As the presidential election builds up steam, the Washington elites in both parties are actively scheming to find ways to cut Social Security and Medicare benefits for retired workers. The media have widely reported on efforts to slip through a version of the deficit reduction plan developed by Morgan Stanley director Erskine Bowles and former Senator Alan Simpson. Since the vast majority of voters across the political spectrum reject cuts to these programs, the Washington insiders hope to spring this one on us after the election, when the public will have no say.

That is the sort of anti-democratic behavior we expect from elites who naturally want to protect their own interests. Of course, the rest of us are more concerned about the well-being of the country as a whole rather than preserving the wealth of the richest 1 percent.

For the 99 percent there are much better ways of dealing with whatever deficit problems may arise down the road. Most obviously, insofar as we need more revenue we can look to tax the sort of financial speculation through which the Wall Street gang makes its fortunes. A very small tax on trades of stocks, options, credit default swaps and other derivative instruments could raise a vast amount of money.

The Joint Tax Committee of Congress estimated that a tax of just 0.03 percent on each trade, as proposed by Senator Tom Harkin and Representative Peter DeFazio, would raise more than $350 billion over the first nine years that it is in place. This is real money. It is an order of magnitude larger than the measures that have been suggested to go after the wealthy, such as President Obama's bank tax or most versions of the Buffet Rule.

A somewhat higher rate, such as the 0.5 percent rate charged in the United Kingdom, could raise considerably more revenue. The U.K. raises the equivalent (relative to the size of its economy) of $30-$40 billion a year just by taxing stock trades. Estimates for the U.S. suggest that a broadly based tax that is scaled appropriately for the asset traded could raise more than $1.5 trillion in the United States over the course of a decade.

The great thing about this sort of tax is that it would be born almost exclusively by the Wall Street crew. There is considerable research that shows that most people will respond to the increase in trading costs by simply trading less. For example, if you have a 401(k) where 40 percent of the stock turns over every year, if the transactions costs double due to the tax, then most people would respond by simply cutting their trading in half to 20 percent.

The net effect for the 401(k) holder is a wash. She pays twice as much per trade, but does half the trading, meaning that total trading costs are unchanged.

The people for whom it is not a wash is the Wall Street crew. If trading is cut in half, then their revenue is cut in half, even assuming that 100 percent of the trading costs are passed on to investors. This explains the reason that the elites in Washington, like Morgan Stanley director Erskine Bowles, are focused on cutting Social Security and Medicare rather than imposing a financial speculation tax.

A financial transactions tax is more than just an issue of fairness. It is also likely to boost economic growth by eliminating waste in the financial sector. A recent study from the Bank of International Settlements (BIS) found that a large financial sector acted as a drag on growth. It also found the industries that were hardest hit by an overgrown financial sector were those dependent on external financing and industries that had large amounts of research and development spending.

This pattern can be easily explained. The industries that are most dependent on external financing are the ones with new firms that need outside capital to support their expansion. Older more established industries rely primarily on their profits to finance investment. The BIS study essentially found that speculation in the financial sector was pulling capital away from these young and rapidly growing firms.

The slower growth in R&D intensive industries can be explained by the fact that a bloated financial sector is pulling people with advanced skills away from industries like computers, aerospace, and other technical fields. If mathematically inclined students can earn tens of millions of dollars on Wall Street then a six-figure salary developing life-saving drugs may not seem very attractive.

In short, taxing Wall Street speculation is a great way to raise whatever money might be needed to meet deficit targets. However, because the folks in Washington are so dependent on Wall Street money, it is more likely that they will be looking to target the benefits of people struggling to get by on their $1,100 a month Social Security checks.

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