This joint report by CEPR and the Political Economy Research Institute (University of Massachusetts, Amherst) gives an estimate of $177-354 billion in revenue that could be raised by taxing financial transactions in the United States.financial taxes, financial transactions, economic crisis, financial crisis

Dean Baker

Matt Sherman

Robert Pollin

Travis McArthur

English

Research Papers in Economics

 
 
 
Issue Brief ￿ December 2009 
 
 
 
Dean Baker is an economist and co-director of the Center for Economic and Policy Research in Washington, 
D.C.  Robert Pollin is a professor of economics and co-director of the Political Economy Research Institute 
at the University of Massachusetts-Amherst.  Travis McArthur is a Research Intern at CEPR and Matt 
Sherman is a Research Assistant at CEPR 
 
The Potential Revenue from 
Financial Transactions Taxes 
 
The economic crisis of the last two years has led to serious concerns about 
the sharp growth in the federal government’s fiscal deficit as well as the 
government’s  overall  debt  burden  as  a  share  of  total  U.S.  GDP.  Many 
analysts also believe that an excessive share of the economy’s resources is 
being consumed by the financial sector. A financial transactions or trading  
tax is a policy tool that can address both issues: raising a substantial amount 
of  revenue  and  also  reducing  the  size  of  financial  trading  in  the  U.S. 
economy relative to the economy’s level of productive activity. This paper 
calculates  the  revenue  potential  from  a  set  of  financial  trading  taxes.  It 
updates  an  earlier  set  of  calculations,  using  a  similar  methodology.
1  The 
rationale for the tax rates selected is explained more fully in that paper.  
 
Table 1 shows the revenue that can be raised from taxing the trades of each 
major category of financial assets traded in U.S. markets—i.e. stocks, bonds, 
foreign exchange, and derivative assets (i.e. options, forwards, futures, and 
swaps).    It  shows  revenue  under  alternative  assumptions  as  to  the 
responsiveness of trading volume to the tax. The first scenario assumes that 
trading  volume  does  not  change  at  all after  the  tax  is  implemented,  the 
second scenario assumes a 25 percent reduction in trading volume, and the 
third scenario assumes a 50 percent reduction in volume. The calculations 
are based on the level of trading in U.S. financial markets in 2008.  (The 
basis for these calculations is explained in the appendix.) 
 
As Table 1 shows, most of the revenue projected from the tax would come 
from stock transactions. If there were no reductions in trading from the 
2008 level, then a tax of 0.5 percent on each stock transaction would raise 
almost $220 billion a year. If trading fell back by 50 percent, then the tax 
would still raise almost $110 billion a year on stock trades.  The second 
largest source of revenue is bond trading. Assuming no reduction in trading 
volume, a tax that was applied at a rate of 0.01 percent for each year to 
maturity  would  raise  $52.4  billion  annually.  Assuming  a  50  percent 
reduction in trading volume the tax would raise $26.2 billion. The third 
largest source of revenue is a tax on trades in swaps. Assuming no reduction 
 
Center for Economic and 
Policy Research 
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tel: 202-293-5380 
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www.cepr.net 
 
Political Economy 
Research Institute 
Gordon Hall 
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Suite A 
Amherst, MA 01002  
tel: 413-545-6355    
fax: 413-577-0261 
www.peri.umass.edu 
BY DEAN BAKER, ROBERT POLLIN, TRAVIS MCARTHUR, AND 
MATT SHERMAN* CEPR/PERI  The Potential Revenue from Financial Transactions Taxes  ￿ 2 
 
in trading volume, a tax applied at the rate of 0.01 percent for each year to maturity would raise 
$46.3 billion annually. With a 50 percent reduction in trading volume, the revenue would be $23.2 
billion. 
 
TABLE 1 
Estimated Revenue from Financial Transactions Taxes by Source 
  Assumed Reduction in Trading Volume 
  0%  25% 50%
 
Transactions in 2008 
(billions $)    Revenue (billions $) 
Stocks and Equities  43,325.6    216.6  162.5  108.3 
Bonds  262,143.9    52.4  39.3  26.2 
Options Premiums  1,680.3    8.4  6.3  4.2 
Foreign Exchange Spot Transactions  156,634.5    15.7  11.7  7.8 
Futures (notional amount outstanding)  71,449.7    14.3  10.7  7.1 
Swaps (Notional amounts outstanding)  115,867.8    46.3  34.8  23.2 
Total    353.8  265.3  176.9 
 
Applied across the full range of financial assets listed in Table 1, a set of transactions taxes could 
raise $353.8 billion annually based on 2008 trading volumes. If trading fell by 50 percent in response 
to the tax, then the tax would raise $176.9 billion. In the context of a 10-year budget horizon, 
assuming a 50 percent reduction in trading volume, this set of financial transactions taxes would 
raise more than $1.7 trillion.   
 
