Jeff Sachs and the Robin Hood Tax

Of course, Sachs would support absolutely anything that raised more money for development. But he does at least point to the correct question:

incidence of the tax

It won\’t be the banks and bankers (no, no matter what Ritchie says, it won\’t be) who carry the costs. It will be all users of financial markets. That is, us, you and me.

And that burden could well be higher than the amount actually raised.

My guess is that \”let\’s tax the bankers $400 billion\” is more appealing than \”let\’s you and me pay $600 billion to raise $400 billion in tax\”.

10 thoughts on “Jeff Sachs and the Robin Hood Tax”

  1. http://blogs.telegraph.co.uk/news/danielhannan/100029418/meps-vote-overwhelmingly-for-an-eu-tobin-tax/

    Looks like the financial markets have just acquired decorative status.

    As for paying for this lunacy, well, we’re so over taxed that by now it does not matter anymore, if they take it in Tobin tax, they lose out on it in petrol tax, or in the tax they would’ve made from people selling gadgets which are left in the shelf since people have to pay the tax instead.

  2. Err, so that’s why bankers fight and lobby so hard to stop these taxes being put in place, is it? Do they do it purely out of concern for “you and me”? If the banks and bankers don’t eat the taxes, as you suggest they don’t, then it’s hard to imagine why they would complain so much. Don’t forget: tax cuts have “incidence” too – it’s just harder to notice the losers, because the revenue loss is diffused so much more widely.

    Tim adds: The thing is though, I don’t see a campaign by bankers against the RHT. So that thought rather fails, doesn’t it?

  3. “If the banks and bankers don’t eat the taxes, as you suggest they don’t, then it’s hard to imagine why they would complain so much. ”

    Well Nick, the reason that the bankers complain about this insanity is that they understand the problems this will cause us all.

    As for ‘concern for you and me’ — well, most bankers have many times the money that is required for a very comfortable retirement (think ‘winning the lottery a few times’) and I have no idea why they keep wasting precious lifetime on their insanely intensive jobs when they don’t really have to.

    Being a banker is one of the world’s strangest hobbies to indulge in…

  4. So, Evelyn:
    “Well Nick, the reason that the bankers complain about this insanity is that they understand the problems this will cause us all.”
    What you’re saying, I think, is that bankers do it purely out of concern for “you and me.”
    An interesting opinion. I beg to differ.

  5. Tim,
    “I don’t see a campaign by bankers against the RHT. So that thought rather fails, doesn’t it?”
    Hmm, an interesting perspective.
    You seem to be implying here that bankers don’t oppose the RHT. So either “bankers” support the RHT, or bankers don’t care about the RHT. Have I understood you right?
    And my point was a broader one: about taxes (not just RHT) on banks, corporations, and on “incidence.” Are you suggesting more generally that bankers don’t oppose (or campaign against) higher taxes on bankers? Some might call this a shaky foundation on which to build an argument.
    I am not sure my arguments can be dismissed by your throw-away line. Surely you can do better than that?

    Tim adds: Your first point. I don’t know what bankers think about the RHT because I’ve not seen any bankers say anything about the RHT. I’ve seen a lot of economists saying things though….almost all of them (yes, even including Jeff Sachs and Joe Stiglitz) saying that the most important thing is the incidence. Who actually pays the economic burden of this tax……as with any other tax. That is the most important thing about it. And when we want to talk about the economics of taxation I tend to think we should be listening to hte points economists make: not bankers or retired accountants.

    Re your broader point. Tax incidence. You then go on to ask whether bankers campaign against higher taxes on bankers. But this is the whole point of the tax incidence argument. It simply is not true that a tax where it is bankers that send in the cheque is a tax where the economic burden of the tax is being carried by bankers.

    I am absolutely certain that bankers campaign against higher taxes where the burden is actually carried by bankers. Just as you or I campaign (or at least complain) about higher taxes which are levied upon us.

