CEPR Proposes a Financial Transaction Fee for Sequester Offset

What to do about sequestration remains one of the most important questions before the budget conference, and while replacing at least part of the sequester is popular among lawmakers, it is not clear what policies should offset that cost. Today, Nicole Woo of the Center for Economic and Policy Research (CEPR) made the case for an offset that could replace one-third of the sequester for 2014 - increasing Wall Street user fees.

Woo notes that the SEC is currently funded by a financial transaction tax that raises less than 2 cents per $1000 worth of transactions. If the tax was increased to 30 cents instead and applied to a wider set of transactions, it could raise $39 billion per year. That would be enough to pay for a partial sequester repeal while enacting permanent, long-term savings.

^{Source: CEPR}

As lawmakers work to replace the sequester, they should look to any of a number of options to reduce spending, increase user fees, or raise revenue. Ideally, they would pursue comprehensive tax and entitlement reform, but replacing the temporary cuts from sequester with any package of permanent long-term savings would improve both our economic and fiscal outlook. These cuts are abrupt and poorly targeted, but they must be replaced in a fiscally responsible way. Kudos to CEPR for presenting another option that lawmakers could use in a replacement package.