A financial transaction tax (FTT) is a
levy
Levy, Lévy or Levies may refer to:
People
* Levy (surname), people with the surname Levy or Lévy
* Levy Adcock (born 1988), American football player
* Levy Barent Cohen (1747–1808), Dutch-born British financier and community worker
* Levy Fi ...
on a specific type of
financial transaction
A financial transaction is an agreement, or communication, between a buyer and seller to exchange goods, services, or assets for payment. Any transaction involves a change in the status of the finances of two or more businesses or individuals. A ...
for a particular purpose. The tax has been most commonly associated with the
financial sector
Financial services are the economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, accountancy companies, ...
for transactions involving intangible property rather than real property. It is not usually considered to include
consumption tax
A consumption tax is a tax levied on consumption spending on goods and services. The tax base of such a tax is the money spent on Consumption (economics), consumption. Consumption taxes are usually indirect, such as a sales tax or a value-added ta ...
es paid by consumers.
A transaction tax is levied on specific transactions designated as taxable rather than on any other attributes of
financial institution
Financial institutions, sometimes called banking institutions, are business entities that provide services as intermediaries for different types of financial monetary transactions. Broadly speaking, there are three major types of financial insti ...
s. If an institution is never a party to a taxable transaction, then no transaction tax will be levied from it. If an institution carries out one such transaction, then it will be levied the tax for the one transaction. This tax narrower in scope than a
financial activities tax (FAT), and is not directly an industry or sector tax like a Financial stability contribution (FSC), or "
bank tax
A bank tax, or a bank levy, is a tax on banks which was discussed in the context of the financial crisis of 2007–08. The bank tax is levied on the capital at risk of financial institutions, excluding federally insured deposits, with the aim of ...
",
for example. These distinctions are important in discussions about the utility of
financial transaction
A financial transaction is an agreement, or communication, between a buyer and seller to exchange goods, services, or assets for payment. Any transaction involves a change in the status of the finances of two or more businesses or individuals. A ...
tax as a tool to selectively discourage excessive
speculation
In finance, speculation is the purchase of an asset (a commodity, good (economics), goods, or real estate) with the hope that it will become more valuable shortly. (It can also refer to short sales in which the speculator hopes for a decline i ...
without discouraging any other activity (as
John Maynard Keynes
John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in ...
originally envisioned it in 1936).
There are several types of financial transaction taxes. Each has its own purpose. Some have been implemented, while some are only proposals. Concepts are found in various organizations and regions around the world. Some are domestic and meant to be used within one nation; whereas some are multinational.
[Richard T. Page]
"Foolish Revenge or Shrewd Regulation? Financial-Industry Tax Law Reforms Proposed in the Wake of the Financial Crisis?"
85 Tul. L. Rev.
The ''Tulane Law Review'', a publication of the Tulane University Law School, was founded in 1916, and is currently published five times annually. The Law Review has an international circulation and is one of few American law reviews carried by l ...
191, 193–195, 205–14 (2010). In 2011 there were 40 countries that made use of FTT, together raising $38 billion (€29bn).
History
![Keynes 1933](https://upload.wikimedia.org/wikipedia/commons/0/04/Keynes_1933.jpg)
The year 1694 saw an early implementation of a financial transaction tax in the form of a
stamp duty
Stamp duty is a tax that is levied on single property purchases or documents (including, historically, the majority of legal documents such as cheques, receipts, military commissions, marriage licences and land transactions). A physical revenu ...
at the
London Stock Exchange
London Stock Exchange (LSE) is a stock exchange in the City of London, England, United Kingdom. , the total market value of all companies trading on LSE was £3.9 trillion. Its current premises are situated in Paternoster Square close to St Pau ...
. The tax was payable by the buyer of
shares
In financial markets, a share is a unit of equity ownership in the capital stock of a corporation, and can refer to units of mutual funds, limited partnerships, and real estate investment trusts. Share capital refers to all of the shares of an ...
for the official stamp on the legal document needed to formalize the purchase. , it is the oldest tax still in existence in Great Britain.
In 1893, the Japanese government introduced the
exchange tax, which continued until 1999. In 1893, the tax rates were 0.06% for securities and commodities and 0.03% for bonds.
The United States instituted a
transfer tax
A transfer tax is a tax on the passing of title to property from one person (or entity) to another.
In a narrow legal sense, a transfer tax is essentially a transaction fee imposed on the transfer of title to property from one entity to another. ...
on all sales or transfers of stock in The Revenue Act of 1914 (Act of 22 October 1914 (ch. 331, 38 Stat. 745)). Instead of a fixed tax amount per transaction, the tax was in the amount of 0.2% of the transaction value (20 basis points, bips). This was doubled to 0.4% (40 bips) in 1932, in the context of the Great Depression,
then eliminated in 1966. By 2020, all major economies have moved to the
GST (Goods and Services Tax) based tax system.
In 1936, in the wake of the
Great Depression
The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
,
John Maynard Keynes
John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in ...
advocated the wider use of financial transaction taxes.
He proposed the levying of a small transaction tax on dealings on
Wall Street
Wall Street is an eight-block-long street in the Financial District of Lower Manhattan in New York City. It runs between Broadway in the west to South Street and the East River in the east. The term "Wall Street" has become a metonym for t ...
