January 10, 2012
By Marc Bussanich, LaborPress City Reporter
The Great Recession continues to rear its ugly head in the New Year as unemployment stands at 8.5 percent. President Obama couldn’t pass the American Jobs Act due to Republican opposition, although Republicans are working with Democrats to implement the transportation component of AJA. Without private sector growth and additional government economic spending, what’s a union member and working person to do?
The National Nurses United has a plan to restore the economy, and has been working feverishly to set it in motion. Not a completely new idea, NNU is proposing a 0.5 percent financial transaction tax (FTT) on most financial transactions on Wall Street that could potentially generate annual revenues of $350 billion.
Michael Lighty, NNU’s Director of Public Policy, said that the economic impact of $350 billion is huge and could be invested in much needed public projects. “A portion of the money could be used to create a single-payer health care system.” He explained that NNU’s analysis reveals that without even changing the current Medicare structure, 2.6 million net jobs could be created with FTT money by enrolling everyone 65 and older.
“Almost 3 million net jobs, after jobs loses we calculated from loses in the insurance industry, a reduction of employers’ share of health care costs, the hundreds of billions of dollars generated in economic activity, $44 billion in new tax revenue from increased economic activity and the freeing up of employer resources to create more jobs rather than paying insurance companies are the possibilities of the FTT,” said Lighty.
Lighty stressed the FTT is not intended just to benefit union members, but the country’s entire working population. He mentioned two legislative bills introduced by Congressman John Conyers (D-MI), such as a jobs bill modeled on the 1970s Humphrey-Hawkins Full Employment Act and the Expanded and Improved Medicare for All Act, H.R 676, would use FTT money to fund. Also, Representative James McDermott (D-WA) H.R. 1200 and Senator Bernie Sanders’ (I-VT) similar American Health Security Act, S. 703 call for the FTT to finance elements of their proposals. Unfortunately, all the representatives’ single-payer health care reform bills have languished in the corridors of Congress since 2009.
But the FTT represents not just a temporary stimulus injection like the 2009 variety, but a permanent, structural change to the economy, according to Lighty. “The tax would allow us to shift investment priorities away from speculative to productive, influence job creation in certain sectors, fund retirement benefits and infrastructure and provide desperately needed capital for companies seeking to manufacture goods.”
Lighty noted that Wall Street has dramatically moved away from its historical role of a source for productive investment to a system of proprietary trading where financial companies are making money for themselves based on complex financial instruments that don’t create any wealth for society or workers, or investing in companies that’ll create jobs. Instead, “the financial companies’ paradigm is to make money on money.”
He explained that the FTT could help to curb some of Wall Street current practices. For example, about to 70 to 80 percent of equity trades are automated, and most automation occurs with speculative trades because investors are looking to exploit very small differences very quickly. “They’re just trying to make a quick buck on the arbitrage [taking advantage of a price difference between two or more markets] of the stock price. The longer you hold, the less tax you pay,” Lighty said.
“If the FTT is implemented, these auto trades will no doubt be reduced because the money investors make will be smaller than the tax at 0.5 percent, therefore contributing to less volatility and improving the likelihood for long-term productive investment.”
Of all the Wall Street financial products that could be susceptible to the FTT, the single largest source of money is currency exchange transactions. “There’s literally trillions of dollars traded in currency exchange and only five banks do the bulk of them. That’s where the big money is,” noted Lighty.
While the possibility for billions of revenue generation derived from the FTT to help finance jobs and infrastructure projects is exhilarating, the opposition from the financial companies will no doubt be fierce, and Lighty noted that Senator Orrin Hatch (R-U), no friend to labor, is already starting to foment opposition in Congress.
At the same time, however, Lighty said that unions today can’t afford to be on the defensive and just wage narrow fights for union issues. “We have to broaden the fight, to go after the 1 percent, the wealthy elites. We got to have a program that speaks to working people broadly. Our program represents a new social unionism and is based on FDR’s 1944 Economic Bill of Rights.”
While NNU is broadening its union coalition to embrace a FTT, Lighty said New York’s unions have been slow to embrace an FTT because the building trades and public sector unions benefit from the revenues that Wall Street makes. The city already has an FTT on the books, but doesn’t collect the revenue because the financial companies have threatened to move to New Jersey, according to Lighty.
Also, the City’s building trades and public sector fear that a higher tax would cut into their members’ pension portfolios. But Lighty said that NNU’s economists are convinced that the City’s pension funds would still achieve historical returns after they found that the FTT would be lower than the pension fees the funds pay to financial advisers.
The City’s unions should consider that even if there is a slight cut to their pension portfolios with an FTT at 0.5 percent, the cut would be greatly offset by a $350 billion annual injection that would create jobs, thereby improving union members’ chances for employment.
Lighty concurred, “It’s short-sighted ultimately to say that the 0.5 percent FTT could potentially shave off 0.2 percent on members’ pensions, when there’s the opportunity to create a new economy that puts members to work and expands pensions.”
But Robert Pollin, an economist at the University of Massachusetts, Amherst, who co-authored a December brief on the merits of an FTT, warned, “The FTT is not a panacea, and nobody should think it is. The FTT works well in a broader context of short- and long-term proposals.”