By Ronald D. Orol
WASHINGTON--Sen. Tom Harkin wants lawmakers to consider his
financial transaction tax bill as they work on ways to resolve
their differences on spending and taxes and try to avoid the
impending fiscal cliff.
The Iowa Democrat talked with MarketWatch on Thursday about a
bill he's introduced that would put a 3-cent tax on every $100 of
stock, bond or derivatives transactions, a measure he believes
would slow down high-speed traders who he insists don't add to the
economy and have led to "some disturbances."
Harkin said the tax won't hurt "real trading" or the economy and
would bring billions of dollars in critical revenue to Washington
at a time that it is really needed.
The 73-year-old senator also discussed his own campaign plans
and his assertion that cuts to Medicare shouldn't be on the table
as part of any agreement to resolve the fiscal cliff, which would
occur should about $500 billion in spending cuts and tax increases
begin in January unless the White House and Congress reach an
alternative deal.
MarketWatch: It doesn't sound like you believe high-speed
traders are a positive contributor to the economy. They represent a
huge part of the volume of trades in any given day. What impact do
you believe the tax will have on them?
Harkin: I really don't see any evidence that these high-speed
traders add anything to the economy, but they do also create some
aberrations in the market that have led to some disturbances. On
the one hand, my transaction tax doesn't put them out of business
but certainly they would have to pay 3 cents on every $100 in
transactions they do. That's really not very burdensome. But also
we need revenue. We have to get out of this deficit hole we're in,
and this transaction tax is estimated to raise about $352 billion
over 10 years. That's pretty substantial. And I don't think it will
do anything at all to hurt trading, what I call "real trading."
Q: Critics of the tax say it will make it more expensive for
retail investors and pension funds who represent a lot of retail
investors to buy or sell securities in the marketplace. As a
result, they say, it will raise the cost of trading, reduce returns
to investors and make it more difficult for firms to raise capital,
hurting jobs. Do you disagree?
A: I disagree. There is no real evidence that high-speed traders
have been really helpful to the economy. There are some countries
in the world today, both Singapore and Switzerland, that have a
transaction tax and it hasn't hurt their trading. Several nations
in the European Union are now moving in that direction for
implementing a transaction tax. But I can understand that they
don't want to be taxed. Who wants to pay taxes? High speed traders
are not really helping the economy that much and this is one way to
slow them down a little bit. I see nothing wrong with that.
Q: Similar bills in recent years have made no progress in
Congress, with worry about how failure to reach a global agreement
on a tax would drive business off-shore. Do you think there is
impetus now for one?
A: I think a couple of things are pushing this to enactment. It
is a small tax. Some other countries already have a transaction tax
and the European Union has been talking about this and look like
they are moving in that direction. Finally, the budget hole we're
in is driving this. This is one source of revenue that I don't
think will adversely affect the economy but will help us get out of
this fiscal cliff situation.
Q: Do you think this could be part of discussions that could be
part of a fiscal cliff resolution and do you disagree with critics
who say it will drive business overseas?
A: Yes, I do think it could be part of the fiscal cliff
discussions. And I'm not afraid of the notion that business will go
overseas. The rate is very low, and I don't think our traders would
move overseas and leave our system, our regulatory infrastructure,
our court system, all the things that protect investors in this
country. They won't give all that up for 3 cents on a hundred
dollars.
Q: Are you getting traction on Capitol Hill on this?
A: I hope so. I think there has been a lot of misinformation
about it in the past. The finance committee will take this up.
Q: You are the chairman of the Senate Health Education, Labor
and Pensions committee. Should Medicare and Medicaid be on the
table in fiscal cliff talks? There is a story this morning that say
that the contours of a deal are forming in which Medicare will be
cut by no less than $400 billion.
A: Medicare should not be on the table. We can respond to
Medicare in another forum, but not as part of this deal. Yes, we're
going to have to do something about Medicare, I understand that.
But if we reduce unemployment steadily over the next few months and
next couple years, if we get unemployment back to 5%, then Medicare
doesn't have that many problems any more.
Q: Do you plan to run again in 2014? Some have speculated you
will retire.
A: I haven't made any decisions. There has to be some break when
we're not focusing on running for office. I had hoped we would have
some months here when we could focus on doing our work here, taking
care of the economy and getting us back on a fiscal basis and then
think about campaigning after that.
-Write to Ronald D. Orol at rorol@marketwatch.com