, in the United States, where he argued excessive speculation by uninformed financial traders increased
volatility (see Keynes financial transaction tax below).
In 1972 the
Bretton Woods system
The Bretton Woods system of monetary management established the rules for commercial and financial relations among the United States, Canada, Western European countries, Australia, and Japan after the 1944 Bretton Woods Agreement. The Bretto ...
for stabilizing currencies effectively came to an end. In that context,
James Tobin
James Tobin (March 5, 1918 – March 11, 2002) was an American economist who served on the Council of Economic Advisers and consulted with the Board of Governors of the Federal Reserve System, and taught at Harvard and Yale Universities. He devel ...
, influenced by the work of Keynes, suggested his more specific
currency transaction tax
A currency transaction tax is a tax placed on the use of currency for various types of transactions. The tax is associated with the financial sector and is a type of financial transaction tax, as opposed to a consumption tax paid by consumers, th ...
for stabilizing currencies on a larger global scale.
In 1989, at the
Buenos Aires
Buenos Aires ( or ; ), officially the Autonomous City of Buenos Aires ( es, link=no, Ciudad Autónoma de Buenos Aires), is the capital and primate city of Argentina. The city is located on the western shore of the Río de la Plata, on South ...
meetings of the
International Institute of Public Finance The International Institute of Public Finance, or IIPF, is a global organization of economists specializing in public finance. It was founded in Paris
Paris () is the capital and most populous city of France, with an estimated population o ...
,
University of Wisconsin-Madison
A university () is an institution of higher (or tertiary) education and research which awards academic degrees in several academic disciplines. Universities typically offer both undergraduate and postgraduate programs. In the United States, the ...
Professor of Economics
Edgar L. Feige
Edgar L. Feige (born 19 September 1937) is an emeritus professor of economics at the University of Wisconsin–Madison. A graduate of Columbia University (BA. 1958) and the University of Chicago (Ph.D., 1963) he has taught at Yale University ; Th ...
proposed extending the tax reform ideas of
John Maynard Keynes
John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in ...
,
James Tobin
James Tobin (March 5, 1918 – March 11, 2002) was an American economist who served on the Council of Economic Advisers and consulted with the Board of Governors of the Federal Reserve System, and taught at Harvard and Yale Universities. He devel ...
and
Lawrence Summers
Lawrence Henry Summers (born November 30, 1954) is an American economist who served as the 71st United States secretary of the treasury from 1999 to 2001 and as director of the National Economic Council from 2009 to 2010. He also served as pre ...
, to their logical conclusion, namely to tax all transactions. Feige's
Automated Payment Transaction tax
The Automated Payment Transaction (APT) tax is a small, uniform tax on all economic transactions, which would involve simplification, base broadening, reductions in marginal tax rates, the elimination of tax and information returns and the automat ...
''(APT tax)'' proposed taxing the broadest possible tax base at the lowest possible tax rate. Since financial transactions account for the greatest component of the APT tax base, and since all financial transactions are taxed, the proposal eliminates substitution possibilities for evasion and avoidance. The goal of the APT tax is to significantly improve economic efficiency, enhance stability in financial markets, and reduce to a minimum the costs of tax administration (assessment, collection, and compliance costs).
[Daniel Akst for the New York Times. 2 February 2003]
Dreaming Out Loud: One Tiny Little Tax
The
Automated Payment Transaction tax
The Automated Payment Transaction (APT) tax is a small, uniform tax on all economic transactions, which would involve simplification, base broadening, reductions in marginal tax rates, the elimination of tax and information returns and the automat ...
proposal was presented to the
President's Advisory Panel on Federal Tax Reform
On January 7, 2005, President George W. Bush announced the establishment of the President's Advisory Panel on Federal Tax Reform, a bipartisan panel to advise on options to reform the United States income tax code to make it simpler, fairer, and mo ...
in 2005.
As the
EU, European free trade, and
Euro
The euro ( symbol: €; code: EUR) is the official currency of 19 out of the member states of the European Union (EU). This group of states is known as the eurozone or, officially, the euro area, and includes about 340 million citizens . ...
came together, various financial transaction taxes were considered openly. One non-tax regulatory equivalent of Tobin's narrow tax, to require "non-interest bearing deposit requirements on all open foreign exchange positions", was considered in particular but rejected. During the 1980s the Chicago School view became dominant, that speculation served a vital purpose in keeping currencies accurately reflecting the prospects of their economies, and that even very short term transactions in response to news could in fact reflect fundamental analysis.
Economic literature of the period the 1990s–2000s emphasized that derivatives and other variations in the terms of payment in trade-related transactions (so-called "swaps" for instance) provided a ready means of evading any tax other than the
Automated Payment Transaction tax
The Automated Payment Transaction (APT) tax is a small, uniform tax on all economic transactions, which would involve simplification, base broadening, reductions in marginal tax rates, the elimination of tax and information returns and the automat ...
since it uniformly taxed all transactions. Other measures and exemptions from such transaction taxes, to avoid punishing hedging (a form of insurance for cashflows) were also proposed. These tended to lead to generally more complex schemes that were not implemented, in part due to lack of standardization of risk reporting under the
Basel I
Basel I is the first Basel Accord. It arose from deliberations by central bankers from major countries during the late 1970s and 1980s. In 1988, the Basel Committee on Banking Supervision (BCBS) in Basel, Switzerland, published a set of minimum ca ...
framework, which was itself a response to the 1980s financial speculation crises.
