FacebookTwitterGoogle+RedditEmail

Taxing Financial Transactions

by SARAH ANDERSON

The leaders of France and Germany may have their differences on the big question of the day — stimulus versus austerity. But they do agree on one thing — taxing financial transactions.

Former French President Nicolas Sarkozy was hot on the idea of a small tax on each trade of stocks, derivatives, and other financial instruments. But his successor, François Hollande, is even hotter.

He and German Chancellor Angela Merkel are working together to build a coalition of the willing behind the tax, conceding that some EU governments, notably the UK, won’t be joining. On June 22, they announced that 10 countries are ready to move forward. The model they’re considering is a European Commission proposal to tax trades of stocks and bonds at 0.1% and derivatives at 0.01%.

To support this push, 52 U.S. and European financial professionals have broken rank with their industry peers and come out in support of the tax. In a letter to G20 and European leaders they emphasized the benefits from a business perspective. “These taxes will rebalance financial markets away from a short-term trading mentality that has contributed to instability in our financial markets,” they wrote.

In a press conference, Wallace Turbeville, a former Vice President at Goldman Sachs, said it was remarkable that so many people from the financial world signed the letter since the activity the tax would hit hardest the computer-driven high frequency trading, which is tremendously profitable. “For folks to come forward like this, they have to know they’re touching a nerve in the industry and their friends and colleagues have a vested interest in it,” he said.

Turbeville, currently a fellow at the think tank Demos, also serves on a Commodity Futures Trading Commission advisory committee that is addressing concerns about speed trading. He noted that “it’s a real challenge to monitor and track this trading from a technical standpoint. A solution like this tax could be very helpful. It’s a great deal for the public.”

Leo Hindery, Jr., a managing partner of the private equity fund InterMedia Partners, chimed in to say that “No one should look at this tax as punitive to Wall Street, but rather proactive and positive to allay volatility and to thoughtfully raise revenue from sources other than the middle class or even the upper-middle class.” The European Commission proposal is estimated to generate 57 billion euros (US$72 billion) per year. In the United States, revenue estimates for various tax models range from $35 billion to hundreds of billions per year.

With momentum building behind a European financial transaction tax, opponents in the industry are also redoubling their efforts. Germany’s Union Investment went so far as to threaten to stop launching mutual funds for German small investors if the proposal is adopted. The asset manager said the tax was a “spectacular violation against the equal treatment of small savers.”

Professor Lynn A. Stout of Cornell Law School has a different take. “If we impose a financial transaction tax, it would actually help shareholders make money,” she argued. “They may pay a transaction tax, but it will encourage longer holding periods for stock, which is going to allow companies to make longer term plans and investments and that could increase returns to shareholders.”

Stout, who also signed the support letter, responded to the common argument that high frequency trading provides beneficial liquidity to the system. “As the director of a mutual fund, I actually think we need to recognize that liquidity may be socially damaging if we have too much of it.” She pointed out that in the 1940s and 1950s, the U.S. had a small financial transaction tax and fixed brokerage commissions that amounted to one-eighth of one dollar on every share of stock traded. Since both of those were eliminated, transaction costs have plummeted and average holding periods for shares of corporate equity have shortened from eight years to about four months, Stout said.

The financial industry supporters of transaction taxes are not quite as well funded or organized as the goliaths on the other side. But as Merkel and Hollande ramp up their campaign, these advocates may take a bit of the sting out of the inevitable backlash.

Sarah Anderson directs the Global Economy Project of the Institute for Policy Studies.

This column is distributed by OtherWords.

 

Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies.

More articles by:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

March 29, 2017
Jeffrey Sommers
Donald Trump and Steve Bannon: Real Threats More Serious Than Fake News Trafficked by Media
David Kowalski
Does Washington Want to Start a New War in the Balkans?
Patrick Cockburn
Bloodbath in West Mosul: Civilians Being Shot by Both ISIS and Iraqi Troops
Ron Forthofer
War and Propaganda
Matthew Stevenson
Letter From Phnom Penh
James Bovard
Peanuts Prove Congress is Incorrigible
Thomas Knapp
Presidential Golf Breaks: Good For America
Binoy Kampmark
Disaster as Joy: Cyclone Debbie Strikes
Peter Tatchell
Human Rights are Animal Rights!
George Wuerthner
Livestock Grazing vs. the Sage Grouse
Jesse Jackson
Trump Should Form a Bipartisan Coalition to Get Real Reforms
Thomas Mountain
Rwanda Indicts French Generals for 1994 Genocide
Clancy Sigal
President of Pain
Andrew Stewart
President Gina Raimondo?
Lawrence Wittner
Can Our Social Institutions Catch Up with Advances in Science and Technology?
March 28, 2017
Mike Whitney
Ending Syria’s Nightmare will Take Pressure From Below 
Mark Kernan
Memory Against Forgetting: the Resonance of Bloody Sunday
John McMurtry
Fake News: the Unravelling of US Empire From Within
Ron Jacobs
Mad Dog, Meet Eris, Queen of Strife
Michael J. Sainato
State Dept. Condemns Attacks on Russian Peaceful Protests, Ignores Those in America
Ted Rall
Five Things the Democrats Could Do to Save Their Party (But Probably Won’t)
Linn Washington Jr.
Judge Neil Gorsuch’s Hiring Practices: Privilege or Prejudice?
Philippe Marlière
Benoît Hamon, the Socialist Presidential Hopeful, is Good News for the French Left
Norman Pollack
Political Cannibalism: Eating America’s Vitals
Bruce Mastron
Obamacare? Trumpcare? Why Not Cubacare?
David Macaray
Hollywood Screen and TV Writers Call for Strike Vote
Christian Sorensen
We’ve Let Capitalism Kill the Planet
Rodolfo Acuna
What We Don’t Want to Know
Binoy Kampmark
The Futility of the Electronics Ban
Andrew Moss
Why ICE Raids Imperil Us All
March 27, 2017
Robert Hunziker
A Record-Setting Climate Going Bonkers
Frank Stricker
Why $15 an Hour Should be the Absolute Minimum Minimum Wage
Melvin Goodman
The Disappearance of Bipartisanship on the Intelligence Committees
Patrick Cockburn
ISIS’s Losses in Syria and Iraq Will Make It Difficult to Recruit
Russell Mokhiber
Single-Payer Bernie Morphs Into Public Option Dean
Gregory Barrett
Can Democracy Save Us?
Dave Lindorff
Budget Goes Military
John Heid
Disappeared on the Border: “Chase and Scatter” — to Death
Mark Weisbrot
The Troubling Financial Activities of an Ecuadorian Presidential Candidate
Robert Fisk
As ISIS’s Caliphate Shrinks, Syrian Anger Grows
Michael J. Sainato
Democratic Party Continues Shunning Popular Sanders Surrogates
Paul Bentley
Nazi Heritage: the Strange Saga of Chrystia Freeland’s Ukrainian Grandfather
Christopher Ketcham
Buddhism in the Storm
Thomas Barker
Platitudes in the Wake of London’s Terror Attack
Mike Hastie
Insane Truths: a Vietnam Vet on “Apocalypse Now, Redux”
FacebookTwitterGoogle+RedditEmail