Financial transaction tax
Encyclopedia
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
placed on a specific type of financial transaction
Financial transaction
A financial transaction is an event or condition under the contract between a buyer and a seller to exchange an asset for payment. It involves a change in the status of the finances of two or more businesses or individuals.-History:...
for a specific purpose.
This term has been most commonly associated with the financial sector, as opposed to consumption tax
Consumption tax
A consumption tax is a tax on spending on goods and services. The tax base of such a tax is the money spent on consumption. Consumption taxes are usually indirect, such as a sales tax or a value added tax...
es paid by consumer
Consumer
Consumer is a broad label for any individuals or households that use goods generated within the economy. The concept of a consumer occurs in different contexts, so that the usage and significance of the term may vary.-Economics and marketing:...
s. However, it is not a taxing of the financial institution
Financial institution
In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries...
s themselves. Instead, it is charged only on the specific transactions that are designated as taxable. If an institution never carries out the taxable transaction, then it will never be taxed on that transaction. Furthermore, if it carries out only one such transaction, then it will only be taxed for that one transaction. As such, this tax is neither a financial activities tax, nor a "bank tax
Bank tax
A bank tax is a tax on banks. One of the earliest modern uses of the term "bank tax" occurred in the context of the Financial crisis of 2007–2010....
," for example. This clarification is important in discussions about using a financial transaction tax as a tool to selectively discourage excessive speculation
Speculation
In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum...
without discouraging any other activity (as John Maynard Keynes
John Maynard Keynes
John Maynard Keynes, Baron Keynes of Tilton, CB FBA , was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments...
originally envisioned it in 1936).
There are several types of financial transaction taxes. Each has its own purpose. Some have been implemented, and some remain unimplemented concepts. Concepts are found in various organizations and regions around the world. Some are domestic and meant to be used within one nation; whereas some are multinational.
History of the concept
The year 1694 saw an early implementation of a financial transaction tax in the form of stamp dutyStamp duty in the United Kingdom
In the United Kingdom, stamp duty is a form of tax charged on instruments , and requires a physical stamp to be attached to or impressed upon the instrument in question. The more modern versions of the tax no longer require a physical stamp.The scope of stamp duty has been reduced dramatically in...
at the London Stock Exchange
London Stock Exchange
The London Stock Exchange is a stock exchange located in the City of London within the United Kingdom. , the Exchange had a market capitalisation of US$3.7495 trillion, making it the fourth-largest stock exchange in the world by this measurement...
. The tax was payable by the buyer of shares for the official stamp on the legal document needed to ratify the purchase. it is the oldest tax still in existence in Great Britain. In 1936, in the wake of the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
, John Maynard Keynes
John Maynard Keynes
John Maynard Keynes, Baron Keynes of Tilton, CB FBA , was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments...
advocated the wider use of financial transaction taxes. He proposed the levying of a small transaction tax on dealings on Wall Street
Wall Street
Wall Street refers to the financial district of New York City, named after and centered on the eight-block-long street running from Broadway to South Street on the East River in Lower Manhattan. Over time, the term has become a metonym for the financial markets of the United States as a whole, or...
, in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, where (he argued) excessive speculation
Speculation
In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum...
by uninformed financial traders increased volatility. (See Keynes financial transaction tax below) In 1972 the Bretton Woods system
Bretton Woods system
The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid 20th century...
for stabilizing currencies effectively came to an end. In that context James Tobin
James Tobin
James Tobin was an American economist who, in his lifetime, served on the Council of Economic Advisors and the Board of Governors of the Federal Reserve System, and taught at Harvard and Yale Universities. He developed the ideas of Keynesian economics, and advocated government intervention to...
(influenced by the work of Keynes) suggested his more specific "currency transaction tax
Currency transaction tax
A currency transaction tax is a tax placed on a specific type of currency transaction for a specific purpose. This term has been most commonly associated with the financial sector, as opposed to consumption taxes paid by consumers....
" for stabilizing currencies on a larger, global, scale. In December, 1994, the economic crisis in Mexico
1994 economic crisis in Mexico
The 1994 Economic Crisis in Mexico, widely known as the Mexican peso crisis, was caused by the sudden devaluation of the Mexican peso in December 1994....
hurt its currency. In that context, Paul Bernd Spahn
Paul Bernd Spahn
Paul Bernd Spahn is emeritus professor of public finance at the Goethe University, Frankfurt am Main, Germany.He was born in Darmstadt, Germany....
re-examined the Tobin tax
Tobin tax
A Tobin tax, suggested by Nobel Laureate economist James Tobin, was originally defined as a tax on all spot conversions of one currency into another...
, opposed its original form, and instead proposed his own version in 1995. In the context of the financial crisis of 2007–2010, many economists, governments, and organizations around the world re-examined, or were asked to re-examine, the concept of a financial transaction tax, or its various forms. As a result various new forms of financial transaction taxes were proposed, such as the EU financial transaction tax
European Union financial transaction tax
The European Union financial transaction tax is a proposal made by the European Commission to introduce a financial transaction tax within the 27 member states of the European Union by 2014...
(see below).
Purpose
Although every financial transaction tax (FTT) proposal has its own specific intended purpose, there are some general intended purposes which are common to most of them. Below are some of those general commonalities. (Note: The intended purpose may or may not be achieved.)Curbing volatility of financial markets
In 1936, when Keynes first proposed a financial transaction tax, he wrote, "Speculators may do no harm as bubbles on a steady stream of enterprise. But the situation is serious when enterprise becomes the bubble on a whirlpool of speculation." Rescuing enterprise from becoming "the bubble on a whirlpool of speculation" was also an intended purpose of the 1972 Tobin tax
Tobin tax
A Tobin tax, suggested by Nobel Laureate economist James Tobin, was originally defined as a tax on all spot conversions of one currency into another...
, and is a common theme in several other types of financial transaction taxes. For the specific type of volatility in specific areas, see each specific type of financial transaction taxes below. (One exception: This "curbing of volatility" is probably not the intended purpose of the "bank transaction tax".)
More fair and equitable tax collection
Another common theme is the proposed intention to create a system of more fair and equitable tax collection. This aspect is aimed at taxing the financial sector. In the context of the financial crisis of 2007–2010, many economists, governments, and organizations around the world re-examined, or were asked to re-examine, the concept of a financial transaction tax, or its various forms. On April 16, 2010, in response to a request from the G20 nations, the IMF report was entitled, "A Fair and Substantial Contribution by the Financial Sector" which made reference to a financial transaction tax as one of several options.
According to several leading figures, the "fairness" aspect of a financial transaction tax has eclipsed, and/or replaced, "prevention of volatility" as the most important purpose for the tax. Fraser Reilly-King of Halifax Initiative
Halifax Initiative
The Halifax Initiative is a coalition of Canadian non-governmental organizations for public interest work and education on international financial institutions....
is one such economist. He proposes that an FTT would not have addressed the root causes of the United States housing bubble
United States housing bubble
The United States housing bubble is an economic bubble affecting many parts of the United States housing market in over half of American states. Housing prices peaked in early 2006, started to decline in 2006 and 2007, and may not yet have hit bottom as of 2011. On December 30, 2008 the...
which, in part, triggered the financial crisis of 2007–2010. Nevertheless, he sees the FTT as important to bring balance to the taxation of all parts of the economy more equitably.
Less susceptible to tax evasion than alternatives
According to some economists, a financial transaction tax is less susceptible to tax avoidance and tax evasion
Tax avoidance and tax evasion
Tax noncompliance describes a range of activities that are unfavorable to a state's tax system. These include tax avoidance, which refers to reducing taxes by legal means, and tax evasion which refers to the criminal non-payment of tax liabilities....
than other types of taxes proposed for the financial sector. On Oct 5, 2009, Joseph Stiglitz, affirmed this "technical feasibility" of the tax: Although Tobin had said his own tax idea was unfeasible in practice, Joseph Stiglitz, former Senior Vice President and Chief Economist
World Bank Chief Economist
The World Bank Chief Economist provides intellectual leadership and direction to the Bank’s overall development strategy and economic research agenda, at global, regional and country levels...
of the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
that modern technology meant that was no longer the case. Stiglitz said, the tax is "much more feasible today" than a few decades ago, when Tobin recanted.
Fraser Reilly-King of Halifax Initiative
Halifax Initiative
The Halifax Initiative is a coalition of Canadian non-governmental organizations for public interest work and education on international financial institutions....
also points out that "the key issue" and advantage of an FTT is its relatively superior functional ability to prevent tax evasion
Tax evasion
Tax evasion is the general term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability,...
in the financial sector. Economist Rodney Schmidt, Principal Researcher of The North-South Institute
The North-South Institute
The North-South Institute is a Canadian research institute focused on international development.The Institute's website says that it is "dedicated to eradicating global poverty and enhancing social justice through research which promotes international cooperation, democratic governance, and...