However, disclosure had not kept pace with practices. Regulators and policy-makers and theorists by the 1990s had to deal with increasingly complex
financial engineering
Financial engineering is a multidisciplinary field involving financial theory, methods of engineering, tools of mathematics and the practice of programming. It has also been defined as the application of technical methods, especially from mathema ...
and the "avoidance by a change of product mix... market participants would have an incentive to substitute out of financial instruments subject to the tax and into instruments not subject to it. In this fashion, markets would innovate to avoid the tax" as they were doing with the creation of
financial derivative
In finance, a derivative is a contract that ''derives'' its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate, and is often simply called the "underlying". Derivatives can be u ...
s. "The real issue is how to design a tax that takes account of all the methods and margins of substitution that investors have for changing their patterns of activity to avoid the tax.
ssuggested by Pollin et al. (1999)." – Palley, 2000
The global adoption of a small flat rate
Automated Payment Transaction tax
The Automated Payment Transaction (APT) tax is a small, uniform tax on all economic transactions, which would involve simplification, base broadening, reductions in marginal tax rates, the elimination of tax and information returns and the automat ...
whose base included all transactions would eliminate evasion and avoidance possibilities since the tax would apply equally at all substitution margins.
Advocates including Pollin, Palley, and Baker (2000) emphasized that transaction taxes "have clearly not prevented the efficient functioning of" financial markets in the 20th century.
Many theorists raised the issue that hedging and speculation were more of a spectrum than a distinct duality of goals. "Academic studies (e.g. Bodnar et al, 1998) show that companies usually incorporate predictions of future price levels (i.e. a 'view') when executing hedges (a fact which will come as no surprise to most risk management practitioners). If hedging is really just about reducing risk, then why should our expectations of future market direction have any bearing on our hedging decisions? If we hedge 50% of our exposure, instead of 80% or 100%, because we feel that the price/rate of the underlying exposure is more likely to move in our favor, does this meet the criteria for speculation?... On one level (at the extremes), there is no doubt that hedging and speculation are very different activities. However, once you move beyond the straightforward elimination of open positions, into more nuanced transactions involving complex hedging strategies or tenuous relationships between hedges and exposures, the distinction between a hedge and a bet becomes increasingly vague."
To avoid this problem, most proposals emphasized taxing clearly speculative high-volume very-short-term (seconds to hours) transactions that could not in general reflect any change of fundamental exposure or cashflow expectation. Some of these emphasized the automated nature of the trade. FTT proposals often emerge in response to specific crises. For example, the December 1994
Mexican peso crisis
The Mexican peso crisis was a currency crisis sparked by the Mexican government's sudden devaluation of the peso against the U.S. dollar in December 1994, which became one of the first international financial crises ignited by capital flight.
...
reduced confidence in its currency. In that context,
Paul Bernd Spahn
Paul Bernd Spahn (born October 17, 1939) is emeritus professor of public finance at the Goethe University, Frankfurt am Main, Germany.
He was born in Darmstadt, Germany.
Spahn studied economics at the universities of Frankfurt, Paris (Sorbonne) ...
re-examined the
Tobin tax
A Tobin tax was originally defined as a tax on all spot conversions of one currency into another. It was suggested by James Tobin, an economist who won the Nobel Memorial Prize in Economic Sciences. Tobin's tax was originally intended to penali ...
, opposed its original form, and instead proposed his own version in 1995.
In the context of the
financial crisis of 2007–2008
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fi ...
, many economists, governments, and organizations around the world re-examined or were asked to re-examine, the concept of a financial transaction tax, or its various forms. As a result, various new forms of financial transaction taxes were proposed, such as the
EU financial transaction tax. The outcry after this crisis had major political, legal, and economic fallout. By the 2010s the
Basel II
Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision. It is now extended and partially superseded by Basel III.
The Basel II Accord was publis ...
and
Basel III
Basel III is the third Basel Accord, a framework that sets international standards for bank capital adequacy, stress testing, and liquidity requirements. Augmenting and superseding parts of the Basel II standards, it was developed in response to ...
frameworks required reporting that would help to differentiate investing from speculation. Economic thought was tending to reject the belief that they could not be differentiated, or (as the "Chicago School" had held) should not be. However, even Basel III did not require detailed enough disclosure of risk to enable a clear differentiation of hedging vs. speculation.
As another example of an FTT proposal as a warning to speculators, or a response to the crisis, in March 2016
China
China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's most populous country, with a population exceeding 1.4 billion, slightly ahead of India. China spans the equivalent of five time zones and ...
drafted rules to impose a genuine
currency transaction tax
A currency transaction tax is a tax placed on the use of currency for various types of transactions. The tax is associated with the financial sector and is a type of financial transaction tax, as opposed to a consumption tax paid by consumers, th ...
and this was referred to in the financial press as a Tobin tax''
This was widely viewed as a warning to curb shorting of its currency the
Renminbi, yuan. It was however expected to keep this tax at 0% initially, calculating potential revenue from different rate schemes and exemptions, and not to impose the actual tax unless speculation increased.
