As we contemplate tax increases, some of us more reluctantly than others, we’re going to see more people proposing a bank tax or a financial transaction tax. Mike Konczal makes the case:

The government has decided to start investigating raising revenues and cutting benefits. We will see if we have a bank tax to recoup TARP by then (I am not holding my breath) but a graduated tax on non-deposit liabilities and/or a financial transaction tax must be on the table.
It will obviously raise revenues, and, given that a lot of our problems right now are a result of a financial crisis, if a financial sector tax can reduce the chances of said crisis that’s even better. Arguments need to be built and deployed about how things such as high frequency trading provide a weak or even counter-productive form of liquidity and how more liquidity is not always necessarily better, and about the fairness and distributional effects of having a select group of businesses located on the exchange squeezing pensions for pennies on the dollar, milliseconds at a time.

Mike ends his discussion of an FTT with a political observation:

If the working poor need to pay more for bread and milk through a consumption tax like VAT certainly the richest in the financial sector should also chip in given how well those working poor taxpayers and the Federal Reserve protected them when they were most vulnerable. It’s difficult for me to think someone with progressive sensibilities would not be sympathetic to this statement, and I would hate to be a moderate centrist who doesn’t realize this will have powerful resonance among the American population.

There is a small problem here. The working poor probably won’t pay more for bread and milk, as most OECD countries exempt items like bread and milk due to the problematic “optics” involved. And I think that’s a bad thing. We’d be better off with a broad-based consumption tax coupled with a well-designed rebate or tax credit to help protect low-earners. That said, my guess is that grassroots conservatives would much prefer a bank tax or an FTT to a consumption tax.