, also concurred that a financial transaction tax is more technically feasible than the "bank tax" proposed by the IMF on April 16, 2010.
The "technical feasibility" is not so much a "reason for the tax," but rather a "reason for governments to select this type of tax above other types of taxes" if they intend to tax the financial sector.
General theoretical concepts
Transaction taxes can be raised on the sale of specific financial assets (such as stock, bonds or futures); can be applied to currency exchange transactions; or can be general taxes levied against a mix of different transactions.Keynes financial transaction tax
Among the first proponents of a financial transaction tax was John Maynard KeynesJohn Maynard Keynes
John Maynard Keynes, Baron Keynes of Tilton, CB FBA , was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments...
, who first proposed his version in 1936. He proposed that a small transaction tax should be levied on dealings on Wall Street
Wall Street
Wall Street refers to the financial district of New York City, named after and centered on the eight-block-long street running from Broadway to South Street on the East River in Lower Manhattan. Over time, the term has become a metonym for the financial markets of the United States as a whole, or...
, in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, where he argued that excessive speculation
Speculation
In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum...
by uninformed financial traders increased volatility. For Keynes, the key issue was the proportion of ‘speculators’ in the market, and his concern that, if left unchecked, these types of players would become too dominant. Keynes writes: "The introduction of a substantial Government transfer tax
Transfer tax
A transfer tax is a tax on the passing of title to property from one person to another.In a narrow legal sense, a transfer tax is essentially a transaction fee imposed on the transfer of title to property. This kind of tax is typically imposed where there is a legal requirement for registration of...
on all transactions might prove the most serviceable reform available, with a view to mitigating the predominance of speculation over enterprise in the United States. (1936:159-60)"
Currency transaction tax
A currency transaction tax is a tax placed on a specific type of currency transaction for a specific purpose. This term has been most commonly associated with the financial sector, as opposed to consumption taxes paid by consumers. The most frequently discussed versions of a currency transaction tax are the Tobin tax and Spahn tax.Tobin tax
In 1972 the economist James Tobin
James Tobin
James Tobin was an American economist who, in his lifetime, served on the Council of Economic Advisors and the Board of Governors of the Federal Reserve System, and taught at Harvard and Yale Universities. He developed the ideas of Keynesian economics, and advocated government intervention to...
proposed a tax on all spot conversions
Spot market
The spot market or cash market is a public financial market, in which financial instruments or commodities are traded for immediate delivery. It contrasts with a futures market in which delivery is due at a later date...
of one currency into another. The so-called Tobin tax
Tobin tax
A Tobin tax, suggested by Nobel Laureate economist James Tobin, was originally defined as a tax on all spot conversions of one currency into another...
is intended to put a penalty on short-term financial round-trip excursions into another currency. Tobin suggested his currency transaction tax in 1972 in his Janeway Lectures at Princeton, shortly after the Bretton Woods system
Bretton Woods system
The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid 20th century...
effectively ended. In 2001, James Tobin looked back at the 1994 economic crisis in Mexico
1994 economic crisis in Mexico
The 1994 Economic Crisis in Mexico, widely known as the Mexican peso crisis, was caused by the sudden devaluation of the Mexican peso in December 1994....
, the 1997 Asian Financial Crisis, and the 1998 Russian financial crisis, and said: "[My proposed] tax [idea] on foreign exchange transactions... dissuades speculators as many investors invest their money in foreign exchange on a very short-term basis. If this money is suddenly withdrawn, countries have to drastically increase interest rates for their currency to still be attractive. But high interest is often disastrous for a national economy, as the nineties' crises
Liquidity crisis
In financial economics, liquidity is a catch-all term that may refer to several different yet closely related concepts. Among other things, it may refer to Asset Market liquidity In financial economics, liquidity is a catch-all term that may refer to several different yet closely related...
in Mexico, South East Asia and Russia have proven....
Spahn tax
Paul Bernd Spahn
Paul Bernd Spahn
Paul Bernd Spahn is emeritus professor of public finance at the Goethe University, Frankfurt am Main, Germany.He was born in Darmstadt, Germany....
opposed the original form of a Tobin Tax in a Working Paper International Financial Flows and Transactions Taxes: Survey and Options, concluding "...the original Tobin tax is not viable. First, it is virtually impossible to distinguish between normal liquidity trading and speculative noise trading. If the tax is generally applied at high rates, it will severely impair financial operations and create international liquidity problems, especially if derivatives are taxed as well." However, on 16 June 1995 Spahn suggested that "Most of the difficulties of the Tobin tax could be resolved, possibly with a two-tier rate structure consisting of a low-rate financial transactions tax and an exchange surcharge at prohibitive rates." This new form of tax, the Spahn tax
Spahn tax
A Spahn tax is a type of currency transaction tax that is meant to be used for the purpose of controlling exchange-rate volatility. This idea was proposed by Paul Bernd Spahn in 1995.-Early history:...
, was later approved by the Belgian Federal Parliament in 2004.
Special Drawing Rights
On September 19, 2001, retired speculator George Soros
George Soros
George Soros is a Hungarian-American business magnate, investor, philosopher, and philanthropist. He is the chairman of Soros Fund Management. Soros supports progressive-liberal causes...
put forward a proposal, issuing Special Drawing Rights
Special Drawing Rights
Special Drawing Rights are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund . Not a currency, SDRs instead represent a claim to currency held by IMF member countries for which they may be exchanged...
(SDR) that the rich countries would pledge for the purpose of providing international assistance and the alleviation of poverty and other approved objectives. According to Soros this could make a substantial amount of money available almost immediately. In 1997, IMF member governments agreed to a one-time special allocation of SDRs, totaling approximately $27.5 billion. This is slightly less than 0.1% of the global GDP. Members having 71% of the total vote needed for implementation have already ratified the decision. All it needs is the approval of the United States Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
. If the scheme is successfully tested, it could be followed by an annual issue of SDRs and the amounts could be scaled up "so that they could have a meaningful impact on many of our most pressing social issues".
Bank transaction tax
As globalization eroded the efficiency of conventional taxes such as value added taxValue added tax
A value added tax or value-added tax is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the "value added" to a product, material or service, from an accounting point of view, by this stage of its...
es, various Latin American
Latin America
Latin America is a region of the Americas where Romance languages – particularly Spanish and Portuguese, and variably French – are primarily spoken. Latin America has an area of approximately 21,069,500 km² , almost 3.9% of the Earth's surface or 14.1% of its land surface area...
countries applied a new form of taxation levied on bank transactions. Argentina introduced a bank transaction tax in 1984 before it was abolished in 1992. Shortly after in 1993, Brazil implemented its own version called "CPMF", which lasted until 2007. The broad based tax levied on all debit (and/or credit) entries on bank accounts proved to be evasion-proof, more efficient and less costly than orthodox tax models. Furthermore, the significant revenue-raising capacity of bank transactions taxation revived the centuries old ideal of the Single Tax. In his book, Bank transactions: pathway to the single tax ideal, Marcos Cintra carries out a qualitative and quantitative in-depth comparison of the efficiency, equity and compliance costs of a bank transactions tax relative to orthodox tax systems, and opens new perspectives for the use of modern banking technology in tax reform across the world.
United Kingdom
Stamp Duty (since 1808)A stamp duty was introduced in the United Kingdom as an ad valorem tax on share purchases in 1808. Stamp duties are collected on documents used to effect the sale and transfer of certificated stock
Stock certificate
In corporate law, a stock certificate is a legal document that certifies ownership of a specific number of stock shares in a corporation...
and other securities of UK based companies.
UK Stamp Duty Reserve Tax (since 1986)
To address the development of trades in uncertificated stock, the UK created the Finance Act 1986, which introduced the Stamp Duty Reserve Tax
Stamp duty in the United Kingdom
In the United Kingdom, stamp duty is a form of tax charged on instruments , and requires a physical stamp to be attached to or impressed upon the instrument in question. The more modern versions of the tax no longer require a physical stamp.The scope of stamp duty has been reduced dramatically in...
(SDRT) at a rate of 0.5% on share purchases. It is charged whether the transaction takes place in the UK or overseas, and whether either party is resident of the UK or not. Securities issued by companies overseas are not taxed. This means that - just like the standard stamp duty - the tax is paid by foreign and UK-based investors who invest in UK incorporated companies. In other words, the tax applies to all companies, which are headquartered in the UK, albeit there is a relief for intermediaries (such as market makers and large banks that are members of a qualifying exchange).
