This is a guest post by Marla Singer at Zero Hedge.

I thank the Chairman for the floor and beg the continued indulgence of this House as I endeavor to disabuse some of its members of a rather dubious notion.  Namely that a tax on securities transactions, effectively a revival of the infamous “Tobin Tax,” (in the interest of brevity, shall we hither just intone… “the tax”?) is effective, wise, or even mostly harmless.  The fact is, such a levy is exactly none of these things, has never been any of these things, and is unlikely to, in the hands of the United States Congress which, in conjunction with the current President of the United States, must certainly be the most fiscally reckless administrative body since the Emperor Nero, suddenly mutate into some semblance of utility.

No less than five serious failings, any one fatal to the tax, are apparent to any member of this House willing to examine the facts carefully.

First, the tax is entirely unsuitable for the purposes it purports to serve.

Second, even assuming a perfect dove-tail with the purposes the tax claims to further, these are not goals this House should endorse.

Third, the tax is likely to do considerable harm to the economy of the United States both in the long and short term.

Fourth, the tax is wholly impractical to implement.

Fifth, simply as a philosophical matter, and in an environment characterized by the absolutely colossal failure of governments to produce even vaguely satisfactory results of any significance whatsoever, a tax that subsidizes further fiscal profligacy cannot enjoy the sanction of this House.

The tax is entirely unsuitable for the purposes it purports to serve.

H.R. 1068, the “Let Wall Street Pay for Wall Street’s Bailout Act of 2009,” cites, among other findings that:

The Bush Administration allocated the first $350 billion of TARP funds in a manner that has outraged the Nation by failing to provide the most basic oversight of the funds.

[...]

The $700 billion TARP fund and the new Federal Reserve lending facilities were created to protect Wall Street investors; therefore, the same Wall Street investors should pay for this infusion of taxpayer money.

[...]

All revenue generated by this transfer tax should be deposited in the general fund of the Treasury of the United States, scaled to meet the net cost of these bailouts, and phase out when the cost of the bailouts are repaid.

Even the most cursory investigation by this House will uncover the fact that funds distributed under the TARP program were either in the form of loans, equity investment or warrants of one kind or another.  Once these loans are repaid, with interest, it should be quite unclear to this House exactly what remains to be repaid.  And, to the extent that TARP funds were eventually used for purposes unrelated to Wall Street bailouts, this House would do well to contemplate why a levy on Wall Street should be applied to these expenditures at all.

A clever observer might also wonder how the revenues from this levy will be expected to enjoy any more prudent application than the misused TARP funds the Congressman so decries.

I invite any member of this House to pursue the language of H. R. 1068 to divine the stated motives of the tax.  It will readily become apparent that a number of political constituencies have quite opportunistically latched on to the bill to further purposes both overt and covert that are simply not envisaged by the bill’s authors, sponsors or co-sponsors.

Having noted that the original purposes of the tax are both limited and redundant, I now face the sad task of addressing the many collateral purposes that legislators, commentators and members of the mainstream media have, quite wantonly it seems, and if you will forgive the pun, repurposed the tax for.  I should like, however, to note here that my addressing these diversions should in no way be seen as an endorsement of their legitimacy.  The purposes of the bill are plainly stated and quite limited.  What follows is merely the ejection of a number of legislative stowaways.

Speculators or the Elimination of “Socially Useless” Endeavors.

A number of the tax’s proponents claim that the measure is designed to curb the excesses of “Speculators.”  Conveniently, this term is rarely defined and therefore manages to capture the imagination of the populous as they each form their own individual spectres they suppose will be vanquished by the levy.

I would ask this House to consider the value of liquidity, of well arbitraged markets, and to contemplate the impermissibly vague nature of the term “Speculators” used by proponents of the tax.  Whatever definition we might pin these interlopers down to will, in any event, be far afield of the original purposes of the bill.  How else are we to explain the bill’s express sunset clause requiring it to “…phase out when the cost of the bailouts are repaid”?  Or should we see this for a blatant lie, all the more shameful for its appearance in print and before the United States House of Representatives?