Also in 2016
US Democratic Party
The Democratic Party is one of the two major contemporary political parties in the United States. Founded in 1828, it was predominantly built by Martin Van Buren, who assembled a wide cadre of politicians in every state behind war hero Andrew ...
POTUS
The president of the United States (POTUS) is the head of state and head of government of the United States of America. The president directs the executive branch of the federal government and is the commander-in-chief of the United States ...
nominee
Hillary Clinton
Hillary Diane Rodham Clinton ( Rodham; born October 26, 1947) is an American politician, diplomat, and former lawyer who served as the 67th United States Secretary of State for President Barack Obama from 2009 to 2013, as a United States sen ...
asserted that speculation had "placed stress on our markets, created instability, and enabled unfair and abusive trading strategies" and that as
POTUS
The president of the United States (POTUS) is the head of state and head of government of the United States of America. The president directs the executive branch of the federal government and is the commander-in-chief of the United States ...
she would seek to "impose a tax on harmful high-frequency trading and reform rules to make our stock markets fairer, more open, and transparent.". However, the term "high-frequency" implied that only a few large volume transaction players engaged in
arbitrage
In economics and finance, arbitrage (, ) is the practice of taking advantage of a difference in prices in two or more markets; striking a combination of matching deals to capitalise on the difference, the profit being the difference between the ...
would likely be affected. In this respect, Clinton was following the general 1990s trend to focus on automated transactions, in particular, those which could not reflect any genuine human-reviewed fundamental risk or hedge analysis.
She also vowed to "Impose a risk fee on the largest financial institutions. Big banks and financial companies would be required to pay a fee based on their size and their risk of contributing to another crisis." How much fees would be assessed, and whether they amounted to a tax, were an active topic of speculation in the financial community, which expected them to follow
Basel III
Basel III is the third Basel Accord, a framework that sets international standards for bank capital adequacy, stress testing, and liquidity requirements. Augmenting and superseding parts of the Basel II standards, it was developed in response to ...
definitions with further refinements.
Purpose
Although every financial transaction tax (FTT) proposal has its own specific intended purpose, some general intended purposes are common to most of them. Below are some of those general commonalities. The intended purpose may or may not be achieved.
; Curbing volatility of financial markets
In 1936, when Keynes first proposed a financial transaction tax, he wrote, "Speculators may not harm bubbles on a steady stream of enterprise. But the situation is serious when enterprise becomes the bubble on a whirlpool of speculation."
[ Rescuing enterprise from becoming "the bubble on a whirlpool of speculation" was also an intended purpose of the 1972 ]Tobin tax
A Tobin tax was originally defined as a tax on all spot conversions of one currency into another. It was suggested by James Tobin, an economist who won the Nobel Memorial Prize in Economic Sciences. Tobin's tax was originally intended to penali ...
and is a common theme in several other types of financial transaction taxes. For the specific type of volatility in specific areas, see each specific type of financial transaction taxes below. An exception to the purpose of "curbing of volatility" is likely the "bank transaction tax".
; Curbing speculation without discouraging hedging
The role of large numbers of individual speculators willing to take both short and long positions without prejudice does play some role in preventing price bubbles and asset inflation. However, excess speculation is often deemed not only a source of volatility but a distraction of talent and a dangerous shift of focus for a developed economy. By contrast, hedging is necessary for the stability of enterprises. Tax schemes, in general, seek to tax speculation – seen as akin to gambling
Gambling (also known as betting or gaming) is the wagering of something of value ("the stakes") on a random event with the intent of winning something else of value, where instances of strategy are discounted. Gambling thus requires three el ...
– while trying not to interfere with hedging (a form of insurance
Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...
). The differences summarize that:
*hedging protects an existing investment against unforeseen price changes, while speculation takes on the additional risk the investor could have avoided
*hedging is a means to manage or limit price risk, while speculation actually relies on taking a risk for profit (and is in this respect similar to gambling
Gambling (also known as betting or gaming) is the wagering of something of value ("the stakes") on a random event with the intent of winning something else of value, where instances of strategy are discounted. Gambling thus requires three el ...
)
*hedging protects against price changes and makes them less relevant to the overall price of outputs sold to the public, while speculation incurs risk to make a profit specifically from price volatility
*hedging is a form of insurance for risk-averse investors, speculation is for those seeking more rapid returns through higher risk
It can be difficult to draw a clear distinction between hedging activities and speculation "if the actual exposure cannot be clearly ascertained, then differentiating between a hedging transaction and a speculative trade can become very complicated; if the impact of the underlying exposure is opaque, then the risk-reducing impact of the hedge becomes obscured (if it ever existed)...once you move beyond the straightforward elimination of open positions, into more nuanced transactions involving complex hedging strategies or tenuous relationships between hedges and exposures, the distinction between a hedge and a bet becomes increasingly vague"
. In general the advocates of financial transaction tax point to Basel III
Basel III is the third Basel Accord, a framework that sets international standards for bank capital adequacy, stress testing, and liquidity requirements. Augmenting and superseding parts of the Basel II standards, it was developed in response to ...
and other treaties and regulations that have increasingly required disclosure to make it easier to ascertain the degree of hedging or speculation in a given transaction or set of transactions.
