transactions with which he will pay for free college for all. There’s a couple of problems with this, the most obvious economic one being that a degree from college increases the lifetime earnings of the person who gets the degree. It’s therefore reasonable enough to ask that the person who benefits from the degree pays for the degree. Especially valid for a politician who vaunts the fairness and equity of his proposals, I would have thought, but then perhaps that’s just me. The other problem is that a financial transactions tax is just a really bad idea.
I’ve pointed this out before around here and my one and only piece of academic research is actually on this very subject. An FTT makes capital more expensive for companies, more expensive capital means that companies will use less of it and if companies invest less then the future will be poorer than it otherwise would have been. And an FTT affects the economy so much in this manner that over the long term it actually reduces, not increases, tax revenue. Because the share of that larger without an FTT economy that goes in tax is larger than the share of the economy that does go in the FTT tax. Thus, over time, there will be less revenue with which the government can buy lovely things in exchange for our votes.
That’s not my calculation by the way, although I do flag it up. That came from the European Union’s own investigation into whether there should be a European FTT. Other investigations into similar taxes, like the Stamp Duty on stock purchases in my native UK come to very much the same conclusion. And the people who really end up paying the tax, in the sense of bearing the economic burden, are pensioners in lower pensions (because their savings have made less over the decades) and workers in the form of lower wages (as a result of the lower levels of investment). It’s really not a good tax.
Read the full article at Forbes.com: Sorry Bernie, The Sanders Case For An FTT Really Doesn't Have Much Going For It