    Now, to give you my not throw away line about the RHT. The organisers, the people running the website and the campaign, swear blind that the tax will not be paid by you and me, by the average man in the street. This is untrue. They are either lying or ignorant. The burden of this tax, because of this thing called tax incidence, will fall squarely upon the shoulders of anyone who uses the financial system. That is, all of us.

    This is not some strange right wing idea, this is not an invention of neo-liberals. It’s an economic fact, one which we’ve known about for 110 years minimum. One which at least one leftist Nobel Laureate has confimed with his own research, one which impartial people like the Congressional Budget Office publish papers on.

    The mechanism by which this will happen with the RHT (as with any FTT) is that liquidity will fall as the sepeculators fall out of the system. Lower liquidity will lead to wider margins. Thus everyone will be paying more to use the financial system.

    I repeat that this is not a joke nor a hypothesis. This is, as far as anything can be said to be so in economics, a simple, known, truth.

    That’s why I oppose the tax. I oppose this tax for this reason. We’re being sold a pup.

    I have elsewhere described things which I think would be sensible to do about the banking system. Obama’s idea of an insurance levy on liabilities looks like a good one to me.

    But the RHT? No, it’s the application of ignorance to the tax system. The people they say will be paying the tax are not the people who will.

    BTW, you can come back to me with anything you might think shakes this view. I’ve read all of the papers that people are using to support the tax. Absolutely none of them address this point effectively.

  6. Nick, I have no idea why such capable and well-educated people who are financially secure many times over they are wasting their time with banking(and being hated for it).

    Now if you have an idea why they do that, feel free to enlighten me — until then I personally think that this is proof that the road to hell is paved with good intentions.

    Btw, I keep noticing that bankers get blamed for all the losses, but no-one mentions the myriads of fraudsters and thieves who have actually stolen the missing money by taking on debt they cannot service — credit cards, mortgages and other loans.

    Instead of a Robin Hood tax, a defaulting debtor tax would actually be far more direct and fair here…

  7. Hmm, Evelyn. A couple of points.
    1. Why are bankers in it? Is there just the teensy-weensy possibility that it’s the money, stupid?
    2. I note that you have, like Tim “bankers don’t mind being taxed” Worstall, dodged my points and questions. Or at least you have stuck to your line, it seems (“this is proof that the road to hell is paved with good intentions”) that bankers do their jobs purely out of the goodness of their hearts. How grateful we should all be to these wonderful, altruistic people!
    But once again, I implore you: please set me right. Answer my points directly.
    The lack of any serious answers to my points so far reinforces my belief – that Tim’s arguments about “incidence” are pure nonsense, simply for the purposes of bamboozlement.

  8. Well argued Nick

    But don’t expect Tim et al to answer your clear and coherent points. (Hey are simple apologists for the existing status quo. That is indefensible so their stock in trade is obfuscation, pedantry, and ultimately denial that there. Is an issue to answer – which they always refuse to address, as you have found

    Tim adds: Welcome Richard. As you can now see I have addressed his points. As you can also see I do not, unlike yourself, erase comments that insult me or my views nor those that pose problems to my explanations of my views.

    I only ban comments for gross racism, libel, unnecessary personal abuse and spam.

    I recommend it to you as a comments policy for your own blog.

    For I note that a number of my comments there have indeed been banned in moderation for their temerity in contradicting, with evidence, your statements.

