A proposal for a “financial speculation tax” or a “financial transaction tax” (FTT) has generated support as a way to address large deficits in the US budget. The idea, which places a small tax on all financial transactions, has its roots in the Tobin Tax named for the late James Tobin who suggested it to raise money to help eradicate global poverty. Instead of raising taxes on ordinary income earners or imposing cuts in social services, the FTT looks to the financial sector to pay for the damage it caused to the economy when Wall Street speculators and large banks invested in high risk mortgage backed securities leading to the crash of 2008 and the loss of 8 million jobs. After taxpayers bailed them out, there are reports of record profits. With unemployment at record highs and states in enormous fiscal distress, budget cuts alone are inadequate to address the shortfall in tax revenue.
The People’s Budget which the Congressional Progressive Caucus recently introduced has as part of its corporate tax reform a derivatives and speculation tax. For such a proposal to work, the unanimous support of all G20 states is needed. The likelihood of enactment of an FTT in the US is low. A Bloomberg report from 2009 has Treasury Secretary Geithner and the Obama administration opposing it as unworkable since participants would find ways to circumvent the expense and almost all Republican members of the 112th Congress have signed a pledge to vote against all new taxes.
In January of this year, the Center for Economic and Policy Research (CEPR) issued a report called The Deficit-Reducing Potential of a Financial Speculation Tax showing that a 0.25% tax on trades of stocks, options, futures and other financial instruments could generate $40 billion a year for the Treasury. The idea gained support from French President Nicolas Sarkozy who said a financial transaction tax is one of his top priorities as leader of the Group of 20 nations this year. Earlier this month, an article in the Guardian reported that a thousand economists from 53 countries urged the G20 finance ministers meeting in Washington, to adopt a “Robin Hood tax” or Tobin tax on transactions in financial markets as “an idea that has come of age” arguing that even if such a tax was levied at just 0.05%, it could raise hundreds of billions of dollars, which could be ploughed into development projects. This is the launch video for the Robin Hood Tax campaign.
The International Monetary Fund (IMF) issued a Working Paper called Taxing Financial Transactions: Issues and Evidence in March 2011. Dean Baker, co-director at CEPR and author of its report, concluded:
This is not just a hypothetical; the revenue collected by the U.K. on its more narrow tax on stock trades shows that it is possible to collect large amounts of money through such taxes. Furthermore, the incidence would be almost entirely on the financial industry and those involved in very active trading.
The potential revenue from such a tax far exceeds the amount of money involved in most items that are heavily debated in Congress, such as the extension of unemployment benefits or the tax breaks going to the
wealthiest two percent of the population. The revenue from an FST also vastly exceeds the size of the projected Social Security shortfall. Given the amount of money potentially at stake and the progressivity of the tax, it is surprising that it does not feature more prominently in policy debates. It is not clear what possible downsides would be posed by such a tax, except for its negative impact on the income of people connected with the financial industry.
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Listen to this episode on BrooklynWorks.
In this podcast, Brooklyn Law School Professor Lawrence Solan talks about his recent book The Language of Statutes: Laws and Their Interpretation (2010) which is on reserve as part of the BLS Library collection. The book is a balanced view of statutory interpretation and the role of the courts. It examines the jurisprudential and practical aspects of language scholarship for statutory interpretation. In the interview, Prof. Solan relates his own personal experience with the ambiguous interpretation of a statute as well as his own scholarly study of the federal bribery statute and its extensive appellate review. The book joins law, linguistics, and cognitive science to show that statutory interpretation is not in need of a major overhaul as some have suggested. He argues that when cases on the margin occur that the legislature did not foresee, judges must inevitably undertake statutory interpretation. The Language of Statutes follows Prof. Solan’s earlier work The Language of Judges and an extensive list of publications which are listed here.
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