 
Appendix 
Data for transactions are based on 2008 trading volumes. This is both because it is the most recent 
year for which full year data are available and also because volumes were unusually depressed in 
2009 due to the plunge in stock prices and other events associated with the economic crisis. Trading 
volume in 2008 was down considerably from 2007, so the year does not provide an abnormally high 
base year for our calculations. The following sections outline the tax rate structure and sources used 
for the calculations in Table 1. A fuller explanation of the methodology and justification for the rate 
structure can be found in Pollin et al, 2003.  
 
Equities 
The assumed tax rate for equities is 0.5 percent on a transaction, or 0.25 percent on each side. The 
data  on  trading  volume  for  equities  are  taken  from  the  NASDAQ  Monthly  Market  Summary, 
available  at  http://www.nasdaqtrader.com/Trader.aspx?id=MonthlyMarketSummary  and  NYSE 
Technologies: Market Data, available at http://www.nyxdata.com/nysedata/default.aspx?tabid=115. 
 
Bonds 
Data on trading volume in bonds were taken from the Securities Industry and Financial Markets 
Association’s  “Average  Daily  Trading  Volume  in  the  U.S.  Bond  Market,”  available  at 
http://www.sifma.org/uploadedFiles/Research/Statistics/SIFMA_USBondMarketTradingVolume.
pdf. It was assumed that the average transaction involved a bond with 2 years to maturity, implying a 
0.02 percent tax rate. (The data available do not give trading volumes by years to maturity.)  
 CEPR/PERI  The Potential Revenue from Financial Transactions Taxes  ￿ 3 
 
Options 
Data on options trading were obtained from the Options Clearing Corporation’s “Monthly Volume 
Reports,” available at http://www.optionsclearing.com/webapps/monthly-volume-reports. Trading 
volume was summed over all options. The tax rate applied was 0.5 percent of the premium price, the 
same as the rate on stock trades.   
 
Foreign Exchange 
Data on foreign exchange spot transactions were obtained from the Foreign Exchange Volume 
Survey  done  by  the  New  York  District  Federal  Reserve  Bank,  available  at 
http://www.newyorkfed.org/fxc/2009/fxc012709.pdf.  The  assumed  tax  rate  is  0.01  percent  on 
each transaction. 
 
Futures and Forwards 
Data  on  the  outstanding  volume  of  commodity  futures  and  forwards  was  obtained  from  U.S. 
Commodities  Futures  Trading  Commission’s  “Quarterly  Index  Investment  Data,”  available  at 
http://www.cftc.gov/marketreports/IndexInvestment/index.htm.  Data  on  foreign  exchange 
futures  and  forwards  was  obtained  from  CME  Group,  CME  Group  FTP  Data,  available  at 
http://www.cmegroup.com/CmeWeb/ftp.wrap/webmthly. It was assumed that all forwards and 
future were turned over an average of once a year (the data provide information on the value of 
outstanding  futures  and  forwards,  not  turnover).  The  tax  rate  applied  is  0.02  percent  on  each 
transaction. 
 
Swaps 
Data  on  swaps  was  taken  from  Bank  of  International  Settlements,  available  at 
http://www.bis.org/statistics/derdetailed.htm. Following the pattern with bonds, the tax rate for 
swaps is assumed to 0.01 percent for each year until maturity. The calculations assume an average 
life to maturity of 1.5 years and therefore a tax rate of 0.015 percent. The data provide the volume of 
outstanding swaps. The calculations assume an average turnover of 2 times per year. 
 
                                                 
1 Pollin, Robert, Dean Baker, and Marc Schaberg. “Security Transactions Taxes for U.S. Financial Markets,” Eastern 
Economic Review, Vol. 29, No. 4 (Fall 2003): 527-558, http://www.peri.umass.edu/236/hash/aef97d8d65/publication/172/. 

The Potential Revenue from Financial Transactions Taxes

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The Potential Revenue from Financial Transactions Taxes

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