Both stamp duty and SDRT remain in place today. SDRT accounts for the majority of revenue collected on share transactions effected through the UK's Exchanges. On average almost 90% of revenues stem from the SDRT. Only a minor part comes from the standard stamp duty. Revenue is pro-cyclical with economic activity. In terms of GDP and total tax revenue the highest values have been reached during the dot.com boom years at the end 20th century, notably in 2000-01. In 2007-08 the SDRT generated €5.37 billion in revenue (compared to 0.72 billion of the standard stamp duty). This accounts for 0.82% over total UK tax revenue or 0.30% of GDP. In 2008-09 the figure dropped to €3.67 billion (0.22% of GDP), due to reduced share prices and trading volumes as a result of the financial crisis.
United States (1914-1966)
The US imposed a financial transaction tax from 1914 to 1966. The federal tax on stock sales of 0.1 per cent at issuance and 0.04 per cent on transfers. Currently, the US has a very minor 0.0034 per cent tax which is levied on stock transactions. The tax, known as Section 31 fee, is used to support the operation costs of the Securities and Exchange Commission (SEC). In 1998, the federal government collected $1.8 billion in revenue from these fees, almost five times the annual operating costs of the SEC.Japan
Till 1999, Japan imposed a transaction tax on a variety of financial instruments, including debt instruments and equity instruments, but at differential rates. The tax rates were higher on equities than on debentures and bonds. In the late 1980s, the Japanese government was generating significant revenues of about $12 billion per year. The tax was eventually withdrawn as part of “big bang” liberalization of the financial sector in 1999.Sweden (1984-1991)
Sweden is an early example of introducing a tax on equity securities, fixed income securities and financial derivatives. In January, 1984, Sweden introduced a 0.5% tax on the purchase or sale of an equity security. Hence a round trip (purchase and sale) transaction resulted in a 1% tax. The tax applied to all equity security trades in Sweden using local brokerage services as well as to stock options. The fact that only local brokerage services were taxed is in the literature seen as the main design problem of the Swedish system. Avoiding the tax only required using foreign broker services. Foreign investors reacted to the tax by moving their trading offshore while domestic investors reacted by reducing the number of their equity trades.The impact on market trading was dramatic. During the first week of the tax, the volume of bond trading fell by 85%, even though the tax rate on five-year bonds was only 0.003%. The volume of futures trading fell by 98% and the options trading market disappeared. By 1990, more than 50% of all Swedish trading had moved to London and 30% of all Swedish equity trading moved offshore. As a result, revenues from the tax on fixed-income securities were far below expectations. As taxable trading volumes fell, so did revenues from capital gains taxes, entirely offsetting revenues from the equity transactions tax that had grown to 4,000 million Swedish kroner by 1988.
On 15 April 1990, the tax on fixed-income securities was abolished. In January 1991 the rates on the remaining taxes were cut by half and by the end of the year, they were also abolished completely. Once the taxes were eliminated, trading volumes returned and grew substantially in the 1990s.
Columbia (1998-1999)
In 1998 ColumbiaColumbia
Columbia may refer to:-Places:* Columbia , a poetic name for the Americas, and the feminine personification of the United States of America* District of Columbia, the federal district in which the capital of the United States is located...
introduced a financial transaction tax of 0.2%, covering all financial transactions including banknotes, promissory notes, processing of payments by way of telegraphic transfer, EFTPOS
EFTPOS
EFTPOS is the general term used for debit card based systems used for processing transactions through terminals at points of sale. In Australia and New Zealand it is also the brand name of the specific system used for such payments...
, internet banking or other means, bank drafts
Cheque
A cheque is a document/instrument See the negotiable cow—itself a fictional story—for discussions of cheques written on unusual surfaces. that orders a payment of money from a bank account...
and bank cheques
Cheque
A cheque is a document/instrument See the negotiable cow—itself a fictional story—for discussions of cheques written on unusual surfaces. that orders a payment of money from a bank account...
, money on term deposit, overdraft
Overdraft
An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn". If there is a prior agreement with the account provider for an overdraft, and the amount overdrawn is within the authorized overdraft...
s, installment loans, documentary and standby letters of credit, guarantees, performance bond
Performance bond
A performance bond is a surety bond issued by an insurance company or a bank to guarantee satisfactory completion of a project by a contractor.A job requiring a payment & performance bond will usually require a bid bond, to bid the job...
s, securities underwriting commitments and other forms of off balance sheet exposures, safekeeping of documents and other items in safe deposit box
Safe deposit box
A safe deposit box or wrongly referred to as a safety deposit box is an individually-secured container, usually held within a larger safe or bank vault. Safe deposit boxes are generally located in banks, post offices or other institutions...
es, currency exchange, sale, distribution or brokerage, with or without advice, unit trusts and similar financial products.
Peru (since 2003)
In 2003 the Peruvian government introduced a 0.1% general financial transaction tax, with the aim of raising finance for the education sector.India (since 2004)
Since 1st October 2004 India levies financial transaction taxes of up to 0.125% payable on the value of taxable securities transaction made through a recognized national stock exchange. The securities transaction tax (STT) is not applicable on off-market transactions. The tax rate is set at 0.125% on a delivery-based buy and sell, 0.025% on non delivery-based transactions, and 0.017% on Futures and Options transactions. The tax has been criticized by the Indian financial sector and is currently under review.Belgium
The Belgium securities tax applies to certain transactions concluded or executed in Belgium through a Belgian professional intermediary, to the extent that they relate to public funds, irrespective of their (Belgian or foreign) origin. The "tax on stock exchange transactions" is not due upon subscription of new securities (primary market transactions). Both buyers and sellers are subject to the tax. The tax rate varies in accordance with the type of transactions. A 0.07% tax (subject to a maximum of €500 per transaction) is charged for distributing shares of investment companies, certificates of contractual investment funds, bonds of the Belgian public debt or the public debt of foreign states, nominative or bearer bonds, certificates of bonds, etc. A 0.5% tax (subject to a maximum of €750 per transaction) is charged for accumulating shares of investment companies and 0.17% (subject to a maximum of €500 per transaction) for any other securities (such as shares). Transactions made for its own account by non-resident taxpayers and by some financial institutions, such as banks, insurance companies, organizations for financing pensions (OFPs) or collective investment are exempted from the tax.Finland
Finland imposes a tax of 1.6% on the transfer of certain Finnish securities, mainly equities such as bonds, debt securities and derivatives. The tax is charged if the transferee and/or transferor is a Finnish resident or a Finnish branch of certain financial institutions. However, there are several exceptions. E.g. no transfer tax is payable if the equities in question are subject to trading on a qualifying market.Greece
Greece applies a transaction duty on the sale of Greek listed shares at a rate of 0.15% (0.2% as of 1.4.2011). This tax applies to traded financial instruments treated as compound products (equity swaps, call options, futures). The transaction duty, which burdens the seller of the listed shares, is directly withheld upon each settlement of the transaction and paid by the Stock Exchange Depository SA to the competent tax authorities. Greek transaction duty also applies on the sale of foreign listed shares by Greek tax payers (i.e. Greek resident individuals, Greek enterprises and Greek branches of foreign entities).Poland
Poland charges a 1% Civil Law Activities Tax (CLAT) on the sale or exchange of property rights, which includes securities and derivatives. The tax applies to transactions, which are performed in Poland or which grant property rights that are to be exercised in Poland. It also applies to transactions executed outside Poland if the buyer is established in Poland. Polish treasury bonds and Polish treasury bills, bills issued by the National Bank and some other specified securities are exempted from the tax.Singapure
Singapure charges a 0.2% stamp duty payable on all instruments that give effect to transactions in stocks and shares. Generally, there is no stamp duty payable for derivatives instruments. Share transactions carried out on the Singapore ExchangeSingapore Exchange
Singapore Exchange Limited is an investment holding company located in Singapore and providing different services related to securities and derivatives trading and others. SGX is a member of the World Federation of Exchanges and the Asian and Oceanian Stock Exchanges FederationSingapore Exchange...
via the scripless settlement system do not attract duty, as there is no instrument of transfer.
