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What is a financial transaction tax?

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What is a financial transaction tax?

Brookings Institution,

5 min read
3 take-aways
Audio & text

What's inside?

Carefully implemented, a financial transaction tax could raise government revenues.

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Editorial Rating

8

Qualities

  • Applicable
  • Background

Recommendation

A financial transaction tax (FTT) as a new source of government income is a hot-button issue in the United States. In this focused, accessible overview, economist Aaron Klein explains how an FTT works, who pays it and what its potential revenues might be under different plans. He distills the debates about the ramifications of the tax and provides evidence from other countries of its possible impacts. Wall Street denizens and Main Street investors will find great value in this impartial report on a significant financial proposal.

Summary

A financial transaction tax (FTT) is already in place in the United States.

An FTT places a levy on the buy and sell orders of assets such as equities, credit instruments, derivatives and options. The United States already imposes a transaction tax of about two cents on every $1,000 traded. 

Some supporters are recommending increasing the FTT to 0.1%, with some variations by type of asset. The US Congressional Budget Office estimates that, over 10 years, a 0.1% tax – roughly $1 on each $1,000 transacted – would raise $777 billion, equivalent to about 0.5% of GDP and to the total amounts collected via excise taxes in America.

An FTT is a progressive...

About the Author

Aaron Klein is a fellow at the Brookings Institution and its policy director on regulation and markets. 

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