The Washington Post discussed President Obama's suggestion to impose a tax on banks and including a brief mention of financial transactions taxes. Proposals for such a tax have been introduced in the House by Representative Peter Defazio and in the Senate by Tom Harkin. After noting these proposals, the article then comments: "Treasury officials oppose the idea. They warn that banks would try to impose the fee on their customers, shifting the cost partly to the broader economy. A range of legislators and economists share this view, arguing that such a tax would punish small investors and increase the cost of financial services. " Actually most estimates show the volume of trading declining sharply in response to the tax, so that much less money would be spent on brokers' fees and other trading costs. This means that the total amount of money spent on trading of stock, bonds, options, credit default swaps and other financial instruments (including the tax) is likely to change little as a result of the tax. Therefore, there would be little in the way of higher costs to pass on to the rest of the economy.
--Dean Baker