Social Justice

In this view, the tax is purposed to right the wrongs of years of Wall Street excesses and somehow even the score for the injustice of this inequality.

Even considering this grievance as read, the tax, which will surely be passed quickly and directly to investors of all stripes and sizes, is hardly the mechanism to address these supposed wrongs.

Shrinking a “Bloated” Financial Sector

This is the view of Paul Krugman, and in the interest of the respectful use of the House’s valuable time, I suspect that this alone is sufficient rebuttal.

Second (and Third) Derivative Repurposing

It may also interest this House to know that the original Tobin Tax was intended to apply only to foreign exchange markets in the aftermath of the collapse of the international foreign exchange price fixing regime of the Bretton Woods Agreements.  Tobin himself complained of the many pretenders to his original purposes.

“I have absolutely nothing in common with those anti-globalisation rebels.  They’ve hijacked my name … The tax on foreign exchange transactions was devised to cushion exchange rate fluctuations….”

Even assuming a perfect dove-tail with the purposes the tax (and many interlopers) claim to further, these are not goals this House should endorse.

A tax actually having the effect of eliminating speculators, addressing questions of social justice on Wall Street, or shrinking the financial sector is simply not a bit of legislation that should enjoy the support of this House.

The only possible result of curtailing “speculation” by increasing turnover costs is to increase costs for all investors.  Additionally, turnover costs are not particularly effective in deterring speculation.  One need only contemplate the fact that the real estate market, arguably the implosion most responsible for our present woes, has some of the highest turnover costs of any market to appreciate this point.

Moreover, one must be possessed of what can only be termed a “redistributive” disposition in order to favor taxes that are highly polarized with respect to the taxed and grafted constituencies.  In the wake of the mortgage implosion, can we allow ourselves to tolerate any longer any form of targeted tax used to grant targeted largess?  How has the trend away from such a system since 1986 treated us?

And by now, shouldn’t we really recognize that taxes like this are really about the revenue?  The tax before us, after all, is repeatedly described in terms of its revenue.  We are told that a “$150 billion dollar tax is being levied on Wall Street.”   Have we not learned the folly of taxes designed to target what is presently a politically unpopular class (though not 5, nay, not 3 years ago it enjoyed the envy of the country) that look for justification to the generally fictional theory that the tax’s effects will somehow be contained thereabouts.

The tax is likely to do considerable harm to the economy of the United States both in the long and short term.

The tax’s proponents ask us to believe that “throwing a bit of sand into the gears” will have the effect of reducing volatility, increasing stability and generally solving the nation’s ills.  This requires a bit more than quite a bit of suspension of disbelief.

In the first instance, increasing turnover and transaction costs increases rather than decreases volatility and distorts pricing signals.  This should be intuitively obvious to the members of this House, given their reputation for exceptional economic acumen.

Fourth, the tax is wholly impractical to implement.

Absent a worldwide regime to enforce the tax, market actors are free to move to Zug, Zurich or Singapore to conduct their trading activities and avoid the tax entirely.  (Sweden eventually abandoned its own ill-advised 2% securities transaction tax- which included bonds after 1989- in the early 1990s after it destroyed transaction volume and liquidity in this way).  Can we really find it in ourselves to support a measure that will drive transactions “off-exchange” just as we are trying to centralize clearing?

The phrase “$150 billion tax on Wall Street” should quite reasonably scream “$150 billion subsidy to foreign exchanges” to anyone in this House listening carefully.  Let us not, in this age of digit inflation, forget that this annual figure could instead buy us 1.5 Dubais (or permit the present administration ten General Motors bailouts).

And finally, based on past performance, can this house in good conscience justify turning over another AIG bailout every year to the federal government to do with as it will?

No.

We must simply admit that this is folly and vote “Yea” on the motion presently before the House.

Thank you.

Stay tuned for the rebuttal …

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