The sheer duration of a holding is the most cogent clue: Day traders all engage in speculation by definition.
; More fair and equitable tax collection
Another common theme is the proposed intention to create a system of more fair and equitable tax collection. The Automated Payment Transaction tax
The Automated Payment Transaction (APT) tax is a small, uniform tax on all economic transactions, which would involve simplification, base broadening, reductions in marginal tax rates, the elimination of tax and information returns and the automat ...
(APT tax) taxes the broadest possible tax base, namely all transactions including all real and financial asset transactions. Instead of introducing progressivity through the tax rate structure, the flat rate APT tax introduces progressiveness through the tax base since the highest income and wealth groups undertake a disproportionate share of financial transactions. In the context of the financial crisis of 2007–2008
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fi ...
, many economists, governments, and organizations around the world re-examined, or were asked to re-examine, the concept of a financial transaction tax, or its various forms. In response to a request from the G20
The G20 or Group of Twenty is an intergovernmental forum comprising 19 countries and the European Union (EU). It works to address major issues related to the global economy, such as international financial stability, climate change mitigation, ...
nations, the International Monetary Fund
The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster globa ...
(IMF) delivered a report in 2010 titled "A Fair and Substantial Contribution by the Financial Sector" which made reference to a financial transaction tax as one of several options.
According to several leading figures, the "fairness" aspect of a financial transaction tax has eclipsed, and/or replaced, "prevention of volatility" as the most important purpose for the tax. Fraser Reilly-King of Halifax Initiative The Halifax Initiative is a coalition of Canadian non-governmental organizations for public interest work and education on international financial institutions. Canadian non-governmental organizations formed the Halifax Initiative in December 1994 ...
is one such economist.[Public lecture of economist Fraser Reilly-King of ]Halifax Initiative The Halifax Initiative is a coalition of Canadian non-governmental organizations for public interest work and education on international financial institutions. Canadian non-governmental organizations formed the Halifax Initiative in December 1994 ...
, 20 June 2010, at the "People's Summit", held at Ryerson University
Toronto Metropolitan University (TMU or Toronto Met) is a public university, public research university located in Toronto, Ontario, Canada. The university's core campus is situated within the Garden District, Toronto, Garden District, although i ...
, Toronto, Ontario He proposes that an FTT would not have addressed the root causes of the United States housing bubble
Observers and analysts have attributed the reasons for the 2001–2006 housing bubble and its 2007–10 collapse in the United States to "everyone from home buyers to Wall Street, mortgage brokers to Alan Greenspan". Other factors that are named i ...
which, in part, triggered the financial crisis of 2007–2008. Nevertheless, he sees an FTT as important for bringing a more equitable balance to the taxation of all parts of the economy.
; Less susceptible to tax evasion than alternatives
According to some economists, a financial transaction tax is less susceptible to tax avoidance and tax evasion
Tax noncompliance (informally tax avoision) is a range of activities that are unfavorable to a government's tax system. This may include tax avoidance, which is tax reduction by legal means, and tax evasion which is the criminal non-payment of tax ...
than other types of taxes proposed for the financial sector. The Automated Payment Transaction tax
The Automated Payment Transaction (APT) tax is a small, uniform tax on all economic transactions, which would involve simplification, base broadening, reductions in marginal tax rates, the elimination of tax and information returns and the automat ...
( APT tax) employs 21st century technology for automatically assessing and collecting taxes when transactions are settled through the electronic technology of the banking payments system. Joseph Stiglitz
Joseph Eugene Stiglitz (; born February 9, 1943) is an American New Keynesian economist, a public policy analyst, and a full professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the Joh ...
, former Senior Vice President and Chief Economist Chief economist is a single-position job class having primary responsibility for the development, coordination, and production of economic and financial analysis. It is distinguished from the other economist positions by the broader scope of respons ...
of the World Bank
The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Interna ...
affirmed the "technical feasibility" of the tax. Although Tobin said his tax idea was unfeasible in practice, Stiglitz noted that modern technology meant that was no longer the case and said that the tax is "much more feasible today" than a few decades ago, when Tobin disagreed.
Fraser Reilly-King of Halifax Initiative also points out that the key issue and advantage of an FTT is its relatively superior functional ability to prevent tax evasion
Tax evasion is an illegal attempt to defeat the imposition of taxes by individuals, corporations, trusts, and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities to reduce the taxp ...
in the financial sector. Economist Rodney Schmidt, principal researcher of The North-South Institute
Founded in 1976, the North-South Institute (NSI) was a policy research institution or think tank based in Ottawa, Canada, and specializing in international development. The objectives of the institute were as follows:
# To promote a greater under ...
, also concurred that a financial transaction tax is more technically feasible than the "bank tax" proposed by the IMF in 2010.