  9. OK. Tim, thanks for replying.
    I’m not personally a member of the campaign, and to be honest I’m not a firm advocate of the tax myself, since I just don’t know enough about it. My point was about incidence more generally. But for starters my guess on the RHT is this. First, you have had a world with no RHT, and calamity has ensued. Considering an alternative is clearly a good idea. Advocates of the RHT seem to make three arguments: i) it’ll raise revenue; ii) it’ll curb volatility; iii) it’ll reduce volumes and size of banks + the too big to fail problem. For me, iii) is the compelling one, but I’m prepared to believe that the other two are useful too. And you have made no case against iii). You have focused purely on i) (“It won’t be the banks and bankers (no, no matter what Ritchie says, it won’t be) who carry the costs.”) Are you serious Tim?. We are not talking about flows of real investment here. We are talking about what Gillian Tett calls “candy floss money” – just as you can spin a tiny piece of sugar into a huge candyfloss, you can spin “real bonds” into all sorts of financial fluff, in the process extracting vast profits and growing your financial system to murderous levels. A transactions tax clearly has a role to play here. Costs of financial services may rise, but if the tax serves to shrink the financial sector (and it is just foolish to think that banks and bankers won’t eat the tax – you have admitted now, I see, that you just aren’t sure whether they care about it) then that is a price well worth paying.
    And you say “The people running the website and the campaign, swear blind that the tax will not be paid by you and me.” Do they really say that, collectively? Or do they say that on balance, it would achieve one or all of these goals? You see, Tim, you emphatically have not answered my point about incidence: that tax cuts have incidence too, and this matters. Members of the “incidence brigade” talk so often as if tax revenues simply go up in smoke. But there is this other side of the ledger to consider. So what we’re talking about here is redistribution (and changing behaviour.) “Incidence” is just a fancy way of talking about those things, as a way to bamboozle people. Corporate taxes do “fall” on all sorts of people – shareholders, capital owners, workers, and so on – for sure, but corporation tax cuts fall on taxpayers too. So the question we need to ask is: do corporation taxes redistribute income and change behaviour? Of course they do. And now we’re back onto a far more familiar set of arguments. The “incidence” argument is just a nonsense.
    Oh, and on your citing of economists, let’s quote Tim Harford (no RHT fan, as it happens:)
    – We should not levy a price on carbon. Why? Because Nobel laureate Thomas Schelling thinks that cap-and-trade schemes are a silly way to think about climate change policy.
    – We should be able to buy and sell kidneys. Why? Because Nobel laureate Gary Becker thinks that it would be a good idea. [pdf]
    – We should stop laying into economists. Why? Because Nobel laureate Robert Lucas thinks macroeconomics performed well during the financial crisis.
    Satisfied with these “arguments”? Of course not. They’re not arguments at all. They are appeals to authority.” You have done the same here, Tim. You will probably wheel out that 2006 CBO study beloved by the incidence brigade, larded with unworldly “stylised facts.” Its first sentence, in fact, is ““This study applies a simple two-country, five-sector, general equilibrium model.”
    That fills one with confidence, doesn’t it?.
    But more importantly, the study (and others) in no way negate my core point here.
    Finally, one other thing.
    “I only ban comments for gross racism, libel, unnecessary personal abuse and spam.”
    Fair enough. Subliminal racism seems to be acceptable, though:
    https://www.timworstall.com/2010/03/05/very-much-doubt-its-true-but/

    Tim adds: Of your three points. Raising revenue. Yes, it will do that. But who from? That’s my point about incidence. Reducing volatility? Well, there’s still a huge argument going on about that. There’s a very large number of economists who argue that it would increase volatility. As to too big to fail….distinctly unconvinced that the RHT would do that. Obama’s idea of a tax on liabilities is more likely to do that. And no, don’t use R. Murphy’s argument from his paper to refute that. He manages to get the idea wrong.

    “Do they really say that, collectively?” Yes, they do, and they’re wrong to do so.

    “So the question we need to ask is: do corporation taxes redistribute income and change behaviour? Of course they do.”

    Sure. But what we need to ask ourselves is who is the income being redistributed from? If it is the workers who pay corporation tax in the form of lower wages (which they certainly do, the question is how much, not whether) then lowering corporation tax and replacing it with, say, a higher capital gains tax, would be progressive, not regressive. This is why the incidence argument is so important.

    As I’m still a little in hte dark about what your core argument is allow me to lay out mine again.

    The RHT will not be paid by banks and bankers. The economic burden will be carried by all users of financial markets. Thus it’s a tax on you and me. Which is very different from the way that the campaign portrays itself.

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