Switzerland
In Switzerland a transfer tax (Umsatzabgabe) is levied on the transfer of domestic or foreign securities such as bonds and shares, where one of the parties or intermediaries is a Swiss security broker. Other securities such as options futures, etc. do not qualify as taxable securities. Swiss brokers include banks and bank-linked financial institutions. The duty is levied at a rate of 0.15% for domestic securities and 0.3% for foreign securities. However, there are numerous exemptions to the Swiss transfer tax. These are among others: Eurobonds, other bonds denominated in a foreign currency and the trading stock of professional security brokers. The revenue of the Swiss transfer tax was CHF 1.9 billion in 2007 or 0.37% of GDP.Taiwan
In Taiwan the securities transaction tax (STT) is imposed upon gross sales price of securities transferred and at a rate of 0.3% for share certificates issued by companies and 0.1% for corporate bonds or any securities offered to the public which have been duly approved by the government. However, trading of corporate bonds and financial bonds issued by Taiwanese issuers or companies are temporarily exempt from STT beginning 1st January 2010. The Taiwanese government argued this "would enliven the bond market and enhance the international competitiveness of Taiwan’s enterprises."Since 1998, Taiwan also levies a stock index futures transaction tax imposed on both parties. The current transaction tax is levied per transaction at a rate of not less than 0.01% and not more than 0.06%, based on the value of the futures contract. Revenue from the securities transaction tax and the futures transaction tax was about €2.4 billion in 2009. The major part of this revenue came from the taxation of bonds and stocks (96.5%). The taxation of stock index future shares was 3.5%. In total, this corresponds to 0.8% in terms of GDP.
United Nations global Tobin Tax
Millennium Development Goals
The Millennium Development Goals are eight international development goals that all 193 United Nations member states and at least 23 international organizations have agreed to achieve by the year 2015...
]." These are eight international development
International development
International development or global development is a concept that lacks a universally accepted definition, but it is most used in a holistic and multi-disciplinary context of human development — the development of greater quality of life for humans...
goals that 192 United Nations
United Nations
The United Nations is an international organization whose stated aims are facilitating cooperation in international law, international security, economic development, social progress, human rights, and achievement of world peace...
member states
United Nations member states
There are 193 United Nations member states, and each of them is a member of the United Nations General Assembly.The criteria for admission of new members are set out in the United Nations Charter, Chapter II, Article 4, as follows:...
and at least 23 international organizations have agreed (in 2000) to achieve by the year 2015. They include reducing extreme poverty
Extreme poverty
Extreme poverty, as defined in 1996 by Joseph Wresinski, the founder of ATD Fourth World, is:"The lack of basic security connotes the absence of one or more factors enabling individuals and families to assume basic responsibilities and to enjoy fundamental rights. The situation may become...
, reducing child mortality
Child mortality
Child mortality, also known as under-5 mortality, refers to the death of infants and children under the age of five. In 2010, 7.6 million children under five died , down from 8.1 million in 2009, 8.8 million in 2008, and 12.4 million in 1990. About half of child deaths occur in Africa....
rates, fighting disease epidemics such as AIDS
AIDS
Acquired immune deficiency syndrome or acquired immunodeficiency syndrome is a disease of the human immune system caused by the human immunodeficiency virus...
, and developing a global partnership for development.
At the UN September 2001 World Conference against Racism, when the issue of compensation for colonialism and slavery arose in the agenda, Fidel Castro
Fidel Castro
Fidel Alejandro Castro Ruz is a Cuban revolutionary and politician, having held the position of Prime Minister of Cuba from 1959 to 1976, and then President from 1976 to 2008. He also served as the First Secretary of the Communist Party of Cuba from the party's foundation in 1961 until 2011...
, the President of Cuba
Cuba
The Republic of Cuba is an island nation in the Caribbean. The nation of Cuba consists of the main island of Cuba, the Isla de la Juventud, and several archipelagos. Havana is the largest city in Cuba and the country's capital. Santiago de Cuba is the second largest city...
, advocated the Tobin Tax to address that issue. (According to Cliff Kincaid, Castro advocated it "specifically in order to generate U.S. financial reparations to the rest of the world," however a closer reading of Castro's speech shows that he never did mention "the rest of the world" as being recipients of revenue.) Castro cited holocaust reparations as a previously established precedent for the concept of reparation
Reparation (legal)
In jurisprudence, reparation is replenishment of a previously inflicted loss by the criminal to the victim. Monetary restitution is a common form of reparation...
s. Castro also suggested that the United Nations
United Nations
The United Nations is an international organization whose stated aims are facilitating cooperation in international law, international security, economic development, social progress, human rights, and achievement of world peace...
be the administrator of this tax, stating the following:
"May the tax suggested by Nobel Prize Laureate James Tobin be imposed in a reasonable and effective way on the current speculative operations accounting for trillions of US dollars every 24 hours, then the United NationsUnited NationsThe United Nations is an international organization whose stated aims are facilitating cooperation in international law, international security, economic development, social progress, human rights, and achievement of world peace...
, which cannot go on depending on meager, inadequate, and belated donations and charities, will have one trillion US dollars annually to save and develop the world. Given the seriousness and urgency of the existing problems, which have become a real hazard for the very survival of our species on the planet, that is what would actually be needed before it is too late."
On March 6, 2006, US Congressman Dr Ron Paul
Ron Paul
Ronald Ernest "Ron" Paul is an American physician, author and United States Congressman who is seeking to be the Republican Party candidate in the 2012 presidential election. Paul represents Texas's 14th congressional district, which covers an area south and southwest of Houston that includes...
stated the following: "The United Nations remains determined to rob from wealthy countries and, after taking a big cut for itself, send what’s left to the poor countries. Of course, most of this money will go to the very dictators whose reckless policies have impoverished their citizens. The UN global tax plan...resurrects the long-held dream of the 'Tobin Tax'. A dangerous precedent would be set, however: the idea that the UN possesses legitimate taxing authority to fund its operations."
DeFazio financial transaction tax (USA)
On 3 December 2009, U.S. RepresentativeUnited States House of Representatives
The United States House of Representatives is one of the two Houses of the United States Congress, the bicameral legislature which also includes the Senate.The composition and powers of the House are established in Article One of the Constitution...
Peter Anthony DeFazio of Oregon
Oregon
Oregon is a state in the Pacific Northwest region of the United States. It is located on the Pacific coast, with Washington to the north, California to the south, Nevada on the southeast and Idaho to the east. The Columbia and Snake rivers delineate much of Oregon's northern and eastern...
proposed the Let Wall Street Pay for the Restoration of Main Street Bill
Let Wall Street Pay for the Restoration of Main Street Bill
The proposed bill "Let Wall Street Pay for the Restoration of Main Street Bill" is officially contained in the United States House of Representatives bill entitled "H.R. 4191: Let Wall Street Pay for the Restoration of Main Street Act of 2009"...
which includes a tax on US financial market securities transactions. The bill suggests to tax stock
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
transactions at a rate of 0.25 percent. The tax on futures contracts
Futures contract
In finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange...
to buy or sell a specified commodity of standardized quality at a certain date in the future, at a market determined price would be 0.02 percent. Swaps between two firms and credit default swaps would be taxed 0.02 percent. The tax would only target speculators, since the tax would be refunded to average investors, pension funds and health savings accounts. Projected annual revenue is $150 billion per year, half of which would go towards deficit reduction and half of which would go towards job promotion activities.
The day the bill was introduced, it had the support of 25 of DeFazio's House colleagues. It has not yet passed.
G20 global financial transactions tax
On December 7, 2009 Nancy PelosiNancy Pelosi
Nancy Patricia D'Alesandro Pelosi is the Minority Leader of the United States House of Representatives and served as the 60th Speaker of the United States House of Representatives from 2007 to 2011...
, Speaker of the United States House of Representatives
Speaker of the United States House of Representatives
The Speaker of the United States House of Representatives, or Speaker of the House, is the presiding officer of the United States House of Representatives...
stated her support for a "G20 global tax." The proposal, which was thought to raise new funding for poor countries failed to win the backing of the G20 at 2011 Cannes summit
2011 G-20 Cannes summit
The 2011 G-20 Cannes Summit is the sixth meeting of the G-20 heads of government in a series of on-going discussions about financial markets and the world economy....
. Nevertheless, France President Nicolas Sarkozy
Nicolas Sarkozy
Nicolas Sarkozy is the 23rd and current President of the French Republic and ex officio Co-Prince of Andorra. He assumed the office on 16 May 2007 after defeating the Socialist Party candidate Ségolène Royal 10 days earlier....
said he planned to still pursue the idea.
According to Bill Gates
Bill Gates
William Henry "Bill" Gates III is an American business magnate, investor, philanthropist, and author. Gates is the former CEO and current chairman of Microsoft, the software company he founded with Paul Allen...
, co-founder of Microsoft
Microsoft
Microsoft Corporation is an American public multinational corporation headquartered in Redmond, Washington, USA that develops, manufactures, licenses, and supports a wide range of products and services predominantly related to computing through its various product divisions...
and a supporter of a G20 global FTT, even a small tax of 10 basis points
Basis point value
In finance, basis point value denotes the change in the price of a bond given a basis point change in the yield of the bond.....
on equities and 2 basis points on bonds could generate about $48 billion from G20 member states, or $9 billion if only adopted by larger European countries.
