Wednesday, February 10, 2010

Tobin Tax campaign returns as Robin Hood Tax

An expanded version of the Tobin tax first proposed by Nobel winning economist the late James Tobin in 1972 has been renamed the Robin Hood tax and already has the support of the British Prime Minister, the German Chancellor and the French President. It also has the support of hundreds of economists.

Another Nobel winner, American economist Paul Krugman; and former World Bank economist (and now a critic of it) Joseph Stiglitz both back some kind of Tobin tax. Oxfam, the World Development Movement and many other charities and trade unions on both sides of the Atlantic and the Channel back the Robin Hood tax.

The tax would be on large scale currency transactions by banks and other financial institutions, most of which are speculative (i.e basically gambling on a huge scale). So it wouldn’t affect buying some currency for a holiday for instance. The proposed rate is about 0.05% - a very low rate but enough to bring in considerable tax revenues given the vast size of many currency transactions. (The ‘Robin Hood Tax’ covers some categories of transaction not covered by the original Tobin tax – perhaps because new forms of currency and stock market speculation have developed since the 1970s)

The tax would discourage currency speculation, like the current speculative trading on the Euro or the run on the pound on Black Wednesday in the 1990s, by making it less profitable. At the same time it would generate large amounts of tax from big banks, hedge funds and other large firms which would mean first that if banks went under again the tax would mean they would be paying for their own bail-outs – and it would leave plenty left over to spend on helping the poorest, education and protecting the environment we all rely on for our survival.

The Obama government has been being lobbied heavily by the hedge funds, the banks and their representatives in ‘free market’ (read oligopoly) ideologue groups like ‘The Heritage Foundation’.

A Mr. Duvet (was that name chosen to sound warm and safe during cold weather?) was a spokesman for the Heritage Foundation on the UK’s Channel 4 News a few months ago. He explained that the 0.05% tax (half a per cent) was more than the banks and the hedge funds (massive gambling outfits) could bear. (After all they’d only just been bailed out for billions). He went on to suggest a VAT tax be introduced in the US, presumably on the grounds that the Heritage Foundation couldn’t give a toss about the effect of a tax with no relation to income on the vast majority of people.

On 8th November 2009 Obama’s Finance Secretary Timothy Geithner rejected the Tobin tax saying “A day-by-day financial transaction tax is not something we are prepared to support” and that the economy required a stimulus rather than more taxes.

Obama’s falling approval rating in the US and the Democrat’s loss of Ted Kennedy’s seat to a Fox News and Tea-Party backed Republican may change that yet though. Immediately after the loss of that seat Obama announced that banks taking deposit accounts would not be allowed to continue hedge funds and other speculative operations – they would have to become separate firms. He may yet be open to being persuaded that a Tobin or ‘Robin Hood’ tax won’t do his poll ratings, his election results or his prospects of reducing the US budget deficit any harm.

To read more or to sign up as a supporter of the Robin Hood tax go here.


Tobi said...

Hi Dunc...
I have to say the concept of the Robin Hood tax feels right, but I know exactly what the banking world are going to say...

1) The'll argue the risks of unilateralism. When people were proposing a tax on bank bonuses, we were told that all the bankers would just up sticks and sod off somewhere the levy didn't apply. British banks would lose all the best 'talent'. Personally I thought that was a load of mince, coz there aren't enough places in Switzerland, Bermuda etc for all of our displaced fat cats. And lets face it...who really wants to live in Grand Cayman? just know that we're going to be presented with a horror story scenario of big banks leaving London en masse for the US and China. Don't really know how likely that is, but a few companies relocating does actually seem a little bit more plausible than 20,000 public school wallopers suddenly quitting, and jetting off to find jobs in Luxembourg.

2) Trying to introduce a tax on transaction rather than profits could be a sticking point. High-volume, low-margin markets often operate on ask-bid spreads of substantially less than 0.05%. Therefore although the transaction may be huge, traders would have to double their margin or much, much more to accrue the same profit yield. Cue headlines in the Daily Torygraph about the proposed 100-5000% tax on the financial industry.

Personally, I'm into anything that limits currency trading and futures trading on consumables - all these markets do is drive up the price to the consumer so that some rich twat in Shanghai or New York can make money for some even richer twat in Monte Carlo or Kensington.

But I can imagine exactly how the wagons will be circled.


Kit said...

I agree with your assessment (PS. You've missed the 'h' from the http of the last link).

calgacus said...

Hi Tobi - 1) Very true. It'd need to be an EU wide or ideally US-EU or OECD wide measure that also involved a crack down on tax-havens (i think there's been a minor OECD one already demanding they provide details of all accounts in their banks or face bans on tourism and financial transfers)

2) Yes, fair point too. To the extent that it succeeds in reducing currency speculation it'd also reduce the amount of additional tax it could generate - but if the aim is partly to reduce the number and size of these transactions to make speculation less profitable and reduce market instability that's not a huge problem.

I doubt the majority of voters in most countries will be overly concerned about lost profits for bankers or currency speculators given recent events.

The other potential problem someone else pointed out to me is that banks might just try to pass the charge on to customers in increased charges on other services. The only ways i can think of to counter that would be to ban banks accepting individual customers' accounts from carrying out large scale currency transactions or getting the regulators to crack down on them (which is hard when you have so many regulators who don't believe in regulation and so shouldn't be in the job in the first place)

How are you doing anyway? Are you still in Bournemouth?,

calgacus said...

Hi Kit - thanks - trust me to muck up the one link in the post people might click. Hope you're doing well in London?,