'Robin Hood' tax on financial trades would help turn economy around, supporters say

As both parties argue over whether to raise taxes on those making more than $250,000, some think there is a better way to raise more money from the very people who who helped cause America's financial crisis -- Wall Street speculators.

It's called the Robin Hood tax.

Backed by the AFL-CIO and National Nurses United, the measure would impose a tiny three-hundredths-of-a-penny tax on financial trades. Supporters say the bill would cost the average investor just $1 per year, but could raise up to $35 billion annually from the high-stakes, high-volume high-speed computer trades critics claim increase market volatility.

"It would benefit long-term investors with stability," Rep. Peter Defazio, D-Ore., said. "It would benefit the economy with a longer-term perspective on investing, and it would reward patient capital as opposed to this useless daily second-by-second, millisecond-by-millisecond churning that goes on."

Like the so-called Buffett rule, the Robin Hood tax also has billionaire backers. Bill Gates and George Soros both say the measure is a painless way to raise a lot of money without affecting growth. It is also less politically toxic than raising income taxes on the higher brackets. Supporters think, as the election gets closer, President Obama will embrace the tax to appeal to his base.

"It's .03 percent," Defazio said. "But it will still generate about $35 billion a year in income -- income that could be used to rebuild the real economy, infrastructure, other investments. Or money that could be used to help defray our deficit."

Defazio and Democratic Sen. Tom Harkin have introduced a financial transaction tax bill that is currently stuck in the legislative process. Obama has not spoken publicly on it as he continues to raise campaign funds off Wall Street -- which, no surprise, opposes the tax. Opponents claim it would not eliminate high-frequency traders but send them offshore to avoid the tax altogether. Critics also claim the tax would hit mutual and pension fund trades, thereby affecting everyone.

"It's something that sounds good in theory, but it won't work in practice and instead will actually cause great damage to the economy and in doing that it actually reduces the amount of taxes collected rather than increasing them," David John of the Heritage Foundation said.

Supporters are airing ads starring actor Ben Kingsley and Bill Nighy in Europe, where the tax has considerable support. They say making the tax global would prevent traders from offshoring their business. Critics say it won't work.

"This is something that will reduce jobs, move them overseas and reduce rates of returns for union retirement funds," John said. "This is something that has a real potential to do damage."

England already has a half percent tax on stock trades. The presidents of Germany and France support a global financial tax, and according to the Ron Suskind book, "Confidence Men: Wall Street, Washington and the Education of a President," Obama supported the Robin Hood tax but was later talked out it by Larry Summers, then head of the National Economic Council. It was reportedly supported by then-Budget Director Peter Orszag.