Politicians agree that we need to invest in our transportation infrastructure, but ask any of them how we should pay for it and you’re likely to endure an uncomfortable silence. The problem is so bad that it seems to have derailed the new transportation bill until 2011.
There is at least one guy willing to offer a serious proposal though. Instead of taxing drivers more at the pump, says Peter DeFazio, why not make those finance guys that we all hate so much pay for it?
Specifically, the Democratic congressman from Oregon wants to impose a small tax–0.02%–on oil futures contracts.
From his office: “A transaction tax on crude oil securities will close the gap in funding a twenty-first century transportation system while lowering the price of oil. This is a win/win,” DeFazio said. “If we put off this transportation authorization, we will push off needed reform. Every day we wait people will sit in traffic instead of spending time with their families, every day people are not as safe as they could be because of our crumbling infrastructure, every day our economy suffers when our products sit in traffic jams. My proposal will not cost consumers one cent but will substantially increase our investment in our transportation infrastructure.”
Since oil futures are a multi-trillion dollar market, the numbers add up quickly even at such a low rate of taxation. DeFazio’s proposal would rebate the tax to good guys like railroads and airlines who buy futures to hedge against fluctuations in the price of crude and stick hedge funds and the like with the tab. According to DeFazio’s press release: “This proposal would rebate all transaction taxes paid by legitimate hedgers. Since the tax is on speculation only, it deters speculation and undermines much of the crude oil price bubble.”
It’s an intriguing and timely idea. Quite possibly too late to reverse the fortunes of getting the transportation bill passed in 2009, but we hope we’re wrong about that.
The only trick will be selling it. That shouldn’t be hard with the right name. “The Oil Speculator Tax,” perhaps?
*We’re using “Wall Street” generically here, btw — a lot of oil trading occurs on Chicago Mercantile
June 25th, 2009 at 5:14 pm
Oh my Gosh. That is so obvious, it’s brilliant.
June 25th, 2009 at 5:16 pm
This sounds pretty good to me, especially with the figure of .02%.
Why didn’t this come up beforehand?
June 25th, 2009 at 5:27 pm
What a great idea. That means it will never pass.
We need more Reps like DeFazio in Congress instead of these spineless establishment whores.
June 25th, 2009 at 5:39 pm
Why stop at 0.02%? Jack it up ten or a hundred times higher and you’ll have one of two outcomes: 1) a gargantuan windfall for transportation investments, or 2) oil speculators being driven out of the marketplace. Either scenario sounds like a winner to me.
June 25th, 2009 at 6:44 pm
Make it at LEAST 0.5%. =)
June 25th, 2009 at 8:50 pm
Gee, I wish I had a congressperson this smart.
June 25th, 2009 at 10:40 pm
S-M-A-R-T
June 25th, 2009 at 11:00 pm
Barr,
Thanks - we’ll fix.
- Jebediah
June 26th, 2009 at 12:25 am
So instead of taxing more at the pump, you tax the traders, who pass the costs onto the refiners, who pass the costs onto gas stations, who pass the costs on to the pump.
What an excellent way to not tax at the pump!! (:::cough::: BULLSHIT! :::cough:::)
Why are people so afraid to tax at the pump? Everybody wants better infrastructure, its not hard to tell people that better infrastructure comes at a price. Every single person who has ever spent a dollar knows that you spend more to get a better quality product or service…its not like the concept of raising prices for better products or services is new.
Why not try to explain the benefits of higher taxes to the population…and let them decide if they want it or not? Why do we always have to tax people behind the scenes?
Right now I’m predicting the following response: “But gas taxes hurt the poor and the middle class the most!!”
Newsflash: The poor and middle class use infrastructure more than the rich, because they are more numerous than the rich. The poor and middle class pollute the most more than the rich because they are more numerous than the rich. Any strategy to fund infrastructure or curb pollution or greenhouse gas emissions by targeting just rich people will not work, because people make decisions on transportation means based on the costs of using those means of transportation.
June 26th, 2009 at 1:31 am
Awesome idea! Just jack it up further!
June 26th, 2009 at 7:47 am
[...] DeFazio suggests paying for new transpo bill with a 0.02 percent tax on oil speculators (Infrastructurist) [...]
June 26th, 2009 at 9:33 am
[...] DeFazio: Make Wall Street A$$holes Pay for Infrastructure (Infrastructurist) [...]
June 26th, 2009 at 10:00 am
Taxing at the pump can be effective. Taxing trading only drives trading to other nontaxable venues. If this is considered serious then this country has more problems than its over dependence on oil.
June 26th, 2009 at 10:07 am
The brilliance of this tax is that IT IS a gas tax so well hidden that hopefully it can slip by.
Plus, if you think raising the pump tax 10 cents is going to hurt the poor and middle class just wait 10 years when gas will probably be $10+ a gallon simply due to world demand and falling output.
