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

May 30, 2017
Clancy Sigal
Even Grammar Bleeds
May 29, 2017
Jim Kavanagh
No Laughing Matter: The Manchester Bomber is the Spawn of Hillary and Barack’s Excellent Libyan Adventure
Vijay Prashad
The Afghan Toll
Melvin Goodman
The Washington Post’s Renewed Attack on Whistlblowers
Robert Fisk
We Must Look to the Past, Not ISIS, for the True Nature of Islam
Dean Baker
A Tax on Wall Street Trading is the Best Solution to Income Inequality
Lawrence Davidson
Reality and Its Enemies
Harry Hobbs
Australia’s Time to Recognize Indigenous Peoples’ Sovereignty
Ray McGovern
Will Europe Finally Rethink NATO’s Costs?
Cesar Chelala
Poetry to the Rescue of America’s Soul
Andrew Stewart
Xi, Trump and Geopolitics
Binoy Kampmark
The Merry Life of Dragnet Surveillance
Stephen Martin
The Silent Apartheid: Militarizing Architecture & Infrastructure
Weekend Edition
May 26, 2017
Friday - Sunday
Anthony DiMaggio
Swamp Politics, Trump Style: “Russiagate” Diverts From the Real White House Scandals
Paul Street
It’s Not Gonna Be Okay: the Nauseating Nothingness of Neoliberal Capitalist and Professional Class Politics
Jeffrey St. Clair
The ICEmen Cometh
Ron Jacobs
The Deep State is the State
Pete Dolack
Why Pence Might be Even Worse Than Trump
Patrick Cockburn
We Know What Inspired the Manchester Attack, We Just Won’t Admit It
Thomas Powell
The Dirty Secret of the Korean War
Mark Ashwill
The Fat Lady Finally Sings: Bob Kerrey Quietly Resigns from Fulbright University Vietnam Leadership Position
John Davis
Beyond Hope
Uri Avnery
The Visitation: Trump in Israel
Ralph Nader
The Left/Right Challenge to the Failed “War on Drugs”
Traci Yoder
Free Speech on Campus: a Critical Analysis
Dave Lindorff
Beware the Supporter Scorned: Upstate New York Trump Voters Hit Hard in President’s Proposed 2018 Budget
Daniel Read
“Sickening Cowardice”: Now More Than Ever, Britain’s Theresa May Must be Held to Account on the Plight of Yemen’s Children
Ana Portnoy
Before the Gates: Puerto Rico’s First Bankruptcy Trial
M. Reza Behnam
Rethinking Iran’s Terrorism Designation
Brian Cloughley
Ukraine and the NATO Military Alliance
Josh Hoxie
Pain as a Policy Choice
David Macaray
Stephen Hawking Needs to Keep His Mouth Shut
Ramzy Baroud
Fear as an Obstacle to Peace: Why Are Israelis So Afraid?
Kathleen Wallace
The Bilious Incongruity of Trump’s Toilet
Seth Sandronsky
Temping Now
Alan Barber – Dean Baker
Blue Collar Blues: Manufacturing Falls in Indiana, Ohio and Pennsylvania in April
Jill Richardson
Saving America’s Great Places
Richard Lawless
Are Credit Rating Agencies America’s Secret Fifth Column?
Louis Proyect
Venezuela Reconsidered
Murray Dobbin
The NDP’s Singh and Ashton: Flash Versus Vision
Ron Leighton
Endarkenment: Postmodernism, Identity Politics, and the Attack on Free Speech
Anthony Papa
Drug War Victim: Oklahoma’s Larry Yarbrough to be Freed after 23 Years in Prison
Rev. John Dear
A Call to Mobilize the Nation Over the Next 18 Months
Yves Engler
Why Anti-Zionism and Anti-Jewish Prejudice Have to Do With Each Other
Ish Mishra
Political Underworld and Adventure Journalism
FacebookTwitterGoogle+RedditEmail