Robin hood tax
On 15 February 2010 a coalitionCoalition
A coalition is a pact or treaty among individuals or groups, during which they cooperate in joint action, each in their own self-interest, joining forces together for a common cause. This alliance may be temporary or a matter of convenience. A coalition thus differs from a more formal covenant...
of 50 charities and civil society organisations launched a campaign for a Robin Hood tax on Financial transactions. The proposed tax is similar to the Tobin tax
Tobin tax
A Tobin tax, suggested by Nobel Laureate economist James Tobin, was originally defined as a tax on all spot conversions of one currency into another...
, which was proposed in 1972 by James Tobin
James Tobin
James Tobin was an American economist who, in his lifetime, served on the Council of Economic Advisors and the Board of Governors of the Federal Reserve System, and taught at Harvard and Yale Universities. He developed the ideas of Keynesian economics, and advocated government intervention to...
, but never implemented. The tax rate would vary but would average at about 0.05%, affecting a wide range of asset classes including the purchase and sale of stocks, bonds, commodities, unit trusts, mutual funds, and derivatives such as futures and options. Campaigners have suggested the tax could be implemented globally, regionally or unilaterally by individual nations.
By autumn 2011 the Robin Hood campaign had gained considerable extra momentum and support from prominent opinion formers, with a proposal from the European Commission to implement an FTT tax at EU level (see below). The campaign has also attracted extensive criticism, with a global implementation of the FTT tax being opposed by several G20 members at the November Summit, with several EU members also opposing a regional FTT for Europe.
European Union financial transaction tax
On June 28, 2010, the European Union's executive said it will study whether the European Union should go alone in imposing a tax on financial transactions after G20 leaders failed to agree on the issue. The following day the European Commission called for Tobin-style taxes on the EU's financial sector to generate direct revenue for the European Union starting from 2014. At the same time it suggested to reduce existing levies coming from the 27 member states. On September 28, president of the European Commission Jose Barroso officially presented the plan of creating the new financial transactions tax, which Barroso claimed could raise 55 billion Euros per year. The proposed EU-wide tax - 0.1% tax on bond and equity transactions, and 0.01% on derivative transactions between financial firms - should support European countries in crisis.Being faced with continuous resistance from some non-eurozone EU countries, advocates of the FTT such as the finance ministers from Germany, Austria and Belgium have called for implementation only within the 17-nation eurozone area, which would exclude reluctant governments like the United Kingdom and Sweden. Unlike their government, the British people are strongly in favor of a FTT (see section: Public opinion).
Effect on volatility
Proponents of the tax assert that it will reduce price volatilityVolatility (finance)
In finance, volatility is a measure for variation of price of a financial instrument over time. Historic volatility is derived from time series of past market prices...
. In a 1984 paper, Lawrence Summers and Victoria Summers argued, “Such a tax would have the beneficial effects of curbing instability introduced by speculation, reducing the diversion of resources into the financial sector of the economy, and lengthening the horizons of corporate managers.” It is further believed that FTTs “should reduce volatility by reducing the number of noise traders”. However most empirical studies find that the relationship between FTT and short-term price volatility is ambiguous and that “higher transaction costs are associated with more, rather than less, volatility”.
A 2003 IMF Staff Paper by Karl Habermeier and Andrei Kirilenko found that FTTs are “positively related to increased volatility and lower volume.” A study of the Shanghai and Shenzhen stock exchanges says the FTT created “significant” increases in volatility because it “would influence not only noise traders, but also those informed traders who play the role of decreasing volatility in the stock market.” A french study of 6,774 daily realized volatility measurements for 4.7 million trades in a four year period of index stocks trading in the Paris Bourse
Paris Bourse
The Paris Bourse is the historical Paris stock exchange, known as Euronext Paris from 2000 onwards.-History and functioning:...
from 1995 to 1999 reached the same conclusion “that higher transaction costs increase stock return volatility.” The French study concluded that this volatility measures “are likely to underestimate the destabilizing role of security transactions since they – unlike large ticks – also reduce the stabilizing liquidity supply.”
A study of the UK Stamp Duty in 1997 found no significant effect on the volatility of UK equity prices.
Effect on liquidity
In 2011 the IMF published a study paper, which argues that a securities transaction tax (STT) "reduces trading volume, it may decrease liquidity or, equivalently, may increase the price impact of trades, which will tend to heighten price volatility.” A study by the think tank Oxera found that the imposition of the UK’s Stamp Duty would “likely have a negative effect on liquidity in secondary markets.” Regarding proposals to abolish the UK’s Stamp Duty, Oxera concluded that the abolition would “be likely to result in a non-negligible increase in liquidity, further reducing the cost of capital of UK listed companies.” A study of the FTT in Chinese stock markets found liquidity reductions due to decreased transactions.Effect on price discovery
An IMF Working Paper found an FTT impacts price discoveryPrice discovery
The price discovery process is the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers ....
. The natural effect of the FTT’s reduction of trading volume is to reduce liquidity, which “can in turn slow price discovery, the process by which financial markets incorporate the effect of new information into asset prices.” The FTT would cause information to be incorporated more slowly into trades, creating “a greater autocorrelation of returns.” This pattern could impede the ability of the market to prevent asset bubbles. The deterrence of transactions could “slow the upswing of the asset cycle,” but it could also “slow a correction of prices toward their fundamental values.”
Habermeier and Kirilenko conclude that “The presence of even very small transaction costs makes continuous rebalancing infinitely expensive. Therefore, valuable information can be held back from being incorporated into prices. As a result, prices can deviate from their full information values.” A Chinese study argrees, saying: “When it happens that an asset’s price is currently misleading and is inconsistent with its intrinsic value, it would take longer to correct for the discrepancy because of the lack of enough transactions. In these cases, the capital market becomes less efficient.”
Revenues
Revenues vary according to tax rate, transactions covered, and tax effects on transactions.The Swedish experience with transaction taxes in 1984-91 demonstrates that the net effect on tax revenues can be difficult to estimate and can even be negative due to reduced trading volumes. Revenues from the transaction tax on fixed-income securities were initially expected to amount to 1,500 million Swedish kroner per year but actually amounted to no more than 80 million Swedish kroner in any year. Reduced trading volumes also caused a reduction in capital gains tax revenue which entirely offset the transaction tax revenues.
An examination of the scale and nature of the various payments and derivatives transactions and the likely elasticity of response led Honohan and Yoder (2010) to conclude that attempts to raise a significant percentage of gross domestic product in revenue from a broad-based financial transactions tax are likely to fail both by raising much less revenue than expected and by generating far-reaching changes in economic behavior. They point out that, although the side effects would include a sizable restructuring of financial sector activity, this would not occur in ways corrective of the particular forms of financial overtrading that were most conspicuous in contributing to the ongoing financial crisis. Accordingly, such taxes likely deliver both less revenue and less efficiency benefits than have sometimes been claimed by some. On the other hand, they observe that such taxes may be less damaging than feared by others.
On the other hand, the case of UK stamp duty reserve tax shows, that FTT can generate substantial revenues even if applied only within a single country. Despite the low tax rate of 0.5% on the purchase of shares, the UK managed to generate between €3.7 and €7.4 billion in revenues from stamp duties per year throughout the last decade. Also the cases of Japan, Taiwan and Switzerland suggest that countries may generate sizable amounts of income by introducing FTT on a national scale. If implemented on an international scale, revenues may be even considerably higher, since it would make it more difficult for traders to avoid the tax by moving to other locations.
Projections of FTT proposals
- Worldwide: According to the Robin Hood Tax campaign a FTT rate of about 0.05% on transactions like stocks, bonds, foreign currency and derivatives could raise £250 billion a year globally or £20 billion in the UK alone.
- United States: The Center for Economic and Policy Research estimates a US FTT to raise $177 billion per year. The Chicago Political Economy group cites between $750 billion and $1.2 trillion per year (2005–2009).
- European Union: The European Commission expects its proposed EU financial transaction tax of 0.1% on bond and equity transactions, and 0.01% on derivative transactions between financial firms to raise up to €55 billion per year.
Effect on share prices
According to a European Commission working paper, empirical studies show that the UK stamp duty influences the share prices negatively. More frequently traded shares are stronger affected than low-turnover shares. Therefore the tax revenue capitalizes at least to some extent in lower current share prices. For firms which rely on equity as marginal source of finance this may increase capital costs since the issue price of new shares would be lower than without the tax.Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University, and formerly Chief Economist at the IMF, argues that "Higher transactions taxes increase the cost of capital, ultimately lowering investment. With a lower capital stock, output would trend downward, reducing government revenues and substantially offsetting the direct gain from the tax. In the long run, wages would fall, and ordinary workers would end up bearing a significant share of the cost. More broadly, FTTs violate the general public-finance principle that it is inefficient to tax intermediate factors of production, particularly ones that are highly mobile and fluid in their response."
