Robin Hood, nearing European victories, still struggling to awaken in the U.S.

“We’re going to raise $35 billion dollars a year,” explained DeFazio, citing revenues generated if his proposed tax were enacted. “We could use [that revenue] to pay the damage caused by Wall Street. We could invest it productively to put people back to work; invest it in our crumbling infrastructure,” he explained. “There’s something to turn to people and say, ‘This raises money, we need money, and this is a benign way of raising money — unlike raising taxes on middle class Americans.’”

The U.S. arm of the Robin Hood Tax campaign, an international coalition calling for a global FTT, proposes funding for housing, education, and health care among the projects it believes an FTT could support. Robin Hood campaigners also look to channel funds to provide assistance internationally. For example, “to set ourselves on a course to actually end the global AIDS pandemic, we’re talking about needing an extra $10 billion,” said Matthew Kavanagh, spokesperson for the Robin Hood campaign’s U.S. branch.

Other FTT proponents have similar goals, albeit with a narrower focus. DeFazio would like to invest the funds for job creation. But he would also like to employ some of the revenue to “defray the deficit.” This latter point is controversial among many FTT supporters, including the National Nurses United, a union heavily involved in the Robin Hood campaign. “We don’t want this revenue to just pay back bondholders,” said Michael Lighty, director of public policy at the union. “We want it to actually develop our communities in a new way.”

Easier to administer than sales tax?

In the U.S., implementation of the tax could be straightforward. According to Pollin of U. Mass.-Amherst, “The basics are very, very simple if you think of it as the equivalent of a sales tax.” An FTT could be added onto the sale of a security the way a sales tax is added at the cash register when anyone buys furniture, clothes, a car, or other consumer goods. If a broker or an exchange, such as the New York Stock Exchange or the Chicago Mercantile Exchange, were involved in a transaction, the broker or exchange would collect the tax.

Some transactions, especially derivatives, don’t involve a broker or an exchange. These “over-the-counter” transactions, often involving banks, hedge funds, or other large investors, would be self-reported, in the manner that businesses self-report the sales taxes they owe.

Critics have said an FTT would be too complicated to monitor, but Pollin disagreed. “It’s even less of a problem than keeping track of a sales tax,” he said. “Financial transactions are traded electronically, and [are] heavily documented.”

Fervent opposition in the U.S.

A principal claim of FTT detractors is that the tax would in fact succeed at restraining high-speed trading, and that would damage the economy by rendering markets less liquid.

James Angel, an economist and professor of finance at Georgetown University is an outspoken critic of an FTT. He told Remapping Debate that by discouraging superfast trading, the tax would increase volatility in those markets, which would in turn undermine confidence.

Angel explained that high-speed traders look for related financial instruments on different exchanges that happen to be trading at different prices, often mere pennies apart. They buy at the lower price from one exchange and sell at the higher price on the other. “This brings the prices into line with each other, and that creates stability,” Angel said. An FTT would disturb this “ecosystem,” as he described it. “And [that stability] means as a consumer of stocks and derivatives I know I’m paying a fair price.” Without these players, or far fewer of them, Angel said, there would be a larger gap between the bid and ask prices.

But when Remapping Debate asked Angel whether these realignments would happen anyway — through standard trading, over minutes or hours as opposed to seconds — he agreed that they would. “It won’t be as efficient, but you’ll get there,” he said.

Sen. Orrin Hatch, an FTT opponent, posed a series of questions to the Congressional Budget Office (CBO) regarding the economic effects of the Harkin-DeFazio bill. In the CBO letter responding to Sen. Hatch, the agency noted that an FTT would cause a reallocation of financial resources, but was equivocal as to the impact: “Whether that reallocation of resources would lead to higher or lower GDP in the United States would depend on whether the new uses for the resources were more or less productive than the uses that would occur under current law, as well as on the degree to which trading moved abroad.”

The possibility that an FTT would drive investors overseas in search of lower transaction costs is a common argument made by FTT critics. The CBO raised this possibility in its letter, but noted explicitly that the risk of capital flight “would be mitigated if other financial centers introduced their own transaction taxes.” According to proponents of an FTT, including DeFazio, fears of capital flight are overblown in any event. Consider the U.K., they say, which has a 0.5 percent transaction tax on stocks. Despite this existing tax, the country has a vibrant financial sector, the strongest in Europe, and fourth largest internationally.