Bill Nighy on the Robin Hood Tax

My response to his nonsense:

Great, so now we\’re getting our economics from actors are we?

I have been arguing for the last year that the banks, hedge funds and other titans of the City of London whose gambling got us into this trouble should pay to clean up the mess they caused.

Just for a moment, let\’s assume that we do want to do this. Great, so, will the Robin Hood Tax do this? Make the banksters pay?

No, it won\’t. There\’s this tricky little thing in economics called \”tax incidence\”. There\’s a difference between who hands over the cheque and who actually carries the economic burden of a tax. Your employer hands over the cheque for the income tax taken under PAYE but no one at all thinks that your employer is carrying that economic burden: you are. Same with NI.

The incidence of corporation tax is largely on the workers in the form of lower wages, some on the shareholders in lower returns. The company certainly never pays a penny of it.

And note that this isn\’t people \”trying\” to pass it on, it\’s just that the existence of a tax changes behaviour and thus the burden of it can be on a quite different set of people than those it\’s presumably aimed at.

The incidence, the economic burden, of the Robin Hood Tax will not be on the banks or the bankers. It will be upon all users of the financial system. Everyone with a bank account for example. Everyone who buys foreign currency to go on hols. Everyone who buys something from a company which has a bank account, makes money transfers, buys foreign currency to import something.

Yup, the tax will actually end up being paid by all of us, the poor bloody civilians.

It\’s true that it might shrink the banking industry as well, that it will entirely shut down the overnight interbank market (something we\’ve just spent hundreds of billions trying to keep open), that it will reduce the size of the foreign exchan industry, hey, it might even get some bankers fired.

But precisely because it will cause all of these things to happen that\’s why all of us out here, the generaly citizenry, are the peole who will end up paying the tax. Because each and every financial transaction will be charged the tax and we are each and every one of us consumers of thousands of financial transactions each and every day.

Think of a loaf of bread at the supermarket. Probably made from Canadian wheat (UK wheat is good for animal fodder, Canadian for bread and pasta, we send them animal fodder, we eat their wheat). So the Canadian farmer has sold his wheat as a future: no, this isn\’t speculation, this is hedging, a good thing. So there\’s a 0.05% tax there. Then, well let\’s ignore the speculators playing with futures who each get charged 0.05% on however many times they play with that wheat. Then there\’s the miller who has also bought a future: hedging again. 0.05% tax. He mills it, sells it to the baker. 0.05% tax. Baker sells it to the supermarket. 0.05% tax. You buy it on your debit card, 0.05% tax (yes, it applies to all irrevocable electronic transfers of money).

Doesn\’t look like all that much, does it, but some of the things we use ourselves can go through 20, 50 different processes and companies before they get to us. 0.05% tax every time, because the tax is on every money payment made through the banking system.

This tax will be on every single intermediary transaction in the entire supply chain. That\’s the whole point of it. And so guess what folks?

Who pays it? You and me, that\’s who.

And as for you Mr. Nighy, I\’ll make you a deal. I promise not to do Lear and you promise to read this little bit of economics.

And if you\’re prepared for some advanced study, read pages 144 to 187 here.

Where you will see that in the long run (which is the important part of course) the burden will fall upon workers and consumers. And, as our own home grown economics Nobel Laureate, Sir James Mirrlees, points out, even if you can tax intermediate transactions you really don\’t want to anyway.

Please, can we put this Robin Hood Tax idea to bed now? It\’s an absolutely horrible idea being promoted by those who have no idea whatsoever what they\’re talking about.

There are good ideas out there, like the banking insurance levy, which will both raise money and do some good. Try supporting them instead.