Would the tax be progressive or regressive?
An IMF Working Paper finds that the FTT “disproportionately burdens” the financial sector and will also impact pension funds, public corporations, international commerce firms, and the public sector, with “multiple layers of tax” creating a “cascading effect.” “[E]ven an apparently low-rate [FTT] might result in a high tax burden on some activities.” These costs could also be passed on to clients, including not only wealthy individuals and corporations, but charities and pension and mutual funds.Other studies have suggested that the financial transaction tax is regressive in application—particularly the Stamp Duty in the UK, which includes certain exemptions only available to institutional investors. One UK study, by the Institute for Development Studies, suggests, “In the long run, a significant proportion of the tax could end up being passed on to consumers.” Another study of the UK Stamp Duty found that institutional investors avoid the tax due to intermediary relief, while short-term investors who are willing to take on additional risk can avoid the tax by trading noncovered derivatives. The study concluded, therefore, “The tax is thus likely to fall most heavily on long-term, risk-averse investors.”
Technical feasibility
Although James Tobin had said his own Tobin tax idea was unfeasible in practice, a study on its feasibility commissioned by the German government 2002 concluded that the tax was feasible even at a limited scale within the European time zone without significant tax evasion. Joseph Stiglitz, former Senior Vice President and Chief EconomistWorld Bank Chief Economist
The World Bank Chief Economist provides intellectual leadership and direction to the Bank’s overall development strategy and economic research agenda, at global, regional and country levels...
of the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
, said, on October 5, 2009, that modern technology meant that was no longer the case. Stiglitz said, the tax is "much more feasible today" than a few decades ago, when Tobin recanted.
However, on November 7, 2009, at the G20 finance ministers summit in Scotland, the head of the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
, Dominique Strauss-Khan, said, "transactions are very difficult to measure and so it's very easy to avoid a transaction tax."
Nevertheless in early December 2009, economist Stephany Griffith-Jones
Stephany Griffith-Jones
Stephany Griffith-Jones is an economist specialising in international finance and development, with emphasis on reform of the international financial system, specifically in relation to financial regulation, global governance and international capital flows...
agreed that the "greater centralisation and automisation of the exchanges' and banks' clearing and settlements systems ... makes avoidance of payment more difficult and less desirable."
In January, 2010, feasibility of the tax was supported and clarified by researchers Rodney Schmidt, Stephan Schulmeister and Bruno Jetin who noted “it is technically easy to collect a financial tax from exchanges ... transactions taxes can be collected by the central counterparty
Central Counterparty Clearing
Central Counterparty Clearing is a process by which financial transactions in equities are cleared by a single counterparty. Please see Clearing for general information about clearing...
at the point of the trade, or automatically in the clearing or settlement process
Clearing (finance)
In banking and finance, clearing denotes all activities from the time a commitment is made for a transaction until it is settled. Clearing is necessary because the speed of trades is much faster than the cycle time for completing the underlying transaction....
." (All large-value financial transactions go through three steps. First dealers agree to a trade; then the dealers’ banks match the two sides of the trade through an electronic central clearing system; and finally, the two individual financial instruments are transferred simultaneously to a central settlement system. Thus a tax can be collected at the few places where all trades are ultimately cleared or settled.)
When presented with the problem of speculators shifting operations to offshore
Offshore financial centre
An offshore financial centre , though not precisely defined, is usually a small, low-tax jurisdiction specializing in providing corporate and commercial services to non-resident offshore companies, and for the investment of offshore funds....
tax havens, a representative of a “pro Tobin tax” NGO argued as follows:
Is gradual implementation of the FTT feasible?
There has been debate as to whether one single nation could unilaterally implement a financial transaction tax. In the year 2000, "eighty per cent of foreign-exchange trading [took] place in just seven cities. Agreement [to implement the tax] by [just three cities,] LondonLondon
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
, New York
New York
New York is a state in the Northeastern region of the United States. It is the nation's third most populous state. New York is bordered by New Jersey and Pennsylvania to the south, and by Connecticut, Massachusetts and Vermont to the east...
and Tokyo
Tokyo
, ; officially , is one of the 47 prefectures of Japan. Tokyo is the capital of Japan, the center of the Greater Tokyo Area, and the largest metropolitan area of Japan. It is the seat of the Japanese government and the Imperial Palace, and the home of the Japanese Imperial Family...
alone, would capture 58 per cent of speculative trading." However, on June 27, 2010 at the 2010 G-20 Toronto summit
2010 G-20 Toronto summit
The 2010 G-20 Toronto summit was the fourth meeting of the G-20 heads of government, in discussion of the global financial system and the world economy, which took place at the Metro Toronto Convention Centre in Toronto, Ontario, Canada, during June 26–27, 2010...
, the G20 leaders declared that a "global tax" was no longer "on the table," but that individual countries will be able to decide whether to implement a levy against financial institutions to recoup billions of dollars in taxpayer-funded bailouts. Economist Rodney Schmidt states:
"It is possible for a single country to apply a securities transaction tax unilaterally without significant capital flight to exchanges in other jurisdictions. There are many examples of such taxes already in existence. Britain levies a “Stamp Duty,” a 0.5% tax on purchases of shares of UK companies whether the transaction occurs in the UK or overseas. Such specific financial transaction taxes exist in Austria, Greece, Luxembourg, Poland, Portugal, Spain, Switzerland, Hong Kong, China and Singapore. The state of New York levies a stamp duty on trades taking place on both the New York Stock Exchange and on NASDAQ."
A gradual implementation of FTT could start with Europe, where support is strongest. The first stage might involve a levy on financial instruments within a few countries. Stephan Schulmeister of the Austrian Institute of Economic Research has suggested that initially Britain and Germany could implement a tax on a range of financial instruments since about 97% of all transactions on European Union exchanges occur in these two countries
Supporting countries
: In early November 2007, then Argentinian president Néstor KirchnerNéstor Kirchner
Néstor Carlos Kirchner was an Argentine politician who served as the 54th President of Argentina from 25 May 2003 until 10 December 2007. Previously, he was Governor of Santa Cruz Province since 10 December 1991. He briefly served as Secretary General of the Union of South American Nations ...
initiates and supports a regional Tobin tax. The proposal is supported by the Bank of the South.: In August 2011, the Austrian government states its support for a FTT, including a European FTT, in case of lacking political support to implement it on a global scale.: On June 15, 2004, the Commission of Finance and Budget in the Belgian Federal Parliament approved a bill implementing a Spahn tax
Spahn tax
A Spahn tax is a type of currency transaction tax that is meant to be used for the purpose of controlling exchange-rate volatility. This idea was proposed by Paul Bernd Spahn in 1995.-Early history:...
.: Then president of Brazil, Luiz Inácio Lula da Silva
Luiz Inácio Lula da Silva
Luiz Inácio Lula da Silva , known popularly as Lula, served as the 35th President of Brazil from 2003 to 2010.A founding member of the Workers' Party , he ran for President three times unsuccessfully, first in the 1989 election. Lula achieved victory in the 2002 election, and was inaugurated as...
supports a FTT in 2001. On 20 October 2009 the Government of Brazil
Brazil
Brazil , officially the Federative Republic of Brazil , is the largest country in South America. It is the world's fifth largest country, both by geographical area and by population with over 192 million people...
officially supports a FTT.: President of Cuba, Fidel Castro
Fidel Castro
Fidel Alejandro Castro Ruz is a Cuban revolutionary and politician, having held the position of Prime Minister of Cuba from 1959 to 1976, and then President from 1976 to 2008. He also served as the First Secretary of the Communist Party of Cuba from the party's foundation in 1961 until 2011...
advocated a global FTT at the UN September 2001 World Conference against Racism to be used as a compensation for colonialism and slavery.: The Finnish Government
Government of Finland
Finland is a republic with a representative democracy governed accordingly to the principles of parliamentarism. Legislative power is vested in the Parliament of Finland . Executive power is exercised by the Cabinet, officially termed Council of State , which is led by the Prime Minister, the Head...
supports a FTT since 2000.: In late 2001, the French National Assembly
French National Assembly
The French National Assembly is the lower house of the bicameral Parliament of France under the Fifth Republic. The upper house is the Senate ....
passed a Tobin tax amendment, which was overturned by the French Senate
French Senate
The Senate is the upper house of the Parliament of France, presided over by a president.The Senate enjoys less prominence than the lower house, the directly elected National Assembly; debates in the Senate tend to be less tense and generally enjoy less media coverage.-History:France's first...
in March 2002. On 19 September 2009 the Government of France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
supports a FTT. On 5 February 2010 Christine Lagarde
Christine Lagarde
Christine Madeleine Odette Lagarde is a French lawyer and the managing director of the International Monetary Fund since July 5, 2011...
