Why, then should these people pay?

2. Why, then should these people pay? HR 6258, like too many other proposals, says that those who caused the economic collapse should walk away free – and those who suffered should pay the cost. This is not political leadership. What would political leadership actually look like?

3. Reframing the Debate: A Revenue, not a Spending, Problem Northern Illinois Jobs with Justice/ Chicago Political Economy Group

4. Raising Revenue - a Modest Proposal: Speculation Sales Tax (SST) • $1 on contracts traded on Chicago derivative exchanges (CME* and CBOE) • Proposal: both buyer and seller pay $1/ contract • Even on the smallest contracts, this is a $1 fee on a $30,000 contract (less than 0.0033%) • On larger contracts a dollar would represent even less, e.g., on the Eurodollar futures, a $1 fee on a $1,000,000 contract (0.00010% ) • * CME owns the Chicago Board of Trade

5. How Much Revenue Could a $1/contract SST Raise? $6.1 $4.6

6. What Instruments Would Have an SST? • Chicago Board Options Exchange (CBOE): • Stock index options (on S&P 500, Dow, NASDAQ, etc); • Exclude options on individual stocks (size and competition) • Chicago Mercantile Exchange (CME) • Stock index futures and futures options (S&P 500, Dow, NASDAQ, etc.) • Futures and futures options on interest rates products (T-bonds, T-Notes, Eurodollars, etc.) • Futures and futures options on currencies (Euro, UK pound, yen, etc.). • Futures and futures options on commodities (corn, wheat, soybeans, hogs, cattle, etc.)

7. Counter Arguments • You will be told: • “The CME will move out of state.” • But the CME would not pay any of the tax. • You will be told: • “Traders will take their business elsewhere.” • But where else can you trade these active and liquid contracts? • And, let’s look at the actual arithmetic of the SST.

8. The Economic Arithmetic of an SST: I • Consider 3 very active futures contracts: • Corn: • Each contract is for 5000 bushels • Smallest price change is $0.0025 = $12.50 • S&P 500: • Each contract is 250 * the index (about $350,000) • Smallest price change is .10 index points = $25 • Eurodollar: • Each contract of for $1 million • Smallest price change is ¼ basis point = $6.25

9. The Economic Arithmetic of an SST: II • A hedger (e.g., farmer, portfolio manager) or a speculator would give up a fraction of the smallest first and last price change • $1 of $6.50, $12.50, or $25 • Some claim that $1/ contract would drive away trading • If so: • Why hasn’t another exchange already started trading CME & CBOE contracts, waiving their fees and/or subsidizing the commission cost to take business from CME & CBOE?

10. SST: A Tax for the People, not on the People • What is good tax policy: • A good tax should be small for any single event. • A good tax should fall on those able to bear the tax. • A good tax should tax activity that we want to limit or discourage. • A good tax should further economic or social justice. • A $1/contract SST meets these criteria: • The SST rate is very low for compared to the value of a contract. • The SST would fall primarily on high income individuals and wealthy institutions. • The SST would probably discourage some socially useless short term trading. • An SST taxes the sector that caused the financial crisis that led to the Great Recession. • Willie Sutton philosophy: “Because that’s where the money is”

11. Who Would Not Pay the Tax? • This point needs repeating constantly: The SST is not a tax on the exchanges (CBOE and CME) . They would not pay any of the tax. • In Australia, Austria, Brazil, France, Hong Kong, Singapore, Switzerland, UK, etc., exchanges do not pay the financial transaction tax that is levied in those countries. • Only individuals and institutions that trade would pay the tax.

12. Who Would Pay the SST? • The SST is a tax is on the act of trading – like a sales tax for buying clothes, food, a car, etc. • It is on both buying and selling the derivative. • The SST is a very progressive tax because of who trades and thus who would pay the tax : • Institutions such as banks, hedge funds, broker-dealers • High-income individuals • Day traders