- SAN DIEGO -- As
California confronts a growing economic crisis, a new idea is emerging:
use a small sales tax or "Tobin tax" on derivative
financial transactions to help finance a fiscal stability, curb
reckless speculative bubbles, and encourage investment into productive
manufacturing.
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- A Democratic Party Club in the San Diego region has
taken up cause, unanimously passing a resolution in favor of imposing a
modest 1% fee on derivatives, and citing the harm done by "reckless
and unregulated financial speculation by commercial banks, investment
banks, and hedge funds in derivatives transactions" to the state economy.
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- The budget crisis in California and unimpeded rise of
unemployment and homelessness are signals that the California facing a
growing risk of becoming "the first failed state" of the
Union. The cause of the fiscal emergency is not a lack of productivity
or resources; rather it finds its roots in the devastation wrought by an
orgy of financial speculation in unregulated derivatives, paper
financial instruments with no instrinsic value of their own,
which "derive" their value from complex and shifting mathematical
relationships of underlying assets.
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- Dealing in derivatives, done mainly by investment banking
and brokerage houses, carries no tax. Commented one of the resolution authors,
former Congressional candidate Mike Copass, "Working families in California
pay between 8.75% and 10.25% sales tax on items such as school supplies
and children's shoes -- a highly regressive tax burden on those least able
to pay. Yet the multi-trillion dollar sales of derivatives including
credit default swaps, speculation in foreign exchange and oil or commodity
futures pays zero tax."
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- In recognition of California's dire economic straits,
the La Jolla Democratic Club resolved in support of a position to
levy a "Tobin Tax" (named after the Nobel-prize winning economist
James Tobin) of one percent be levied and collected for the State
of California or by the Federal Government on California's behalf, on these
speculative financial bets. Since derivative trades are largely unregulated
and opaque, California's fraction of the $1.5 quadrillion derivatives outstanding
globally is uncertain, but a conservative estimate puts potential
Tobin Tax revenue at $20 and $100 billion in the first year.
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- Commented one of the contributors to the resolution,
"California is desperate for economic investments. A Tobin tax can
help direct capital flows into investment in productive manufacturing enterprises."
The Southern Californians plan to submit their resolution on Monday October
12th to the State Democratic Party for consideration by the Executive Board.
Added Copass, "This is part of an emergency economic plan for the
State of California. A real economic recovery in our state must confront
unhesitatingly the reckless speculative 'casino finance' of investment
banks and hedge funds, and provide strong incentives for job-creating investment
in the real economy."
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- For information, contact Mike Copass,
- California53@gmail.com
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- Resolution: Promoting a California Economic Recovery
through a 1% Tobin Tax on Derivatives
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- Whereas reckless and unregulated financial speculation
by commercial banks, investment banks, and hedge funds in derivatives
transactions (estimated $1.5 quadrillion world-wide) has contributed to
the collapse of banks and lending institutions, to the contraction of credit
and lending in California, to statewide economic downtown and loss of revenues,
and siphoned investment away from job-creating productive and manufacturing
enterprises, and
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- Whereas the State of California faces increasing
and dangerous economic hardship, with an approximately $24 billion
revenue shortfall for 2009, along with continually increasing unemployment,
conditions due in part to the financial collapse triggered by derivatives
trades, and
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- Whereas the State of California currently charges
no transaction fee or sales tax on derivatives or speculative financial
instruments, yet charges a highly regressive sales tax on working California
families between 8.75% to 10.25% on necessities, including Fall school
supplies and children's shoes,
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- Therefore be it Resolved that the California Democratic
Party supports the establishment a 1% Tobin Tax on all derivative financial
transactions, including speculation in oil futures, credit derivatives,
commodities, foreign exchange, and mortgage-backed securities, whether
as a fee on California-based derivative trades, or as California's population-proportional
fraction of a nation-wide federal derivatives tax,
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- Be it further resolved that Tobin taxes or fees
collected for the State of California or by the Federal Government on California's
behalf, which may total between $20 and $100 billion in the first year
alone, be used for the purpose of lowering or eliminating the California
State budget deficit, to lower the highly regressive sales tax, and
to lower tax burdens on small businesses, all of which would have a net
effect of both massive new sources of revenue as well as returning capital
flows towards creation of job-producing enterprises and productive manufacturing
including green technology, rather than to the reckless speculative
"casino finance" of investment banks and hedge funds.
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- Authors and Contributors: Mike Copass, Derek C., Benjamin
B, Gerry S.
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- Approved by the La Jolla Democratic Club, October
11, 2009
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