Italy now backs a financial transactions tax
by Linda Beale
Italy now backs a financial transactions tax
Germany and France are already on board in support of a financial transactions tax, and one outcome of the meeting of Italy’s new leadership with Chancelor Merkel is that Italy is on board. See AP, Italy Backs Financial Transactions Tax, New York Times, Jan 11, 2012.
A financial transaction tax has several advantages especially relevant in this post-financial crisis period. It raises additional revenues in very small increments on financial trades. That is not likely to have a negative impact on trades, but is likely to raise much needed revenues for starving educational systems, transportation systems and other important government programs.
Further, to the extent it does act as a disincentive to financial transactions, that, too, accomplishes a public good. The financial transaction tax is really a variety of the so-called ‘sin taxes’ that provide revenue when the purchase behavior continues and a social benefit when it ceases. Finance has become too large a part of the economy, and much of what passes as financial activity, as we saw in the 2007-08 financial crisis, was really ‘phantom’ activity–trading at several times removed from the productive economy that gives people (other than bankers).
It remains to be seen whether the US can pull its dysfunctional government together enough to make reasonable decisions about such options as a financial transactions tax. First, we have far too many far too well paid and far too well connected lobbyists roaming the halls of Congress and influencing votes in favor of the big financial institutions’ perspectives. Second, the far right’s emphasis on a version of “free markets” that fails to understand nuances of externalities, biases and framing issues leaves no room for recognition of the many negative aspects of unregulated marketplaces. Third, the Republican party members in Congress have been engaged in obstructionist behavior that leaves little room for any reasonable compromises or even consideration of the justness of a position–they are engaged in election gamesmanship with Supreme Court and other federal court judge nominations at stake, along with an objective of taking broad-stroked deregulatory action across federal agencies, from the EPA to Energy to Education to the IRS. All of these trends bode ill for the US to get its act together and set in place provisions that will further rein in the finance excesses.
But if Italy can make progress in this regard, surely we can…..
originally published at ataxingmatter
The best tax would have been no TARP to bail out people seeling bad instruments. Going bankrupt would have been the proper action to deal with externalities, biases etc… But, the Democrats and Republicans bailed out their friends, and over the year’s the likes of Dodd and others got special favors from the perps.
It remains to be seen whether the US can pull its dysfunctional government together enough to make reasonable decisions about such options as a financial transactions tax.
You can just stop right there. Terms like “tax fairness”, “reasonable”, “public good”, “equal opportunity”, “social justice” or even “compromise” are now considered Communist code words in Fox News America. If you are seeking any policy –no matter how modest– whose aim is to reduce the power of the banskters, fund government entitlement programs, or reduce wealth disparity, that’s the end of the discussion. Fox Newsers will refuse to even *discuss* the idea with Communist America-hating traitors like you. DOA, End-of-story.
I agree completely. Instead of trying to hobble the financial industry, we should let it stand or fall on its own merits.
This would be great news for Singapore.
“Privatize profits, socialize losses” is not a bug, it’s a FEATURE of the current system. Unfortunately, it’s also not likely to change anytime soon, unless the public requires 100% taxpayer financed elections (no lobbyist/PAC/SuperPAC or union money), insists on breaking up TBTF banks, and reinstating Glass-Steagall and a lot of other stupidly discarded “obsolete” banking regulations.
Singapore as in taxes over thirty percent income of citizen’s?
“It raises additional revenues in very small increments on financial trades.”
Err, no, it doesn’t.
There are revenues from the tax itself, of course. But an FTT also shrinks the economy. That shrinkage being sufficiently large to mean that other tax revenues fall by more than the revenues from the tax.
Here are the numbers from the European Commission’s recent report into an FTT. The middle estimate for GDP is a long run reduction of 1.76%. (The mechanism is that an FTT lowers share prices, which makes capital more expensive for companies and thus lowers business investment.) The tax will raise 0.1% of GDP in revenue.
In most modern economies (the US is a little lower than most in this) 40-50% of an increase in GDP ends up as taxes (must be, average taxes are 40-50% of GDP and we’d expect the marginal rate to be higher than the average).