Types
Transaction taxes can be raised on the sale of specific financial assets, such as stock, bonds, or futures; they can be applied to currency exchange transactions, or they can be general taxes levied against a mix of different transactions.
Securities transaction tax
John Maynard Keynes
John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in ...
was among the first proponents of a securities
A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...
transaction tax. In 1936 he proposed that a small tax should be levied on dealings on Wall Street
Wall Street is an eight-block-long street in the Financial District of Lower Manhattan in New York City. It runs between Broadway in the west to South Street and the East River in the east. The term "Wall Street" has become a metonym for t ...
, in the United States, where he argued that excessive speculation by uninformed financial traders increased volatility. For Keynes, the key issue was the proportion of 'speculators' in the market, and his concern that, if left unchecked, these types of players would become too dominant. Keynes writes: "The introduction of a substantial Government transfer tax
A transfer tax is a tax on the passing of title to property from one person (or entity) to another.
In a narrow legal sense, a transfer tax is essentially a transaction fee imposed on the transfer of title to property from one entity to another. ...
on all transactions might prove the most serviceable reform available, to mitigate the predominance of speculation over enterprise in the United States. (1936:159–60)"
Currency transaction tax
A currency transaction tax is a tax placed on a specific type of currency transaction for a specific purpose. This term has been most commonly associated with the financial sector, as opposed to consumption taxes paid by consumers. The most frequently discussed versions of a currency transaction tax are the Tobin tax, Edgar L. Feige
Edgar L. Feige (born 19 September 1937) is an emeritus professor of economics at the University of Wisconsin–Madison. A graduate of Columbia University (BA. 1958) and the University of Chicago (Ph.D., 1963) he has taught at Yale University ; Th ...
's Automated Payment Transaction tax
The Automated Payment Transaction (APT) tax is a small, uniform tax on all economic transactions, which would involve simplification, base broadening, reductions in marginal tax rates, the elimination of tax and information returns and the automat ...
and Spahn tax
A Spahn tax is a type of currency transaction tax that is meant to be used for the purpose of controlling exchange-rate volatility. This idea was proposed by Paul Bernd Spahn in 1995.
Early history
The initial idea for a currency transaction t ...
. The Automated Payment Transaction tax
The Automated Payment Transaction (APT) tax is a small, uniform tax on all economic transactions, which would involve simplification, base broadening, reductions in marginal tax rates, the elimination of tax and information returns and the automat ...
requires that all transactions be taxed regardless of the means of payment. As such, it proposes a unique tax on currency transactions collected at the time currency leaves or enters the banking system. Since each transaction mediated by currency can not be directly taxed, the APT tax proposes a brokerage fee on currency deposits and withdrawals that is some multiple of the flat transaction tax rate applied to all payments made via electronic payments mechanisms.
; Tobin tax
In 1972 the economist James Tobin
James Tobin (March 5, 1918 – March 11, 2002) was an American economist who served on the Council of Economic Advisers and consulted with the Board of Governors of the Federal Reserve System, and taught at Harvard and Yale Universities. He devel ...
proposed a tax on all spot conversions of one currency into another. The so-called Tobin tax
A Tobin tax was originally defined as a tax on all spot conversions of one currency into another. It was suggested by James Tobin, an economist who won the Nobel Memorial Prize in Economic Sciences. Tobin's tax was originally intended to penali ...
is intended to put a penalty on short-term financial round-trip excursions into another currency. Tobin suggested his currency transaction tax in 1972 in his Janeway Lectures at Princeton, shortly after the Bretton Woods system
The Bretton Woods system of monetary management established the rules for commercial and financial relations among the United States, Canada, Western European countries, Australia, and Japan after the 1944 Bretton Woods Agreement. The Bretto ...
effectively ended. In 2001, James Tobin looked back at the 1994 Mexican peso crisis
The Mexican peso crisis was a currency crisis sparked by the Mexican government's sudden devaluation of the peso against the U.S. dollar in December 1994, which became one of the first international financial crises ignited by capital flight.
...
, the 1997 Asian financial crisis
The Asian financial crisis was a period of financial crisis that gripped much of East Asia and Southeast Asia beginning in July 1997 and raised fears of a worldwide economic meltdown due to financial contagion. However, the recovery in 1998–1 ...
, and the 1998 Russian financial crisis
The Russian financial crisis (also called the ruble crisis or the Russian flu) began in Russia on 17 August 1998. It resulted in the Russian government and the Russian Central Bank devaluing the ruble and defaulting on its debt. The crisis had s ...
, and said: " y proposedtax dea
The Drug Enforcement Administration (DEA; ) is a United States federal law enforcement agency under the U.S. Department of Justice tasked with combating drug trafficking and distribution within the U.S. It is the lead agency for domestic en ...
on foreign exchange transactions... dissuades speculators as many investors invest their money in foreign exchange on a very short-term basis. If this money is suddenly withdrawn, countries have to drastically increase interest rates for their currency to still be attractive. But high interest is often disastrous for a national economy, as the nineties' crises in Mexico, South East Asia and Russia have proven...."[ (Interview with James Tobin)]
''It is intended to put a penalty on short-term financial round-trip excursions into another currency''
; Spahn tax
Paul Bernd Spahn
Paul Bernd Spahn (born October 17, 1939) is emeritus professor of public finance at the Goethe University, Frankfurt am Main, Germany.
