WASHINGTON Feb 25 Much of Europe is speeding
toward a tax on financial transactions, but the idea is going
nowhere fast in the United States, as the Obama administration
reaffirmed its opposition.
U.S. President Barack Obama's Treasury Secretary nominee
Jack Lew, in a written response to a Republican senator weighing
his nomination released on Monday, said the White House still
opposes the tax.
"The administration has consistently opposed a financial
transaction tax on the grounds that it would be vulnerable to
evasion, create incentives for financial reengineering and
burden retail investors," Lew said.
Little support has emerged in Congress for instituting such
a tax, which is firmly opposed by Wall Street banks.
This is the case even though 11 European Union countries,
including Germany and France, this month agreed to a trading tax
that would raise up to $45 billion annually.
Lew, expected to win Senate confirmation as early as this
week, also cited skepticism from the International Monetary Fund
about the tax in a statement answering questions from Orrin
Hatch, the top Republican on the Senate Finance Committee.
The EU tax would be set at 0.01 percent for derivatives and
0.1 percent for stocks and bonds. Further approvals are needed
in the EU before the transaction tax becomes a reality.
At a Washington think-tank seminar on Monday, European Union
tax commissioner Algirdas Semeta said the only way to avoid the
tax would be to give up all financial trading in the countries
where it will be imposed.
"This tax, which was dismissed by skeptics as a pipedream,
is about to become a reality," he said.
Semeta, who will meet with U.S. Treasury officials while in
Washington, said he doubts he will change minds immediately,
adding that Europe may first have to prove the tax can work.
Obama's annual budget proposals have proposed hundreds of
billions of dollars in new taxes by closing corporate tax
loopholes, but he has never proposed a tax on transaction.
The White House has opposed the tax since its reemergence as
an issue in the wake of the 2007-09 financial crisis.
Obama has instead backed a "financial crisis responsibility
fee," which would be levied on the riskiest parts of a bank's
balance sheet, on institutions with assets of more than $50
Cornell University Business Law Professor Lynn Stout said a
transactions tax would not slow the economy, as critics contend,
because it would discourage speculative behavior and other
elements of the financial system that add no value.
"It taxes the socially useless and wasteful part of
finance," Stout said at the think-tank event.
Critics said a transaction tax would cut trading volumes,
reduce the pensions of future retirees and could lead to double
taxation on some transactions.
"We are very gratified that Treasury is taking what we think
is a sensible position," said Payson Peabody, tax counsel at the
Securities Industry and Financial Markets Association.
U.S. Senator Tom Harkin and Representative Peter DeFazio,
both liberal Democrats, last month said they would reintroduce
their proposal to add a 3-cent tax on each $100 in financial
transactions. The congressional Joint Tax Committee has said
that tax could raise $352 billion over a decade.
The congressmen have introduced the idea before, but it has
not moved forward.