I would like to draw your attention to a debate on EU Financial Transactions Tax, which is currently starting on Debating Europe, a platform for discussion supported by the European Parliament.Feel free to contribute your thoughts and/or share the following link amongst your network: http://www.debatingeurope.eu/
2011/09/15/should-we-have-a- financial-transactions-tax/.Best regards,
So I do:
A Financial Transactions Tax, the Robin Hood Tax, apologies to those who haven\’t been thinking, but this is an entirely insane idea. No, really, flat out and clear lunacy.
There are all sorts of technical points that can be made, that one on currency trading would probably be illegal under current EU laws (it would interfere with the free movement of capital), that speculation itself reduces price volatility, not increases it, that passing tax revenues to the unelected has never proven historically sound, even the effects of those FTTs that do exist (the UK one on share transactions is known to reduce pensions and raise the cost of capital to companies, neither being desirable outcomes).
But the largest and most important point is that of \”tax incidence\”. If you don\’t know what this means then you\’re not competent to be taking part in this debate. But because I\’m a nice guy I\’ll explain it for any politicians or other ignorants who happen to pass by.
Who hands over the cheque for a tax is often not the person who is really carrying the economic burden of a tax. Studying who really does carry that economic burden is known as the study of tax incidence. Economists have been doing this for a long time: we\’ve known since 1899 (Seligman) that it absolutely is not a company which pays corporate taxation for example. For a company is only a legal fiction: a tax must, in the end, mean some lesser amount of money in the pocket of some live human being.
So, we\’ve known for over a century that whoever ends up paying the FTT it absolutely will not be the banks. Banks are, as you may have noticed, companies, and companies cannot and do not pay taxes.
So, everyone shouting that \”the banks must pay\” and that an FTT will make them pay is either deluded or ignorant. Or a politician, but I repeat myself.
So who will actually pay this tax, carry the economic burden? We\’re left with three possible groups: the shareholders in the banks, the workers in the banks or the consumers of the products of the banks. Rather than take you through all of the various arguments I\’ll just recommend that you read the various IMF, OECD and EU reports on this idea. All of them make exactly the same point. The people who will pay this tax will be the consumers of financial products.
That\’s you and me, that\’s us, the average man and woman in the street. The banks don\’t end up paying this tax, it\’s not even the bankers, it\’s us.
Two further technical points: Sir James Mirrlees (you know, Nobel Laureate, man who knows what he\’s talking about on tax) tells us that we should not use transactions taxes when there are other methods of achieving the same goals. This is because transactions taxes cascade through the economy and in doing so multiply. Joe Stiglitz (another NL, worth listening to on matters economic) has shown that the incidence of a tax can be higher than 100% (he was talking specifically about the corporate income tax but that\’s quite similar to this FTT). That is, that the amount that you and I have to pay is greater than the amount of money actually collected in tax revenue.
And yes, it\’s a trivially easy process to show that this is likely to be true of an FTT.
So, the Financial Transactions Tax. It\’s not banks who pay it, it\’s the citizenry. We will almost certainly end up paying more than the tax will actually raise. It\’s an absolutely terrible tax except for one unfortunate point.
The politicians will tell us that it\’s the banks being taxed and we\’ll often believe them even as they pick our own pockets for that money.
Bad economics and great politics. No wonder politicians love the idea.
Dunno if they\’ll publish it of course. Or whether it having been published it will stay so.