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:
June 27, 2016
Robin Hahnel
Brexit: Establishment Freak Out
James Bradley
Omar’s Motive
Gregory Wilpert – Michael Hudson
How Western Military Interventions Shaped the Brexit Vote
Leonard Peltier
41 Years Since Jumping Bull, 500 Years of Trauma
Rev. William Alberts
Orlando: the Latest Victim of Radicalizing American Imperialism
Patrick Cockburn
Brexiteers Have Much in Common With Arab Spring Protesters
Franklin Lamb
How 100 Syrians, 200 Russians and 11 Dogs Out-Witted ISIS and Saved Palmyra
John Grant
Omar Mateen: The Answers are All Around Us
Dean Baker
In the Wake of Brexit Will the EU Finally Turn Away From Austerity?
Ralph Nader
The IRS and the Self-Minimization of Congressman Jason Chaffetz
Gordon Smith
Goodbye UK, Goodbye Great Britain: What Next?
Martha Pskowski
Detained in Dilley: Deportation and Asylum in Texas
stclair
Headaches of Empire: Brexit’s Effect on the United States
Dave Lindorff
Honest Election System Needed to Defeat Ruling Elite
Louisa Willcox
Delisting Grizzly Bears to Save the Endangered Species Act?
Jason Holland
The Tragedy of Nothing
Jeffrey St. Clair
Revolution Reconsidered, Guest Starring Bernard Sanders in the Role of Robespierre
Weekend Edition
June 24, 2016
Friday - Sunday
John Pilger
A Blow for Peace and Democracy: Why the British Said No to Europe
Pepe Escobar
Goodbye to All That: Why the UK Left the EU
Michael Hudson
Revolts of the Debtors: From Socrates to Ibn Khaldun
Andrew Levine
Summer Spectaculars: Prelude to a Tea Party?
Kshama Sawant
Beyond Bernie: Still Not With Her
Mike Whitney
¡Basta Ya, Brussels! British Voters Reject EU Corporate Slavestate
Tariq Ali
Panic in the House: Brexit as Revolt Against the Political Establishment
Paul Street
Miranda, Obama, and Hamilton: an Orwellian Ménage à Trois for the Neoliberal Age
Ellen Brown
The War on Weed is Winding Down, But Will Monsanto Emerge the Winner?
Gary Leupp
Why God Created the Two-Party System
Conn Hallinan
Brexit Vote: a Very British Affair (But Spain May Rock the Continent)
Ruth Fowler
England, My England
Jeffrey St. Clair
Lines Written on the Occasion of Bernie Sanders’ Announcement of His Intention to Vote for Hillary Clinton
Norman Pollack
Fissures in World Capitalism: the British Vote
Paul Bentley
Mercenary Logic: 12 Dead in Kabul
Binoy Kampmark
Parting Is Such Sweet Joy: Brexit Prevails!
Elliot Sperber
Show Me Your Papers: Supreme Court Legalizes Arbitrary Searches
Jan Oberg
The Brexit Shock: Now It’s All Up in the Air
Nauman Sadiq
Brexit: a Victory for Britain’s Working Class
Brian Cloughley
Murder by Drone: Killing Taxi Drivers in the Name of Freedom
Ramzy Baroud
How Israel Uses Water as a Weapon of War
Brad Evans – Henry Giroux
The Violence of Forgetting
Ben Debney
Homophobia and the Conservative Victim Complex
Margaret Kimberley
The Orlando Massacre and US Foreign Policy
David Rosen
Americans Work Too Long for Too Little
Murray Dobbin
Do We Really Want a War With Russia?
Kathy Kelly
What’s at Stake
Louis Yako
I Have Nothing “Newsworthy” to Report this Week
FacebookTwitterGoogle+RedditEmail