June 26th, 2009 at 10:18 am
The traders at the Dubai oil exchange will love it if we do that.
What an utterly moronic idea.
June 26th, 2009 at 10:22 am
Is .02% really enough to have that effect, Omri? I heard that argument from a finance friend after posting the story yesterday. Highly skeptical…
-Jebediah
June 26th, 2009 at 10:38 am
Can someone explain how a tax on futures contracts will lower the price of oil?
June 26th, 2009 at 10:43 am
Jeb: in a word: yes.
It is trivially easy to move the futures trading process to other venues, especially when those venues already exist: Rotterdam, London, Singapore, Hong Kong, Dubai, et cetera.
And it’s perverse to scapegoat the oil traders for something that is far more the fault of legislators like DeFazio.
June 26th, 2009 at 11:11 am
[...] shared Congressman: Make Wall Street A**holes Foot The Bill For Infrastructure — 11:48pm via Google [...]
June 26th, 2009 at 11:13 am
Maaybe… I’m not convinced. I feel like these “capital will flee” arguments are always offered and tend to be vastly overstated. A .02% tax is infinitesimal. There are various transaction taxes on all kinds of securities that are larger, and yet US markets are not lacking for volume.
Not sure what the “something” is here — the need to pay for transportation infrastructure? Since something like 2/3rds of the oil in this country goes toward transportation, it hardly seems irrational to ask market participants to share in the burden of paying for the structures that allow for the use of the commodity they trade.
-Jebediah
June 26th, 2009 at 11:42 am
The thing is, Jebediah, that if you want a stable market where bubbles won’t happen, you need MORE people trading oil futures back and forth, not LESS. And that means MORE trades, not less. 20 years ago, a single trade in the New York Stock Exchange could change the price of a stock by 12.5 cents, because that was the bid-ask spread. Now it takes many more trades to get the price to move that much, because the spread is less than a penny, exactly because so many people post limit-orders on both sides, and that in turn happens because it is cheap to do so.
Chasing people out of the market makes the market illiquid, which means the price gets more volatile, not less.
And finally, there is the issue of pure spite. When people get scapegoated, they get pissed off. And they get more inclined to decamp for other shores just on principle.
And this isn’t just a matter of sharing the burden. The rhetoric behind this idea is pure scapegoating, and the scapegoats aren’t gonna like it.
If you want peace, prepare for war.
If you want cheap gas, prepare for pricey gas. That’s how the market works. But congresscritters have spent decades actively impeding measures that could count as preparing for pricey gas, something your blog documents nicely. And that makes this idea even more obscene.
June 26th, 2009 at 1:36 pm
[...] Congressman Peter DeFazio: Make Wall Street A**holes Foot The Bill For Infrastructure (The Infrastructurist) [...]
June 26th, 2009 at 6:27 pm
I can’t help but notice total silence in response to the question I posed earlier.
June 26th, 2009 at 8:36 pm
I’ll answer ya, Ian: speculators, mostly the same banks we were bailing out with tax dollars, drove the price of oil UP by investing so heavily in oil futures. Everybody paid for it at the pump. The entire economy suffered. Taxing them on oil futures they dont ever intend to use, just to sell at a profit is a perfectly legitimate way of preventing them from a repeat performance of last years $4 a gallon gas. Rather than cause the price of oil or oil products to go up, you actually prevent unfair price manipulation, or at least add a cost to it, making it less attractive. Unless you believe we have a privileged class who can screw over the little guy for profit at any cost, you cant argue with the logic. Take your lumps, investors-the taxpayers and small business sure took theirs!
June 27th, 2009 at 12:37 am
“Pay Me Now or Pay Me Later” - its just that Simple.
Before Congressman Peter DeFazio introduces his bill in The U.S. Congress,
better know as a “Pack of Theives, Pimps and Perverts” we need tp implement,
through Executive Order, a Speial Spending Bill.
We issue a special life insurance policy on ALL members of The Congress, in-
cluding staff members, payable to The United States Treasury. Whenever they
step out of line the Charles Grassley Special Order, Senior Senator from Iowa,
goes into effect. Like he said in the electronic and printed media, “our leaders
need to follow the example of The Japanese and committ Heri Karia”!
Since our memebrs of The U.S. Congress are so weak-minded and afraid to
act, unless it is for their own self interest, a friendly hand will be there to help
them along.
June 27th, 2009 at 3:03 am
Truckingal-
Bullshit.
Bullshit.
Bullshit.
I have seen this line of price manipulation hundreds of times, but nobody ever cares to make any effort to support their claims factually. How about you try proving that speculation caused the runup…as opposed to the hundreds of other factors out there that actually relate to supply and demand.
June 27th, 2009 at 2:49 pm
It’s a feel-good tax, but it will not work. The net tax result will be slightly negative for any type of securities transaction tax.
