Hey, Wall Street, Can You Spare a Dime?
August 05, 2013
(Mark Rosenman is an emeritus professor at the Union Institute & University and directed Caring to Change, in Washington, D.C. In his last post, he urged nonprofit leaders to speak out when confronted with evidence of illegal or unscrupulous behavior in the sector.)
While religious groups and nonprofit organizations are forming new coalitions and joining established leaders in the fight to preserve the charitable tax deduction, most charities have remained silent about cuts in government funding for domestic needs. Even more disturbing, few in the nonprofit world seem aware of a new legislative initiative that could add billions of dollars to such programs -- and their own funding streams.
Senator Tom Harkin (D-IA) and Rep. Peter DeFazio (D-OR) have introduced a financial transaction tax modeled after one approved by the European Parliament that is being adapted in eleven nations. Oddly, though Harkin and DeFazio's version of this "Wall Street speculators sales tax" has attracted support from over forty national nonprofit organizations and labor unions, it has not captured the imagination of local and regional charities or nonprofit sector leaders.
According to one study, up to $350 billion a year might be raised by a tax on equity and bond trades as well as the trading of options, swaps, futures, and other derivatives. Such a tax would not apply to the day-to-day financial transactions of individuals or to things like loans and debt issuance.
What's more, to generate that sum, stock transactions would only need to be taxed at a 0.5 percent rate (i.e., $5 on each $1,000 traded). For bonds and more speculative transactions, the rate would be a tiny fraction of even that modest amount (10 cents on each $1,000) -- hardly a significant burden on Wall Street or the trading public. And even at its much lower rates (less than a third of those imposed by the European model), the Harkin/DeFazio legislation would generate an average of $35 billion annually in additional revenue.
America's charities and the people they serve need those dollars. Federal spending on programs for the poor fell by more than $28 billion between 2011 and 2012; healthcare programs were cut by another $25 billion -- before sequestration. And since the sequester went into effect, $31 billion more in cuts have been made to domestic programs, many of which are critical to nonprofit organizations and the problems they address.
Those cuts have very real consequences. For instance, it’s estimated that more than 80,000 HeadStart slots have been lost, along with 30,000 staff positions. A state-by-state analysis of the sequester's impact on nonprofit organizations and government agencies reveals significant reductions in programs such as Meals On Wheels, child care, housing, services for seniors and the homeless, job training, support for students, and more.
While media outlets and others have chronicled some of the worst effects of sequestration, surprisingly few charity leaders have called for repeal of the cuts. Nor have many expressed concern about additional cuts recently proposed by congressional Republicans -- including 50 percent reductions in funding for the arts and humanities endowments, plus further cuts in grants for poor students and a reduction in the Environmental Protection Agency’s budget of more than a third that targets the agency's ability to enforce greenhouse-gas regulations.
But to simply rail against past and future cuts, including a cap on or reductions in the charitable deduction, is to let others define the debate. In place of spending cuts, charities should offer spirited and vigorous leadership in arguing for a revenue-increasing alternative that is used to fund domestic programs. They can do this by supporting the Harkin/DeFazio legislation, combined with even more ambitious efforts.
The vast majority of funding generated from a Wall Street sales tax would be paid by wealthy individual (and institutional) speculators -- the same people who have benefited disproportionately from tax breaks/cuts and financial services deregulation.
Indeed, the top 1 percent of Americans has steadily increased its share of income since the 1970s, reaching levels over the last decade not seen since the Roaring ‘20s, while the top 7 percent has seen its wealth increase by almost 30 percent since the economy began to recover in 2009. Over that same period, the rest of us have seen our share of income decline more than 4 percent. Stock market transactions have been a major driver of this growing inequality.
As a result of these trends and the lingering effects of the Great Recession, the American middle class continues to shrink, while income inequality is growing at the fastest rate in more than twenty years. Astounding in a nation that prides itself on upward mobility, inequality is now greater in the U.S. than in any of the world's twenty-six "advanced" economies.
Confronted by the outsized and growing wealth of those who speculate in the financial markets, the alarming growth of inequality, and proposals for still more damaging cuts in domestic programs, doesn't it make sense to support a financial transaction tax? Shouldn't private individuals and institutional speculators who have done extremely well at the expense of the rest bear an increased share of the costs necessary to meet public needs and advance the common good?
Why hasn't nonprofit sector leadership issued such a call? Some charities may fear reprisals from conservatives who view the social sector as a greedy arm of government. To these critics, an organization that advocates on behalf of the homeless and decries cuts in funding for food kitchens and shelters is simply reflecting its own interests and promoting big government; so too an arts organization that advocates for fully funding the National Endowment for the Arts; a disabilities group fighting to preserve funding for the homebound; a women's health group that advocates for continued funding for cancer screenings; a public university trying to maintain student aid at existing levels; or an environmental group working to protect investments in greenhouse gas-reduction programs and renewable energy.
Such accusations are mean-spirited and absurd. When underresourced organizations staffed by hardworking and usually underpaid professionals advocate for a cause, it's because they care -- about people, their communities, the environment, the commonweal. They understand that private philanthropy, by itself, will never be enough to solve the serious problems we face and that sharing responsibility for these problems among all sectors is the only way we will succeed in solving them.
Charities must reframe the deficit-cutting debate raging in Washington, especially in the face of damaging new budget-cutting proposals offered by the usual suspects in the House of Representatives. Nonprofit organizations that support a financial transactions tax should be given the philanthropic support they need to organize and mount a national campaign to inform Americans about what such a tax would mean and who it would benefit.
Wall Street got us into this mess. It should welcome the chance to use some of its profits to help clean it up.
-- Mark Rosenman