He was born in Darmstadt, Germany.
Spahn studied economics at the universities of Frankfurt, Paris (Sorbonne) ...
opposed the original form of a Tobin Tax in a Working Paper ''International Financial Flows and Transactions Taxes: Survey and Options'', concluding "...the original Tobin tax is not viable. First, it is virtually impossible to distinguish between normal liquidity trading and speculative noise trading. If the tax is generally applied at high rates, it will severely impair financial operations and create international liquidity problems, especially if derivatives are taxed as well." However, on 16 June 1995 Spahn suggested that "Most of the difficulties of the Tobin tax could be resolved, possibly with a two-tier rate structure consisting of a low-rate financial transactions tax and an exchange surcharge at prohibitive rates." This new form of tax, the Spahn tax
A Spahn tax is a type of currency transaction tax that is meant to be used for the purpose of controlling exchange-rate volatility. This idea was proposed by Paul Bernd Spahn in 1995.
Early history
The initial idea for a currency transaction t ...
, was later approved by the Belgian Federal Parliament in 2004.[ ECB (2004)]
Opinion of the European Central Bank (CON/2004/34)
''It has a two-tier rate structure consisting of a low rate financial transactions tax and an exchange surcharge at prohibitive rates.''
; Special Drawing Rights
On 19 September 2001, retired speculator George Soros
George Soros ( name written in eastern order), (born György Schwartz, August 12, 1930) is a Hungarian-American businessman and philanthropist. , he had a net worth of US$8.6 billion, Note that this site is updated daily. having donated mo ...
put forward a proposal, issuing special drawing rights
Special drawing rights (SDRs, code ) are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund (IMF). SDRs are units of account for the IMF, and not a currency ''per se''. They represent a claim ...
(SDR) that the rich countries would pledge for providing international assistance and the alleviation of poverty and other approved objectives. According to Soros this could make a substantial amount of money available almost immediately. In 1997, IMF member governments agreed to a one-time special allocation of SDRs, totaling approximately $27.5 billion. This is slightly less than 0.1% of the global GDP. Members having 71% of the total vote needed for implementation have already ratified the decision. All it needs is the approval of the United States Congress
The United States Congress is the legislature of the federal government of the United States. It is bicameral, composed of a lower body, the House of Representatives, and an upper body, the Senate. It meets in the U.S. Capitol in Washing ...
. If the scheme is successfully tested, it could be followed by an annual issue of SDRs and the amounts could be scaled up "so that they could have a meaningful impact on many of our most pressing social issues".
Bank transaction tax
Between 1982 and 2002 Australia charged a bank account debits tax
Bank account debits tax (BADT or BAD) was an Australian bank transaction tax levied on customer withdrawals from bank accounts with a cheque facility (both withdrawals made by cheque or by another means, such as EFTPOS).
The tax was introduced b ...
on customer withdrawals from bank accounts with a cheque
A cheque, or check (American English; see spelling differences) is a document that orders a bank (or credit union) to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The pers ...
facility. Some Latin American countries also experimented with taxes levied on bank transactions. Argentina introduced a bank transaction tax in 1984 before it was abolished in 1992. Brazil implemented its temporary "CPMF" in 1993, which lasted until 2007. The broad-based tax levied on all debit (and/or credit) entries on bank accounts proved to be evasion-proof, more efficient, and less costly than orthodox tax models.
''It often applies to deposits and withdrawals from bank accounts, often including checking accounts.''
Automated Payment Transaction Tax
In 1989, Edgar L. Feige proposed the synthesis and extension of the ideas of Keynes and Tobin by proposing a flat-rate tax on all transactions.[ The total volume of all transactions undertaken in an economy represents the broadest possible tax base and therefore requires the lowest flat tax rate to raise any required amount of revenue. Since financial transactions in stocks, bonds, international currency transactions, and derivatives comprise most of the Automated Payment Transaction (APT) tax base, it is in essence the broadest of financial transaction taxes. Initially proposed as a revenue-neutral replacement for the entire federal tax system of the United States, it could alternatively be considered as a global tax whose revenues could be used by national governments to reduce existing income, corporate and VAT tax rates as well as reducing existing sovereign debt burdens. If adopted by all of the developed nations, it would have the advantage of eliminating all incentives for substitution between financial assets and between financial centers since all transactions would universally be taxed at the identical flat tax rate.
The foundations of the APT tax proposal—a small, uniform tax on all economic transactions—involve simplification, base broadening, reductions in marginal tax rates, the elimination of tax and information returns, and the automatic collection of tax revenues at the payment source.
]
Implemented financial transaction taxes
In 2011 there were 40 countries that had FTT in operation, raising $38 billion (€29bn).
