Bernie Sanders and the Robin Hood Tax

Bernie Sanders has made it very clear throughout his campaign that he is no friend of Wall Street. His website reads, "Wall Street cannot continue to be an island unto itself, gambling trillions in risky financial decisions while expecting the public to bail it out." Many of Sanders most ardent supporters are drawn to him because they did not see enough discipline imposed on the financial industry by the Obama administration. 

Sanders' anti-Wall Street proposal is to introduce a financial-transaction tax. This tax will make any form of trading- transfers of stocks (taxed at .5%), bonds (taxed at .10%), partnership interests or derivatives (taxed at .005%)-  and ostensibly reduce high frequency and speculative trading, thereby making the market less volatile. Sanders proposes to direct the revenue from this tax to public university systems, making college education free. The nonpartisan Tax Policy Center estimates that this tax will could raise $185 billion over 10 years. This type of tax is not Sanders' invention, and is often referred to as a "Robin Hood Tax."

Unsurprisingly, The Wall Street Journal does not have anything nice to say about this proposal. In an article, What Would Happen if Bernie Sanders Taxed Wall Street, the WSJ rejects the notion that this sort of tax would decrease market volatility and raise revenue. In fact, the article cites studies which show that transaction taxes either have no effect on volatility, or they increase volatility. Though this seems counter-intuitive, "when an activity is taxed, people tend to do less of it." Also, the stock market's value overall will decrease, so the revenue of the tax will decrease accordingly. 

The article concludes, "The tax promises a smaller, slower market offering lower returns to investors. For some voters, however, that might be the goal."

It remains to be seen what impact a Robin Hood Tax, if implemented, would have on the American economy overall. It could have a flattening effect wealth inequality, as per Sanders' intentions. Or it could be meaningless: "[The tax will] induce some very clever financial innovation of how to get around it. The cleverness of our financial engineers shouldn't be underestimated," says John Cochrane, a senior fellow at the Hoover Institution at Stanford. 

Sources:
https://berniesanders.com/issues/reforming-wall-street/

http://www.wsj.com/articles/what-would-happen-if-bernie-sanders-taxed-wall-street-1455359588

http://www.forbes.com/sites/timworstall/2015/07/22/bernie-sanders-doesnt-have-a-case-for-a-financial-transactions-tax-it-would-lose-money/2/#75cf42627fd5

http://www.npr.org/2016/02/12/466465333/sanders-favors-a-speculation-tax-on-big-wall-street-firms-what-is-that