So, we get 0.1% of GDP in revenue and lose 0.8-0.9% of GDP in lower revenues from other taxes.
There are many things we could call this (insane, stupid, witless?) but “additional revenue” isn’t one of them.
The social purpose of the financial markets is to provide a place where companies that need capital and investors that have capital can do business. Intermediaries, such as professional traders, provide the liquidity that lubricates the mechanism of exchange between those 2 parties. Transaction taxes, by their nature, are an impediment to this mechanism. Surely, in this time of lower and slower business creation, lower and slower employment growth, a tax that would hinder a company trying to expand and an investor seeking a return from efficient trading would result in even less growth than what we are currently experiencing.
Please do not conflate the portions of the system that are still functional (exchanges) with the portions of the system that are dysfunctional (the banks) as they are NOT the same thing.
Taxing imcome is not the same as taxing transactions. If I buy stock for $1000 and sell it a month later for $1000, I have no income, but I have made two financial transactions. Singapore and Hong Kong are already major financial centers. If the west is intent on driving out finance, more of it will shift to other places.
However would one say that the capital markets before decontrol of commissions were inefficient? Consider that commissions used to be much much higher than now and not negotiable. (In fact the orginal NYSE was basically a price fixing cabal). The same applies in the UK. In the US the decontrol came in 1975 and in the UK 1986? Or is a private tax i.e. the commission to be preferred to a public tax? I don’t believe the markets were that inefficient before decontrol, so its sort of a historical counterexample.
With no TARP, people on Wall Street would have suffered more, but so would the rest of the country. Do you really want unemployment to be higher?
With no TARP, people on Wall Street would have suffered more, but so would the rest of the country. Do you really want unemployment to be higher?
With no TARP, people on Wall Street would have suffered more, but so would the rest of the country. Do you really want unemployment to be higher?
I don’t know why my previous comment appeared three times; hopefully this one will appear only once. In any case, I agree that a financial transactions tax doesn’t make sense if it has negative effects on economic growth which are larger (relative to the amount of revenue raised) that other forms of taxation. In fact, the rationale given by proponents such as Linda Beale is that an FTT would act as a form of “sin tax,” helping the economy by reducing the amount of resources devoted to trading.
I checked the European Commission’s web site and found the legislative proposals for an FTT (fifth entry on this page), which states:
Unfortunately, this doesn’t explain the model used to get the 0.5% number. I seriously doubt that there is enough data to put a meaningful number on the cost of finanical crises resulting from a lack of friction in the financial system, so my guess is that the Commission simply left the prospective economic benefits of the FTT out of its model. In that case the 0.5% number would provide some assurance that the FTT won’t do too much damage if folks like Beale are wrong, but that’s about it. If there is an argument to be made that the net effect of the FTT will to reduce economic output, I didn’t find it on the Commission web site.
I don’t know why my previous comment appeared three times; hopefully this one will appear only once. In any case, I agree that a financial transactions tax doesn’t make sense if it has negative effects on economic growth which are larger (relative to the amount of revenue raised) that other forms of taxation. In fact, the rationale given by proponents such as Linda Beale is that an FTT would act as a form of “sin tax,” helping the economy by reducing the amount of resources devoted to trading.
I checked the European Commission’s web site and found the legislative proposals for an FTT (fifth entry on this page), which states:
Unfortunately, this doesn’t explain the model used to get the 0.5% number. I seriously doubt that there is enough data to put a meaningful number on the cost of finanical crises resulting from a lack of friction in the financial system, so my guess is that the Commission simply left the prospective economic benefits of the FTT out of its model. In that case the 0.5% number would provide some assurance that the FTT won’t do too much damage if folks like Beale are wrong, but that’s about it. If there is an argument to be made that the net effect of the FTT will to reduce economic output, I didn’t find it on the Commission web site.
Try this report.
http://www.iea.org.uk/publications/research/the-case-against-a-financial-transactions-tax-web-publication
In which I quote from the details of the Commission’s own report, rather than the headline smoothing over of the problem that you’ve got there.