New Push to Tax Stock Trades on Wall Street

Rep. Peter DeFazio and Neil battle on proposed transaction tax

This is a rush transcript from "Your World," November 2, 2011. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST OF “YOUR WORLD”: Well, find the market taxing?

To the congressman who wants to tax trades. Oregon Democrat Peter DeFazio said it would not cause panic. What it would do is raise a lot of cash at a time we need that cash.

Congressman, let’s say you are right on this. It is always good to have you. Is now the time to try it, though?

REP. PETER DEFAZIO, D-ORE.: Well, it would not go into effect until 2013, but I think it is time to put the gears in motion here.

We are talking about three basis points here. It will have a salutary effect in terms of it will affect trading. The ultra-high-volume, algorithm-driven trading, it will have a big impact there. Value trading...

(CROSSTALK)

CAVUTO: So, the day trading crowd, the in-and-out crowd, that is what this is intended to stop? Or is it meant to raise money? I don’t get it.

DEFAZIO: Well, there are very prominent economists, including Joe Stiglitz and others, who say you, get a salutary effect because you rein in some of the unbelievable increases in volume and volatility, up I believe 1,000 percent, 10 times over the last 10 years.

And it will raise money to invest in either the real economy or a plan to reduce our deficit and debt, which should reassure the markets, so one way or another, salutary effect on the markets and what we do with the revenues.

CAVUTO: There are other countries abroad, particularly in Europe and France; they have a variation of a transaction tax. And they are exactly not firing on all cylinders. Are they your example?

DEFAZIO: Well, you know, are we firing on all cylinders? We’re not exactly firing on all cylinders either.

(CROSSTALK) CAVUTO: But in that environment, where we might have the euro go kablooey this weekend, and we might have Greece defaulting this weekend, and here you come along, saying I you want to raise transaction taxes for whatever reason, in 2013 -- I might point out conveniently after the election, which is fine -- do you think now is the time to be advocating this in a dicey world economy?

DEFAZIO: Absolutely.

It is time to rein in some of the worst volatile speculation trading which this would have -- they are proposing 10 basis points for Europe, France and Germany. And Germany is doing pretty darn well, I think. And they think this is a good idea.

CAVUTO: Yes, but who reins in Congress’ volatility? Who reins in Congress’ propensity to spend?

You guys are so interested in affecting how Wall Street conducts its business that you don’t look in the mirror and see how you are conducting yours. That is the far greater worry, not what Wall Street is trading on a rush, but whether you guys are in a rush to spend, right?

DEFAZIO: I just came from the floor with mostly Republicans, speaking in favor of a balanced budget amendment to the Constitution, which I voted for in 1995.

And remember we balanced the budget in the 1990s with the Clinton tax increases which the Republicans didn’t repeal, and then the Republican reforms and cuts in the late ‘90s. We balanced the budget, paid down debt.

CAVUTO: So why does the British prime minister think this is a dumb idea? And why is he concerned that if we were to enact this now in this environment right now, even allowing for its potential merits, in an economy that right now is just sort of hanging on its fingertips across the globe, the last thing you want to put in there as an added wrinkle is something like this?

DEFAZIO: To useless speculative trading?

(CROSSTALK)

CAVUTO: What is your definition of useless speculative trading?

DEFAZIO: Someone who trades something 1,000 times a minute that has nothing to do with the value, the underlying value of that transaction.

CAVUTO: Are you going after that 1,000-times-a-minute trader...

DEFAZIO: Both. Both.

CAVUTO: Or are you going after all the institutions that profit off of that? Is this really a focus on Wall Street? Because all the Wall Street guys hate it, all the individual investors are not big fans of paying more for their trades. Who are you with? Who are you hating? I don’t get it.

DEFAZIO: I have talked to financial advisers that say we would love it if you get -- wealth advisers: We don’t know where to tell people to put their money, what is stable. People, who are long-term-value investors, people like Warren Buffett and others.

(CROSSTALK)

CAVUTO: Wait a minute. You have talked to Fidelity? You have talked to T. Rowe Price? You have talked to Charles Schwab? You have talked to all the big institutions that handle folks’ cash? They’re all against it, Congressman. They all think it’s cockamamie.

(CROSSTALK) DEFAZIO: Nobody wants to pay taxes in this country.

(CROSSTALK)

DEFAZIO: Oh, yes. They thought so too in 1934. They said it would destroy the economy when FDR doubled the existing transaction tax. And guess what? He used the money to rebuild the real economy and the stock market went up because the real economy and the stock market used to relate. Now, with the gambling on Wall Street...

CAVUTO: The stock market went up based on something called World War II, not a transaction tax.

DEFAZIO: No, it went up before -- we had the transaction tax all the way through World War II until 1966, when we built the greatest economy the world has ever seen.

(CROSSTALK)

DEFAZIO: Somehow, it didn’t hurt.

CAVUTO: Congressman, do you honestly think that the uptick we had in the markets was a result of a tax on transaction trades and not something called World War II?

DEFAZIO: No, but I’m saying -- Neil, what I am saying is we built the greatest economy in the world with that tax through 1966 somehow.

And we didn’t have these people trading stuff 1,000 times a second.

(CROSSTALK)

DEFAZIO: This is a great economy we have got today. We need jobs. We need jobs, Neil. And we need to invest to create jobs.

(CROSSTALK) CAVUTO: Congressman, you say you want to get jobs. I will guarantee you this, my friend. You increase the cost of doing business on anyone in this environment, any trades...

DEFAZIO: Oh, the job creators, they are doing a great job, aren’t they?

(CROSSTALK) CAVUTO: The job creators are doing a great job. You raise taxes and that is going to increase jobs?

(CROSSTALK) DEFAZIO: Bill Clinton raised taxes, and we had 3.8 percent employment and paid down debt. Let’s go back to the bad old days.

CAVUTO: The job increase we had under Bill Clinton was a direct response to raising taxes, right? It had nothing to do with lowering all the investment taxes that he lowered or an Internet boom that had nothing to do with his administration?

It had everything to do. You are telling me, in all seriousness...

(CROSSTALK)

CAVUTO: Congressman, you are way too smart, you are way too smart to assume that raising taxes is going to lead to economic nirvana.

DEFAZIO: Neil, go out and ask the American people if they think Wall Street should start paying a little bit toward the real economy and a recovery in this country. I think you will find my views are in the majority.

CAVUTO: All right, well, they may be.

DEFAZIO: But you’re in their world. Enjoy it while it lasts.

CAVUTO: I’m telling you, you increase the cost of doing business, you don’t get no business.

But I’ll tell you, we will watch closely.

Congressman, always good having you.

DEFAZIO: Thank you, Neil. Enjoyed it.

CAVUTO: All right.

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