As the November 23rd deadline approaches for the “super committee” to find $1.2 trillion in deficit cuts over the next 10 years, I am writing to urge the members of the committee to consider options to cut government spending and raise revenue that extend beyond those typically discussed on Capitol Hill and in the media. Members of Congress – both Democrats and Republicans – often appear to be struggling to find deficit-cutting proposals that will either go far enough or attract bipartisan support. I have two proposals that should on the merits – absent the undue influence of special interests in our nation.
The first place that the super committee should look to cut wasteful government spending lies in the hundreds of billions of dollars in direct and indirect corporate welfare that our nation’s government gives away every year. Cutting wasteful government spending in this area alone could produce savings well above and beyond the desired $1.2 trillion in deficit cuts over the next ten years.
Democrats and Republicans alike should champion the elimination of corporate welfare as a drain on our government’s budgets. Subsidizing some of the most profitable industries and largest corporations in this country at the level of billions of dollars per year is not consistent with the values of fair competition and a level playing field that are cherished as a part of a capitalist economic system. Nor do they actually allow for a true free market to exist. Instead they skew the playing field toward the largest and most politically powerful multinational corporations and away from small and mid-sized businesses.
Republicans and Democrats talk of the needs of small businesses throughout the country on a daily basis, but rarely are the needs or interests of those businesses represented in Congress when they are different from the Big Boys’ demands. They certainly aren’t represented when small town businesses go out of business despite their best efforts, but the speculators on Wall Street who cheated and gambled their way to the brink were pulled back from the ledge by a past complicit and compliant Congress. Nor were they represented, by the way, when the reason many of those small businesses failed was because of a mega corporation, Wal-Mart, which itself has received hundreds of millions, if not billions, in subsidies over decades. You can talk the talk when it comes to the value of small businesses, free markets, and a capitalist system – but is it not time to start walking the walk?
Yet another proposal that should be explored is the implementation of a financial speculation tax, which would impose a miniscule tax on all trades of stock, bonds, options, and other more speculative financial instruments. A financial speculation sales tax would curb risky speculative trading and high-frequency trading schemes that contribute little real economic value and instead can create a lot of instability. On top of this, a small tax – ranging to 0.5 % depending upon the financial instrument being taxed – could produce hundreds of billions of dollars annually, perhaps as much as $350 billion.
The Capital Institute’s John Fullerton, a former JPMorgan managing director, says it best when he states that a financial speculation tax would “combat one of the most corrosive realities undermining capitalism itself: short-term speculation has displaced real investment, transforming our economy into a bankrupt financial system that lacks morals and purpose.” He has stated that 70 percent of the equities market is composed of speculative, high-frequency, and “quant” driven trading strategies. It is no wonder that our economy is struggling with that much investment going towards entirely unproductive uses. Mr. Fullerton concludes one of his articles by stating that “the real economy and job creation would be enhanced if FDIC-insured consumer deposits funded productive loans to the real economy instead of leveraged short-term speculation by banks and their hedge fund counterparties, and, if more human capital shifted out of finance and into the productive economy.”
Please reference my testimony that I gave before the Committee on the Budget in the U.S. House of Representatives on June 30, 1999. The testimony chronicles some of the most egregious examples of corporate welfare in the United States and can help you to identify proposals for the super committee to adopt. Also look at my recent op-ed, printed in the Wall Street Journal on November 2, 2011, titled “Time for a Tax on Speculation.”
It is my hope these items may be useful to you over the next several days in finding a means to cut the deficit that benefits the American people for once, and not those pursuing unproductive or unfair maneuvers on Wall Street or in the corporate board rooms.