As Congress considers options to halt a slide down the fiscal slope, it should look to the financial transactions tax (FTT). The FTT can raise large sums of revenue with small rates while tamping down on the excesses of an industry that most Americans feel hurts the economy more than it helps, according to a poll from the Pew Research Center. American lawmakers are wrestling with how to handle the expiration of the Bush tax cuts while closing the federal budget deficit, but finance ministers in the European Union (EU) who are also facing budget shortfalls have advanced the FTT closer to European law.

A financial transactions tax is a small tax on the sale of financial instruments like stocks, options, bonds, derivatives, and other financial assets that has two main benefits. First, it has the potential to raise over a trillion dollars in revenue (over ten years), depending on the structure of the tax. Second, it could help rein in speculative Wall Street trading that produces profits from trades in which stocks are only held for milliseconds, rather than on their fundamental values.

Policymakers have taken a "giant leap" toward enacting an FTT in the European Union (EU). Last week, Italy and Spain joined nine other European nations, including France and Germany, to lift the FTT over a procedural hurdle toward EU enactment. Though details of the FTT - such as which financial instruments to tax and at what rate - have yet to be worked out, the path was cleared for a vote by EU member nations in November. If enacted across the entire EU, the tax could raise $74 billion per year.

In the U.S., a couple of proposals on the table could raise over $300 billion. The most recent bill was introduced by Rep. Keith Ellison (D-MN) in September. Ellison's bill, the Inclusive Prosperity Act (H.R. 6411), would tax stocks at $50 per $10,000 traded; bonds at $10 per $10,000 traded; and derivatives at $0.50 per $10,000 traded. According to a report in The Nation, this plan could raise up to $350 billion over ten years.

Ellison's bill follows a bill put forward in November 2011 by Rep. Peter DeFazio (D-OR) and Sen. Tom Harkin (D-IA). That bill, the Wall Street Trading and Speculators Tax Act (H.R. 3312 in the House and S. 1787 in the Senate) would tax stocks, bonds, and derivatives at $3 per $10,000 traded. The Joint Committee on Taxation estimates that Harkin's and DeFazio's bill would bring in $352 billion (over ten years).

As EU moves down road toward a financial transactions tax, Congress should look to the FTT as a revenue source for important national priorities - as the EU is doing. The federal government stepped in to pull Wall Street away from the edge in 2008, and Wall Street should pay sales taxes on its transactions like every other business. It's time for Wall Street to help finance the social safety net, nutrition, education, health, our public protections, and myriad other services that the government provides to support the economy.

Image by Flickr user Lycanlover_21 used under a Creative Commons license.