, then Minister of Economic Affairs, Industry and Employment of France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
supported a FTT.: On 10 December 2009 the Chancellor of Germany Angela Merkel
Angela Merkel
Angela Dorothea Merkel is the current Chancellor of Germany . Merkel, elected to the Bundestag from Mecklenburg-Vorpommern, has been the chairwoman of the Christian Democratic Union since 2000, and chairwoman of the CDU-CSU parliamentary coalition from 2002 to 2005.From 2005 to 2009 she led a...
revises her position and now supports a FTT. On 20 May 2010, German officials were understood to favor a Financial Transaction Tax over a financial activities tax.: In October 2011, Finance Minister Pravin Gordhan
Pravin Gordhan
Pravin Jamnadas Gordhan is a South African political figure, serving as Minister of Finance since May 2009. He was previously the Commissioner of the South African Revenue Service from 1999 to 2009. From 1991 and 1994, he chaired the Convention for a Democratic South Africa...
strongly supports a FTT.:Spain supports a FTT.: The president of Venezuela, Hugo Chávez
Hugo Chávez
Hugo Rafael Chávez Frías is the 56th and current President of Venezuela, having held that position since 1999. He was formerly the leader of the Fifth Republic Movement political party from its foundation in 1997 until 2007, when he became the leader of the United Socialist Party of Venezuela...
supports a FTT in 2001. In 2007 Chávez proposed a regional FTT for Latin America together with former Argentinian president Nestor Kirchner.
Other supporters
Over 1,000 economists (including Paul Krugman
Paul Krugman
Paul Robin Krugman is an American economist, professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University, Centenary Professor at the London School of Economics, and an op-ed columnist for The New York Times...
, Jeffrey Sachs
Jeffrey Sachs
Jeffrey David Sachs is an American economist and Director of The Earth Institute at Columbia University. One of the youngest economics professors in the history of Harvard University, Sachs became known for his role as an adviser to Eastern European and developing country governments in the...
and Nobel laureate Joseph Stiglitz), more than 1,000 parliamentarians from over 30 countries, the world's major labor
Labour Party
The name Labour Party , or similar, is used by several political parties around the world, particularly common in countries of the Commonwealth of Nations. They are most commonly, but not exclusively, social democrats or democratic socialists and have been traditionally allied to the Labour...
leaders, ATTAC, Occupy Wall Street
Occupy Wall Street
Occupy Wall Street is an ongoing series of demonstrations initiated by the Canadian activist group Adbusters which began September 17, 2011 in Zuccotti Park, located in New York City's Wall Street financial district...
protesters, Oxfam
Oxfam
Oxfam is an international confederation of 15 organizations working in 98 countries worldwide to find lasting solutions to poverty and related injustice around the world. In all Oxfam’s actions, the ultimate goal is to enable people to exercise their rights and manage their own lives...
, War on Want
War on Want
War on Want is an anti-poverty charity based in London, England. It seeks to highlight the needs of poverty-stricken areas around the world and lobbies governments and international agencies to tackle problems as well as raising public awareness of the concerns of developing nations while...
and other major development groups, the World Wildlife Fund, Greenpeace
Greenpeace
Greenpeace is a non-governmental environmental organization with offices in over forty countries and with an international coordinating body in Amsterdam, The Netherlands...
and other major environmental organizations support a FTT. Other notable supporters include the Pope
Pope Benedict XVI
Benedict XVI is the 265th and current Pope, by virtue of his office of Bishop of Rome, the Sovereign of the Vatican City State and the leader of the Catholic Church as well as the other 22 sui iuris Eastern Catholic Churches in full communion with the Holy See...
, the Archbishop of Canterbury
Archbishop of Canterbury
The Archbishop of Canterbury is the senior bishop and principal leader of the Church of England, the symbolic head of the worldwide Anglican Communion, and the diocesan bishop of the Diocese of Canterbury. In his role as head of the Anglican Communion, the archbishop leads the third largest group...
, Bill Gates
Bill Gates
William Henry "Bill" Gates III is an American business magnate, investor, philanthropist, and author. Gates is the former CEO and current chairman of Microsoft, the software company he founded with Paul Allen...
and Michael Moore
Michael Moore
Michael Francis Moore is an American filmmaker, author, social critic and activist. He is the director and producer of Fahrenheit 9/11, which is the highest-grossing documentary of all time. His films Bowling for Columbine and Sicko also place in the top ten highest-grossing documentaries...
. David Harding
David Harding
David Harding may refer to:*Dave Harding, English footballer for Wrexham and Australian teams*David Harding , English mathematician...
, founder and CEO of one of London's biggest hedge funds has given qualified support for a European tax on financial transactions, breaking ranks with many of his peers fiercely opposed to such a measure. Speculator George Soros
George Soros
George Soros is a Hungarian-American business magnate, investor, philosopher, and philanthropist. He is the chairman of Soros Fund Management. Soros supports progressive-liberal causes...
, put forward a different proposal, calling rich countries to donate their Special Drawing Rights
Special Drawing Rights
Special Drawing Rights are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund . Not a currency, SDRs instead represent a claim to currency held by IMF member countries for which they may be exchanged...
for the purpose of providing international assistance, without necessarily dismissing the Tobin tax idea.
The European Commission has proposed a regional FTT to be implemented within the European Union (or the Eurozone) by 2014.
Opposing countries
: Paul MartinPaul Martin
Paul Edgar Philippe Martin, PC , also known as Paul Martin, Jr. is a Canadian politician who was the 21st Prime Minister of Canada, as well as leader of the Liberal Party of Canada....
, Canadian Finance Minister opposes a FTT in 1994. On March 23, 1999 the Canadian House of Commons
Canadian House of Commons
The House of Commons of Canada is a component of the Parliament of Canada, along with the Sovereign and the Senate. The House of Commons is a democratically elected body, consisting of 308 members known as Members of Parliament...
passed a resolution directing the government to "enact a tax on financial transactions in concert with the international community." However, in November 2009, at the G20 finance ministers summit, the representatives of the minority government
Minority governments in Canada
During the history of Canadian politics, eleven minority governments have been elected at the federal level. There have also been two minority governments resulting from governments being replaced between elections, for a total of thirteen federal minority governments in twelve separate minority...
of Canada spoke publicly on the world stage in opposition to the resolution. Canada's finance minister, Jim Flaherty
Jim Flaherty
James Michael "Jim" Flaherty, PC, MP is Canada's Minister of Finance and he has also served as Ontario's Minister of Finance. From 1995 until 2005, he was the Member of Provincial Parliament for Whitby—Ajax, and a member of the Progressive Conservative Party caucus...
, restated Canada's opposition to a Tobin tax, saying: "It is not something we would be interested in in Canada. We are not in the business of raising taxes, we are in the business of lowering taxes in Canada. It is not an idea we would look at.": China opposes the tax because it may add more burdens on domestic banks.: The British government supports FTT only if implemented worldwide. In 2009, Adair Turner (chair) and Hector Sants
Hector Sants
Hector Sants is a British investment banker. He was appointed Chief Executive Officer of the Financial Services Authority in July 2007.- Education :...
(CEO) of the UK Financial Services Authority
Financial Services Authority
The Financial Services Authority is a quasi-judicial body responsible for the regulation of the financial services industry in the United Kingdom. Its board is appointed by the Treasury and the organisation is structured as a company limited by guarantee and owned by the UK government. Its main...
both supported the idea of new global taxes on financial transactions. On the other hand, the Bank of England
Bank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...
strongly opposes a FTT. Its governor Mervyn King
Mervyn King (economist)
An ex-officio member of the Bank's interest-rate setting Monetary Policy Committee since its inception in 1997, Sir Mervyn is the only person to have taken part in every one of its monthly meetings to date. His voting style is often seen as "hawkish", a perspective that emphasises the dangers of...
dismissed the idea of a “Tobin tax” on 26 January 2010, saying: “Of all the components of radical reform, I think a Tobin tax is bottom of the list,” said Mr King. “It’s not thought to be the answer to the 'Too Big to Fail
Too Big to Fail
Too Big to Fail is a television drama film in the United States broadcast on HBO on May 23, 2011. It is based on the non-fiction book Too Big to Fail by Andrew Ross Sorkin. The TV film was directed by Curtis Hanson...