16 thoughts on “Bill Nighy on the Robin Hood Tax”

  1. Actually at least part of our problems – the structural deficit was not created by bankers but politicians.

  2. an aside to the point you’re making, i know, but this is an odd paragraph:

    “The incidence of corporation tax is largely on the workers in the form of lower wages, some on the shareholders in lower returns. The company certainly never pays a penny of it.”

    firstly, there is the odd distinction of the ‘company’ and the ‘shareholders’ when, at the end of the line, they’re really the same thing. in the current climate of corporation bashing i think it’s actually pretty important to get the message across that all these companies are, at the end of the line, people… and *horror* quite a lot of them are NOT billionaires.

    and with regards to corporation tax being reflected in wages.. i think we both know that isn’t really what happens – as will, no doubt, be made evident when the forthcoming cut in corporation tax rates conspicuously doesn’t lead to an increase in wages. given the wide variety in the effective tax rates of companies, it’s a little fancidul to suggest that these are a common driver of wage rates when there are far more dominant market forces at play.

  3. “so now we’re getting our economics from actors are we?”: be fair; the economics profession has disgraced itself over the last few decades, hasn’t it?

  4. actually, I don’t think this is enough to “put the Robin Hood tax idea to bed” – as we have discussed, all taxes have an incidence.

    If we want to raise more tax revenue (which might be helpful at present juncture) the incidence of taxing financial transaction might not look so bad compared with the incidence of other possible tax increase (VAT, income tax etc.). Perhaps the employees, customers of and shoareholders of banks aren’t such a bad bunch to hit if you have to hit somebody.

    The more interesting question is how the tax will affect bank behaviour – as you have previously argued, it might wipe out the over night lending market, which could be regarded as a feature rather than a bug. There are questions over how it might be enforced, and what banks would do to escape it. Personally, I also reckon there are better ways of taxing the banks, so I’m with you in your conclusion. But if you want to kill the Robin Hood idea, tax incidence is not the mortal blow.

    Tim adds: When someone promotes a tax with “this tax will be paid buy the eeeevil bankers” then pointing out that it will be paid by consumers, not bankers, does rather put it to bed.

  5. David you’re quite right
    Actually at least part of our problems – the structural deficit was not created by bankers but politicians.
    So let’s get the government to pay.
    Oh. Wait…

  6. “Great, so now we’re getting our economics from actors are we?”. Aren’t you more a metals trader than an economist? Attack the idea not the person, though I will make an exception for one Christian fundamentalist ex-accountant.

    “This tax will be on every … intermediary transaction in the entire … chain. … Who pays it? You and me, that’s who.”

    The reason we pay the tax is because we are at the end of the chain, just as with VAT. Everyone else in the chain is just a glorified unpaid tax collector.

  7. Thanks for the information on tax incidence. I’ve often wondered who actually pays when taxes are increased. But if it is all of us; and that is a fact of which the public is unaware, it surely makes sense for a Government to make a show of hitting the banks?

    Tim adds: Politically, you’re absolutely correct. That’s why governments love raising corporation taxes, because no one realises who actually pays them.

    Economically however…..

  8. from

    “On the incidence argument, the tax will be passed on to the owners of capital, just like capital gains tax. These are not your typical ‘consumers’. for example, the standard up front investment to become a ‘consumer’ of hedge fund products is 1 million dollars.

    You could probably try and argue that even capital gains tax eventually ends up being passed on in one way or another, but your argument then rapidly becomes one that is largely against tax per se.

    The question is not whether the lower quintiles will not end up paying some of this but surely it is hard to argue that this tax would not be highly progressive in its incidence. As such it is the opposite of VAT, which consumes twice as much of the income of the poorest quintile than the richest.

    There is also now widespread agreement that the financial sector is undertaxed and this has contributed to its growing too large. “

  9. sma,

    a commentator called max makes that assertion on owen’s blog – it’s not clear on what basis

  10. “Hi! I have a frighteningly simplistic idea that will put everything right all in one go!

    “I guarantee that it will put right 13 years of duff regulation of the banks! It’s called the Robin Hood Tax!”

    Simplistic solutions rarely work. And often cause more harm than good.

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