15 countries over the last 10 years have lowered or completely eliminated various transaction taxes on stocks, futures, commodities, etc. Only about 12 countries still have the tax. It is a relic of the past. It has been found to cause all sorts of problems and it is a very poor revenue generator, more like revenue degenerator.
Consider the price of oil in inflation adjusted dollars and consider that vehicles get 3 or 4 times more mileage than 30 years ago and you have very cheap fuel that should be taxed at the pump as it always has been. Use the roads, pay the tax. Why do people think everything should be free?
Do away with trading oil contracts and the price you pay will be 5-10 times as much as it is now when there is fear of running out of oil. Millionaires, corporations and countries will be buying huge quantities and storing it in tankers and open pits. The poor and middle class will be fighting each other and hoarding fuel and putting gasoline in plastic milk jugs and set them next to the flaming water heater. That’s why we have the futures markets. The markets are not perfect, but why go back to barbarian ways to fight over commodities.
June 27th, 2009 at 5:02 pm
This is a horrible idea.
If you place a tax on futures contracts that are traded on a transparent exchange, volume will just go to the over-the-counter markets that aren’t regulated at all. As was mentioned above, an illiquid market, and this tax would absolutely make the oil market more illiquid, is EASIER to manipulate than a liquid one.
June 27th, 2009 at 10:41 pm
[...] Oil speculators. No tags for this post. [...]
June 28th, 2009 at 2:30 pm
Truckinggal,
A couple following questions for you:
1. How does trading in futures contracts affect the spot price of a commodity? By definition, futures contracts are trading in future prices of a commodity. Since the spot price is set by auction, wouldn’t a speculator need to actually take possession of the commodity in question in order to affect the price?
2. How does a tax on futures trading prevent speculation? You talk about “taxing them on oil futures they dont ever intend to use”, but we are talking about a tax on all futures contracts. Isn’t commodities trading a perfectly reasonable way to hedge legitimate business and investment risks?
Looking forward to your thoughts.
–Ian
July 6th, 2009 at 7:01 pm
Congressman DeFazio’s proposal makes total sense, as long as the all taxes collected go only to pay for roads and highway uses. After all, it is the speculators that are driving up the costs of oil and gasoline thereby harming the economy. Drivers already pay more than their fair share for the roads. Now if only the congressman can come up with a national solution so that transit users and bicyclists pay their own way for the infrastructure they use instead of poaching the funding from other taxpayers and motorists.
July 10th, 2009 at 1:32 pm
Terry,
Can you explain how it is that speculators “drive up the costs of oil and gasoline”? Also, when you say that “drivers already pay more than their fair share of the roads”, what do you mean by that?
Thanks,
–Ian
July 16th, 2009 at 4:40 pm
[...] the expense of public works investment. Then he proposed funding the new transportation bill with a tiny tax on oil futures contracts that would hit hedge funds and speculators. It’s safe to say that Larry Summers, who was getting paid seven figures by a big hedge [...]
September 8th, 2009 at 5:54 pm
[...] a bad idea, but Oberstar and his allies argue that there are plenty of other options–say, a small tax on energy speculators, or a bond issue paid back with revenue higher gas taxes after the economy recovers–to fund [...]
December 21st, 2009 at 6:15 pm
first off the tax isnt 0.02% its 0.25% on all stock and futures trades.
Im a futures trader, a 0.25% trader tax on a crude oil contract if oil is trading at 80 bucks is $80 x 1,000 barrels (theres 1,000 barrels of oil per crude oil contract) = $200 dollar tax. Freaking broker commission for me to put on the trade is only 15 bucks! And that 200 dollar tax is on teh buy side AND on the sell side,,so right off the bat when i take a crude oil trade im down 400 bucks whether i make money or lose money on the trade.
So if i make just 1 trade per day that would = 2k per week in trading taxes! So i would have to make 104k per year trading just to break even lol. What if i were to trade in 4 contracts instead of just one…my trader tax would be $1600 bucks! THATS $8,000 per week in TAXES! lol
This bill is horrible…it will kill the thousands of average people like me who make our livings trading.
So basically people would stop trading. Imagine having a 100k trading account and knowing ya gotta make anywhere from 50-100k per year JUST TO PAY THE taxes in this bill! Nobody in their right mind would trade!
Not onyl would this kill traders like myself but also millions of financial jobs and computer jobs…computer software jobs? YES, it would kill computer software jobs…all teh charting software we traders use to trade would go out the window if people stopped trading due to these insane taxes.
BUT liberals dont care,,,im a futures trader or for those that hate me,,an evil speculator lol. I dont think the bill will pass…even obama has enough sense to know this will kill the whole Financial world and financial jobs.
This bill and the support of the whckaed out left doestn surprise me….im a futures trader, and make my living trading in my underwear and i make 6 figures doing it, therefore,,,i know IM A TARGET!