' problem - there’s much more support for the idea of a US-type levy.”: India remains opposed to a global FTT despite the fact that it levies a securities transaction tax in the financial markets. A senior Finance Ministry official argued that the proposed tax would put an additional burden on the domestic banking system.: The US Secretary of the Treasury Lloyd Bentsen
Lloyd Bentsen
Lloyd Millard Bentsen, Jr. was a four-term United States senator from Texas and the Democratic Party nominee for Vice President in 1988 on the Michael Dukakis ticket. He also served in the House of Representatives from 1949 to 1955. In his later political life, he was Chairman of the Senate...
initially supported a FTT in 1994. In 2004, Representative Chaka Fattah
Chaka Fattah
Chaka Fattah is the U.S. representative for , serving since 1995. He is a member of the Democratic Party...
of Pennsylvania introduced a bill in the US House of Representatives (H.R. 3759) that would require a study to reform the Federal tax code through eliminating federal income tax and replacing it with a transaction fee-based system. In 2010 he introduced the "Debt Free America Act" (H.R. 4646), that goes further and proposes to enact a 1% FFT and eliminate federal income tax. Both bills never made it out of committee. On 24 September 2009, Paul Volcker
Paul Volcker
Paul Adolph Volcker, Jr. is an American economist. He was the Chairman of the Federal Reserve under United States Presidents Jimmy Carter and Ronald Reagan from August 1979 to August 1987. He is widely credited with ending the high levels of inflation seen in the United States in the 1970s and...
(former US Federal Reserve chairman) "said he was “very interested” by ideas for a tax on transactions between banks" On 3 December 2009, 22 representatives in the United States House of Representatives
United States House of Representatives
The United States House of Representatives is one of the two Houses of the United States Congress, the bicameral legislature which also includes the Senate.The composition and powers of the House are established in Article One of the Constitution...
supported the "Let Wall Street Pay for the Restoration of Main Street Bill
Let Wall Street Pay for the Restoration of Main Street Bill
The proposed bill "Let Wall Street Pay for the Restoration of Main Street Bill" is officially contained in the United States House of Representatives bill entitled "H.R. 4191: Let Wall Street Pay for the Restoration of Main Street Act of 2009"...
", which contained a domestic financial transaction tax. On 7 December 2009, Nancy Pelosi
Nancy Pelosi
Nancy Patricia D'Alesandro Pelosi is the Minority Leader of the United States House of Representatives and served as the 60th Speaker of the United States House of Representatives from 2007 to 2011...
, Speaker of the United States House of Representatives
Speaker of the United States House of Representatives
The Speaker of the United States House of Representatives, or Speaker of the House, is the presiding officer of the United States House of Representatives...
stated her support for a "G20 global tax." However, already on 6 November 2009, US Treasury Secretary Timothy Geithner, following UK Prime Minister Gordon Brown's call for a global FTT, expressed US opposition to the proposal saying: "A day-by-day financial transaction tax is not something we're prepared to support". Instead Geither favors an ongoing levy charged against large banks
Bank tax
A bank tax is a tax on banks. One of the earliest modern uses of the term "bank tax" occurred in the context of the Financial crisis of 2007–2010....
. On 13 December 2009, Paul Volcker
Paul Volcker
Paul Adolph Volcker, Jr. is an American economist. He was the Chairman of the Federal Reserve under United States Presidents Jimmy Carter and Ronald Reagan from August 1979 to August 1987. He is widely credited with ending the high levels of inflation seen in the United States in the 1970s and...
, chairman of the US Economic Recovery Advisory Board under President Barack Obama
Barack Obama
Barack Hussein Obama II is the 44th and current President of the United States. He is the first African American to hold the office. Obama previously served as a United States Senator from Illinois, from January 2005 until he resigned following his victory in the 2008 presidential election.Born in...
, said he "instinctively opposed" any tax on financial transactions. "But it may be worthwhile to look into the current proposals as long as the result is not predetermined. That would at least end all this renewed talk about the idea, but overall I am skeptical about these ideas." By 2011, Volcker was more open to the idea of a transaction tax as a means to slow down trading.
According to Ron SuskindRon SuskindRon Suskind is a Pulitzer Prize winning American journalist and best-selling author. He was the senior national affairs writer for The Wall Street Journal from 1993 to 2000 and has published the books A Hope in the Unseen, The Price of Loyalty, The One Percent Doctrine, The Way of the World and...
, the author of "Confidence MenConfidence MenConfidence Men: Wall Street, Washington and the Education of a President is a book by Ron Suskind, published by HarperCollins on September 20, 2011....
", a book based on 700 hours of interviews with high-level staff of the US administration, President Obama supported a FTT on trades of stocks, derivatives, and other financial instruments, but it was blocked by Obama’s former director of the National Economic Council Larry Summers.
Other opposers
Most hedge funds managers fiercely oppose FTT. So does the economist and former member of Bank of England Charles GoodhartCharles GoodhartCharles Albert Eric Goodhart, CBE, FBA is an economist. He was a member of the Bank of England's Monetary Policy Committee from June 1997-May 2000 and a professor at the London School of Economics . He is the developer of Goodhart's law, an economic law named after him...
. The Financial TimesFinancial TimesThe Financial Times is an international business newspaper. It is a morning daily newspaper published in London and printed in 24 cities around the world. Its primary rival is the Wall Street Journal, published in New York City....
and the Asia-Pacific Economic CooperationAsia-Pacific Economic CooperationAsia-Pacific Economic Cooperation is a forum for 21 Pacific Rim countries that seeks to promote free trade and economic cooperation throughout the Asia-Pacific region...
Business Advisory Council have also spoken out against a global financial transaction tax.
Position of the International Monetary Fund
In 2001, the IMF conducted considerable research that opposes a transaction tax. On 11 December 2009, the Financial TimesFinancial Times
The Financial Times is an international business newspaper. It is a morning daily newspaper published in London and printed in 24 cities around the world. Its primary rival is the Wall Street Journal, published in New York City....
reported "Since the Nov 7 [2009] summit of the G20 Finance Minister
Finance minister
The finance minister is a cabinet position in a government.A minister of finance has many different jobs in a government. He or she helps form the government budget, stimulate the economy, and control finances...
s, the head of the International Monetary Fund, Mr Strauss-Kahn seems to have softened his doubts, telling the CBI
Confederation of British Industry
The Confederation of British Industry is a British not for profit organisation incorporated by Royal charter which promotes the interests of its members, some 200,000 British businesses, a figure which includes some 80% of FTSE 100 companies and around 50% of FTSE 350 companies.-Role:The CBI works...
employers' conference: 'We have been asked by the G20 to look into financial sector taxes. ... This is an interesting issue. ... We will look at it from various angles and consider all proposals.'" When the IMF presented its interim report for the G20 on April 16, 2010, it laid out three options: a bank tax
Bank tax
A bank tax is a tax on banks. One of the earliest modern uses of the term "bank tax" occurred in the context of the Financial crisis of 2007–2010....
, a Financial Activities Tax (FAT), and a third option (which was not promoted but not ruled out), a financial transaction tax. On 16 April 2011, the IMF stated, it does not endorse a financial transaction tax, believing it "does not appear well suited to the specific purposes set out in the mandate from the G-20 leaders." However, it concedes that "The FTT should not be dismissed on grounds of administrative practicality".
Challenging the IMF's belittling of the financial transaction tax, Stephan Schulmeister of the Austrian Institute of Economic Research found that, "the assertion of the IMF paper, that a financial transaction tax "is not focused on the core sources of financial instability," does not seem to have a solid foundation in the empirical evidence."
Europe
A survey published by YouGovYouGov
YouGov, formerly known as PollingPoint in the United States, is an international internet-based market research firm launched in the UK in May 2000 by Stephan Shakespeare, now Chief Executive Officer, and Nadhim Zahawi...
suggests that more than four out of five people in the UK, France, Germany, Spain and Italy think the financial sector has a responsibility to help repair the damage caused by the economic crisis.
A recent Eurobarometer
Eurobarometer
Eurobarometer is a series of surveys regularly performed on behalf of the European Commission since 1973. It produces reports of public opinion of certain issues relating to the European Union across the member states...
poll of more than 27,000 people published in January 2011 found that Europeans are strongly in favour of a financial transaction tax by a margin of 61 to 26 per cent. Of those, more than 80 per cent agree that if global agreement cannot be reached - an FTT should, initially, be implemented in just the EU.
United Kingdom
2011 polls have suggested about two thirds of the British public support the Robin Hood tax campaign and an the FTT. The polls indicate strong support for a FTT among supporters of all the three main UK political parties.