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:
Weekend Edition
July 22, 2016
Friday - Sunday
Jeffrey St. Clair
Good as Goldman: Hillary and Wall Street
Joseph E. Lowndes
From Silent Majority to White-Hot Rage: Observations from Cleveland
Paul Street
Political Correctness: Handle with Care
Richard Moser
Actions Express Priorities: 40 Years of Failed Lesser Evil Voting
Eric Draitser
Hillary and Tim Kaine: a Match Made on Wall Street
Conn Hallinan
The Big Boom: Nukes And NATO
Ron Jacobs
Exacerbate the Split in the Ruling Class
Jill Stein
After US Airstrikes Kill 73 in Syria, It’s Time to End Military Assaults that Breed Terrorism
Jack Rasmus
Trump, Trade and Working Class Discontent
John Feffer
Could a Military Coup Happen Here?
Jeffrey St. Clair
Late Night, Wine-Soaked Thoughts on Trump’s Jeremiad
Andrew Levine
Vice Presidents: What Are They Good For?
Michael Lukas
Law, Order, and the Disciplining of Black Bodies at the Republican National Convention
Victor Grossman
Horror News, This Time From Munich
Margaret Kimberley
Gavin Long’s Last Words
Mark Weisbrot
Confidence and the Degradation of Brazil
Brian Cloughley
Boris Johnson: Britain’s Lying Buffoon
Lawrence Reichard
A Global Crossroad
Kevin Schwartz
Beyond 28 Pages: Saudi Arabia and the West
Charles Pierson
The Courage of Kalyn Chapman James
Michael Brenner
Terrorism Redux
Bruce Lerro
Being Inconvenienced While Minding My Own Business: Liberals and the Social Contract Theory of Violence
Mark Dunbar
The Politics of Jeremy Corbyn
David Swanson
Top 10 Reasons Why It’s Just Fine for U.S. to Blow Up Children
Binoy Kampmark
Laura Ingraham and Trumpism
Uri Avnery
The Great Rift
Nicholas Buccola
What’s the Matter with What Ted Said?
Aidan O'Brien
Thank Allah for Western Democracy, Despondency and Defeat
Joseph Natoli
The Politics of Crazy and Stupid
Sher Ali Khan
Empirocracy
Nauman Sadiq
A House Divided: Turkey’s Failed Coup Plot
Franklin Lamb
A Roadmap for Lebanon to Grant Civil Rights for Palestinian Refugees in Lebanon
Colin Todhunter
Power and the Bomb: Conducting International Relations with the Threat of Mass Murder
Michael Barker
UK Labour’s Rightwing Select Corporate Lobbyist to Oppose Jeremy Corbyn
Graham Peebles
Brexit, Trump and Lots of Anger
Anhvinh Doanvo
Civilian Deaths, Iraq, Syria, ISIS and Drones
Christopher Brauchli
Kansas and the Phantom Voters
Peter Lee
Gavin Long’s Manifesto and the Politics of “Terrorism”
Missy Comley Beattie
An Alarmingly Ignorant Fuck
Robert Koehler
Volatile America
Adam Vogal
Why Black Lives Matter To Me
Raouf Halaby
It Is Not Plagiarism, Y’all
Rev. Jeff Hood
Deliver Us From Babel
Frances Madeson
Juvenile Life Without Parole, Captured in ‘Natural Life’
Charles R. Larson
Review: Han Kang’s “The Vegetarian”
FacebookTwitterGoogle+RedditEmail