The Most Popular Tax in History Has Momentum
Katrina vanden Heuvel for The Nation, 5/5/14
The European Financial Transaction (a.k.a. Robin Hood) tax scored a big legal victory on April 30, when a challenge regarding the legality of the tax brought by the British government was thrown out by the European Court of Justice. The ECJ has struck a serious blow for fairness, as the dismissal essentially chastises the British government for championing the interests of the UK’s financial industry over those of its citizens. David Hillman, spokesperson for the Robin Hood campaign, told The Guardian, “This futile legal challenge tells you all you need to know about the government's misguided priorities: it would rather defend a privileged elite in the City than support a tax that could raise billions to tackle poverty and protect public services.”
What’s more, these “misguided priorities” of David Cameron’s government became all the more apparent last Friday, when an analysis of the Bank of England’s £375 billion stimulus program determined that those public funds, according to the International Business Times, “[have] made the wealthiest 5% even richer, worsened the economic recovery, made pension pots smaller, failed to stimulate business investment, and given a bonus to financial services.” To recap, then, Britain's response to the financial crisis has included flogging for the finance industry at the ECJ and giving them a £375 billion gift from the public coffers—what one analyst actually calls a “Robin Hood tax in reverse.”
In this environment, then, the real, non-reversed Robin Hood tax has serious momentum within Europe, just as the eleven-nation coalition behind it is expected to make an important announcement about the first phase of the tax on May 5 or 6. The proposed tax includes a 0.1 percent tax on stock and bond trades and a tax of 0.01 percent on derivatives. It’s now expected that the tax will indeed be phased in, with the levy on stock-trades comprising the first step. Reportedly, the finance ministers involved in the negotiations plan to use the rest of the year to negotiate over taxes on derivative-trading, which could be introduced later in a second phase. While the German government is reportedly determined to get an agreement from the outset to include derivatives, there has been some resistance, including from the supposedly more left-wing French government.
The Robin Hood Tax is, as European FTT campaigners say, the “most popular tax in history,” and such high regard—even for something as seemingly unromantic as a 0.1 percent tax—isn’t difficult to understand: FTT revenue can be used to create jobs; spur economic development beyond the financial industry; and combat climate change, global poverty, and HIV/AIDS. One measure of the tax’s popularity is that this week’s announcement about the FTT’s first phase has been scheduled to occur during the lead-up to the European Parliament elections of May 22–25, and support for the tax is expected to be a major vote-getter. Not exactly an American-election-style “October Surprise” to be sure, but certainly a signal to candidates: Robin Hood matters to European citizens. You can lend your name to the movement, too, by signing the “1 Million Strong” petition.
Even if this week’s announcement isn’t everything campaigners have been hoping for, the announcement itself will send a strong signal that the European FTT—despite the UK’s legal challenge, despite a strong backlash from the financial industry, and despite concerns from the US Treasury Department about possible impacts on US investors—is moving ahead. We’re seeing more and more popular, judicial, and—increasingly—legislative support for the tax in Europe.
This kind of visible success should boost efforts to build support for such a tax in this country, currently represented by Rep. Keith Ellison’s (D-MN) Inclusive Prosperity Act. While the Obama administration has not yet supported the idea, there is increased openness in the Treasury Department to at least take a closer look at a FTT as one possible remedy for high-frequency trading (which happens to be the subject to Michael Lewis’s latest best-selling book, Flash Boys).
Thanks in part to Lewis, there’s increasing awareness of how these high-speed/high-frequency traders are rigging American markets in their favor. (Lewis writes, “...[I]f a single Wall Street bank were to exploit the countless miniscule discrepancies in price between Thing A in Chicago and Thing A in New York, they’d make profits of $20 billion a year.” And obviously, as Flash Boys illustrates, that exploitation of those countless miniscule discrepancies is only available to a handful of deep-pocketed outfits with access to certain blazing-fast fiber-optic cable lines, effectively reducing much of the stock market down to a few guys in a black box making 10,000 trades per second. “It is hard to see the benefit to society as a whole of enabling such trades,” muses the New York Times’s Floyd Norris in a discussion of the book.)
But as Sheila Bair, former head of FDIC, has put it, an “[FTT] would penalize those who destabilize our markets with rapid fire trading, while rewarding those who invest for the long term.”
In the City of London and on Wall Street, the price of doing business should be paid by, well, those doing business. We pay a steep opportunity cost—”dead weight loss,” as Robert J. Barbera of the Center for Financial Economics at Johns Hopkins puts it—when we give the finance industry free reign to make money by any means necessary, even if it destroys the economy for the rest of us. They’re on the right track in Europe; here in the US, we need to join them.
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