Woo hoo! Our prayers are answered. Richard Murphy has a solution for us!
John Christensen of the Tax Justice Network and I were musing on the state of the world yesterday when it occurred to us that now is the perfect time to introduce a financial transaction tax.
But good whilst such a tax would be, that’s not the form we had in mind. There is another alternative: that’s a financial transaction tax. Few have tried this: Brazil did form 1993 to 2007 when the opposition parties killed it, largely because the tax was used to fund social programmes they disagreed with.
This tax was charged on all bank transactions in Brazil at 0.38% of their value – that is well under a penny in the pound in the UK. It has been argued that the tax was economically inefficient. I am not sure I can agree. It raised $22 billion a year. But it did so ingeniously. Because every bank account was subject to the tax, and therefore had to be declared by the banks for this purpose there was also real evidence that tax evasion of other taxes reduced as a result, which was a massive secondary benefit of the arrangement.
We\’re in the middle of a great deleveraging. In our old frind MV=PQ, we find that V is falling drastically, meaning that if we want to keep P and or Q from shrinking then we have to increase M.
Which is what central banks all over the world are doing, lowering interest rates, printing money and ordering up those helicopters to start throwing cash over the side.
We also know that if you tax something you get less of it. This is indeed the basis of the Tobin Tax of which this bank transaction tax is a derivative. It\’s deliberately designed to reduce the number of such transactions.
Hmm, at a time that V is falling catastrophically, this is now a perfect time to tax V so as to get less of it.
Jeebus. I always knew that John and Richard were a bit strange but I hadn\’t until now thought that they were batshit crazy.
Ritchie even mentions this:
The argument always used against it was that it would restrict liquidity in the financial markets. Curiously the markets seem quite capable of doing that themselves right now.
So while we\’re desperately trying to increase liqudity you think it a good idea to restrict it?
BTW, Richard Murphy writes reports for the TUC.