From
http://www.citylimits.org/news/articles/2806/big-idea-tax-the-street :
"Big Idea: Tax the Street. Need city budget revenue? Tax Wall Street. Nearly every other major financial city does.
By J.W. Mason, Sunday, Sep 1, 2002
Here's one idea: Tax the financial markets. From 1907 to 1981, the state levied a stock transfer tax of up to a nickel a share, which worked out to about 0.2 percent of each transaction. Every share traded on the New York and American stock exchanges was liable for the tax, no matter where the buyer, seller or broker happened to be. (Strictly speaking, the tax still exists but is instantly rebated. An additional federal tax, 1/300th of a percent on stock transfers, is also assessed to fund the Securities and Exchange Commission.)
A stock transfer tax is part of the broader family of securities transaction taxes. The most famous member of this family is probably the hypothetical "Tobin tax" on international currency transactions, which Nobel prize-winner James Tobin proposed as a tool to limit the kid of destructive financial speculation that has contributed to financial crises throughout the developing world. Whether transaction taxes really reduce market volatility is a matter of considerable dispute. But no one doubts that they can raise a lot of revenue. And arguably, they do so with a minimum of the "distortions" that, for economists, are the real cost of taxation. ... it might help curb the excesses of speculation that have helped bring Wall Street into its current crisis.
In 1981, the last year New York's tax was in effect, it brought in $328 million for the city. (The tax was collected by the state but, under a deal worked out by Mayor John Lindsay in the 1960s, the proceeds were passed to the city.) If the same tax were imposed on today's hyperactive markets, it would bring in nearly $8 billion a year. No one is currently proposing that. Advocates of the tax--led by the Working Families Party and the independent Fiscal Policy Institute--are calling for a tax at one-tenth the old nickel rate, or half penny per share, capped at $35 per transaction. (This would work out to an average tax rate of less than 0.02 percent.) The tax would bring in an estimated $800 million a year--exactly enough, as it happens, to cover the $753 million budget shortfall projected for this year by the city's Independent Budget Office. ...
A more serious worry is that since many stocks traded on the New York exchanges are also traded on foreign markets, brokers might try to save their customers the cost of the tax by directing their orders abroad. ... London, a market which ... has been gaining business from New York in the past decade, has one of the world's highest stock-transfer taxes, 0.5 percent--over 20 times the proposed New York rate. ... At least 30 countries, including almost all of New York's major competitors, tax stock transfers, according to a recent Political Economy Research Institute paper by economists Robert Pollin, Dean Baker and Marc Schabere. All else being equal, market participants would no doubt avoid the tax if they could. But all else is never equal. Total transaction costs on stock trades--commissions, spreads, fees levied by the exchanges--are seldom less than 2 percent. Given that few taxes are as high as one-tenth of that, it's not surprising that taxes are swamped by other factors in determining where trades take place.
In fact, it's unlikely that the tax New York is considering would have any noticeable effect on market behavior at all. But if it did, the most likely response would be that investors would simply trade less. (There's some evidence that this was one of the main responses when the London tax was extended to previously untaxed transactions in 1986.) ... it's hard to make the case for imposing any new burden on lower Manhattan, especially when few realize how small the tax's burden would actually be. But its proponents are optimistic: Although Mayor Bloomberg doesn't think much of the idea, a majority of the City Council is already on record in support of reviving the stock transfer tax.
J.W. Mason is a Ph.D candidate in economics at the University of Massachusetts-Amherst."
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