The Political Economy Research Institute at the University of Massachusetts released a report in early March detailing how the financial transaction tax of the Inclusive Prosperity Act, proposed by Vermont Senator and presidential candidate Bernie Sanders, could fund free tuition for higher education.

Throughout his campaign, Sanders has received criticism regarding the feasibility of his economic plans and his ability to deliver on promises of free higher education. James Heintz, a co-author of the study and an economics professor at UMass, said the data calculated by PERI indicates a positive outcome if the plan were implemented.

Heintz described a financial transaction tax as a very low level tax that is applied to any exchange of a financial asset.

“If people were buying and selling stocks, buying and selling bonds, or any type of financial product…you would impose a very low level tax on each of those exchanges.”

Heintz said that the report did not clarify the immediate economic impacts.

“We don’t exactly know what the impact will be. People predict that when you raise a tax it will increase the cost of trading, and when you increase the cost of anything it can have a negative impact on trading.”

PERI’s research has taken this into account by calculating two important statistics, according to Heintz.

First, PERI has calculated that a financial transaction tax could raise approximately $680 billion of revenue a year, at the current trading volume. Second, PERI has calculated a worst case scenario where the financial transaction tax cuts trading volume in half. In this calculation, PERI came to the conclusion that the tax would still raise approximately $300 billion in revenue a year.
Heintz added that the research could not completely defend against a common criticism of Sander’s plan: that the tax on trades would reduce the volume of exchange.

“The prediction is that you impose one of these taxes and the total trading of stocks, bonds, and derivatives are going to fall,” Heintz said, adding, “we don’t know how much they are going to fall.”

“There’s a lot of countries that have these taxes in place and you don’t necessarily see that type of reaction.” Heintz also analyzed the human impact of a financial transaction tax and a drop in trading it could bring.

“One thing is that, even assuming a drastic fall in trading volume, you generate a lot of revenue… That money can be spent in very, very useful ways” Heintz said. “It could fund higher education, it could fund social welfare, it could fund healthcare for people, it could go into basic research…it could go into many things that could have a big benefit for people.”

Heintz also commented on the possibility of the Inclusive Prosperity Act being passed and implemented in the current political atmosphere.

“The problem in the United States is that you have financial industries that engage in a huge amount of lobbying and make large contributions to presidential campaigns, and that money really makes a difference in terms of what the politicians are willing to take on and their ability to win elections,” Heintz said.

Since a financial transaction tax would impact the financial industries directly, they “can exert a huge amount of political pressure” and stop the bill from passing. Regardless of who wins the nomination and whether the act will pass, Heintz commended Sanders for one accomplishment already.
“(If Bernie Sanders) was not running, then no one would have talked about it.”

Sheldon Rowland can be reached at [email protected]