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Democrats revive financial transaction tax idea
WASHINGTON |
WASHINGTON (Reuters) - A new tax on financial transactions would be imposed under legislation unveiled on Wednesday by two Democratic congressmen, refocusing attention on an idea that has so far gained little traction.
With the G20 expected to resume its transaction tax debate this week, Representative Peter DeFazio and Senator Tom Harkin proposed a 0.03 percent tax on stock, bond and derivative trades. It would take effect, if adopted, in 2013.
Similar bills in recent years have made no progress in Congress, undermining support for a tax at the global level, despite debt-burdened governments' need for new revenues and widespread concern about financial market volatility.
DeFazio said at a news conference the tax is low enough that it would have little impact on traditional financial trading, and hit hardest high-frequency trading, which he called a blight on the economy. These rapid traders "don't make things, they don't feed people -- they churn," DeFazio said.
U.S. Treasury Secretary Timothy Geithner will be in France this week for a meeting of the Group of 20, a coalition of the world's richest industrialized economies. French President Nicolas Sarkozy has been a strong supporter of the tax.
"We're hoping that (President Barack Obama) will provide direction to Secretary Geithner to not go to (the G20 meeting) with a closed mind," DeFazio said.
The United States should consider the financial transaction tax "as a potential way for both the EU and the U.S. to squeeze some volatility out of the market," he said.
The Harkin-DeFazio proposal has not yet been scored by Congress' nonpartisan Joint Committee on Taxation for how much tax revenue it could generate. Harkin estimated it could bring in "a couple hundred billion."
He said he hopes Congress' so-called super committee on deficit reduction will consider the transaction tax. "This certainly ought to be part of the revenue mix," Harkin said.
EU-WIDE TAX PROPOSED
The European Commission in September proposed an EU-wide transaction tax. Banks at the time described the plan as nonsense. Britain said it would only back a global levy.
In addition to the United States, countries opposing the proposed tax include China, Britain, Australia, Canada and India, according to sources within the Group of 20, a coalition of the world's richest, industrialized economies.
Under the commission's plan, stock and bond trades would be taxed at a 0.1 percent rate, with derivatives at 0.01 percent.
The G20 has tried and failed in the past year to agree on a global transaction tax, sometimes called a Tobin Tax after the U.S. economist who devised it in the 1970s.
Reacting to Harkin-DeFazio, lobbying groups for financial firms renewed their opposition for the tax.
"A financial transaction tax is essentially a sales tax on investors," said Ken Bentsen, executive vice president of the Securities Industry and Financial Markets Association.
It would "impede the efficiency of markets and impair depth and liquidity, as well as raise costs to the issuers, pensions and investors who help drive economic growth," he said.
(Reporting by Patrick Temple-West, editing by Matthew Lewis)
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Introducing the FTT into our economic system would cause thousands of American finance industry jobs to be “offshored” to Switzerland, Hong Kong, Canada, Australia, Singapore, Russia and other countries that have firmly rejected the FTT as destructive economic policy. Schwabish (2005) estimated in his study that the introduction of an FTT in the US “would cause the loss of 150,000-210,000 private-sector jobs in New York alone.”
Supporters of the FTT often tout the success of the UK “stamp tax,” but fail to disclose that most banks and investment firms do not pay the tax. Over 70% of all London Exchange transactions pay no stamp tax, and 100% of all other transactions (e.g., trades on the CME or NYSE) are also exempt. Of all the transactions that originate in the UK, fewer than 3% are subject to the stamp tax. So few transactions are affected as to make it irrelevant. The UK stands firmly against the EU FTT because they know it would decimate London’s economy as investment firms relocate to Switzerland, Hong Kong and other non-FTT jurisdictions.
Saying that high frequency traders cause the wild market fluctuations is just a bunch of FUD. High frequency traders provide market liquidity that is actually quite useful. A FTT will simply drive the high frequency traders out of the market, not generate revenue.
Many Americans now have much of their retirement in mutual funds, stocks, and bonds. These folks will be hit the hard by a FFT because they have few alternatives.
Don’t they rebalance their funds daily? Wouldn’t an index fund after 220 days (1 year) of trading
(.5%/day x 200days = 100%)
be completely consumed by the Government tax?
What am I missing?
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