Belgium
The Belgium securities tax applies to certain transactions concluded or executed in Belgium through a professional intermediary, to the extent that they relate to public funds, irrespective of their (Belgian or foreign) origin. The "tax on stock exchange transactions" is not due upon subscription of new securities (primary market transactions). Both buyers and sellers are subject to tax. The tax rate varies following the type of transactions. A 0.09% tax (subject to a maximum of €1,300 per transaction) is charged for distributing shares of investment companies, certificates of contractual investment funds, bonds of the Belgian public debt or the public debt of foreign states, nominative or bearer bonds, certificates of bonds, etc. A 1.32% tax (subject to a maximum of €4,000 per transaction) is charged for accumulating shares of investment companies and 0.27% (subject to a maximum of €1,600 per transaction) for any other securities (such as shares). Transactions made for its own account by non-resident taxpayers and by some financial institutions, such as banks, insurance companies, organizations for financing pensions (OFPs), or collective investment are exempted from the tax.
Colombia
In 1998 Colombia introduced a financial transaction tax of 0.2%, covering all financial transactions including banknotes
A banknote—also called a bill (North American English), paper money, or simply a note—is a type of negotiable instrument, negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand.
Banknotes w ...
, promissory notes
A promissory note, sometimes referred to as a note payable, is a legal instrument (more particularly, a financing instrument and a debt instrument), in which one party (the ''maker'' or ''issuer'') promises in writing to pay a determinate sum of ...
, processing of payments by way of telegraphic transfer, EFTPOS
Electronic funds transfer at point of sale (EFTPOS; ) is an electronic payment system involving electronic funds transfers based on the use of payment cards, such as debit or credit cards, at payment terminals located at points of sale. EFTPOS t ...
, internet banking or other means, bank drafts and bank cheques, money on term deposit, overdraft
An overdraft occurs when something is withdrawn in excess of what is in a current account. For financial systems, this can be funds in a bank account. For water resources, it can be groundwater in an aquifer. In these situations the account is s ...
s, installment loans, documentary and standby letters of credit
A letter of credit (LC), also known as a documentary credit or bankers commercial credit, or letter of undertaking (LoU), is a payment mechanism used in international trade to provide an economic guarantee from a creditworthy bank to an exp ...
, guarantees, performance bond
A performance bond, also known as a contract bond, is a surety bond issued by an insurance company or a bank to guarantee satisfactory completion of a project by a contractor. The term is also used to denote a collateral deposit of good faith mon ...
s, securities underwriting commitments and other forms of off balance sheet exposures, safekeeping of documents and other items in safe deposit box
A safe deposit box, also known as a safety deposit box, is an individually secured container, usually held within a larger safe or bank vault. Safe deposit boxes are generally located in banks, post offices or other institutions. Safe deposit ...
es, currency exchange, sale, distribution or brokerage, with or without advice, unit trusts and similar financial products. Currently the rate is 0.4%
Finland
Finland imposes a tax of 1.6% on the transfer of certain Finnish securities, mainly equities such as bonds, debt securities, and derivatives. The tax is charged if the transferee and/or transferor is a Finnish resident or a Finnish branch of certain financial institutions. However, there are several exceptions. For E.g. no transfer tax is payable if the equities in question are subject to trading on a qualifying market. Prime Minister Jyrki Katainen
Jyrki Tapani Katainen (born 14 October 1971) is a Finnish politician who served as the European Commission's Vice-President for Jobs, Growth, Investment and Competitiveness from 2014 until 2019. Katainen was previously Prime Minister of Finland fr ...
(National Coalition Party) decided that Finland will not join a group of eleven other European Union states that have signed up to be at the forefront of preparing a financial transaction tax in November 2012. Other government parties the Green League
The Green League (VIHR, fi, Vihreä liitto , sv, Gröna förbundet), shortened to the Greens ( fi, Vihreät, sv, De Gröna), is a green political party in Finland.
Ideologically, the Green League is positioned on the centre-left of the polit ...
, the Social Democratic Party of Finland
The Social Democratic Party of Finland (SDP, fi, Suomen sosialidemokraattinen puolue ; sv, Finlands socialdemokratiska parti), shortened to the Social Democrats ( fi, link=no, Sosiaalidemokraatit; sv, link=no, Socialdemokrater) and commonly kno ...
and the Left Alliance had supporters of the tax. Supporters of the tax are Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain and likely Estonia. For example, British banks opposed the tax. Supporters said: "We are delighted that the European FTT is moving from rhetoric to reality and will ensure banks pay for the damage they have caused; This shows it is possible to put the needs of the public over the profits of a privileged few. It's unforgivable in this age of austerity that the UK government is turning down billions in additional revenue to protect the City's elite."
France
On 1 August 2012, France introduced a financial transaction tax in French tax regulation pursuant to Article 5 of the French Amended Finance Bill of 14 March 2012. Two other taxes applicable to financial transactions were also introduced, including a tax on high-frequency trading
High-frequency trading (HFT) is a type of algorithmic financial trading characterized by high speeds, high turnover rates, and high order-to-trade ratios that leverages high-frequency financial data and electronic trading tools. While there is no ...
, (Article 235 ter ZD bis of the FTC); and a tax on naked sovereign credit default swaps (Article 235 ter ZD ter of the FTC). The FTT levies a 0.2% tax on stock purchases of French publicly traded companies with a market value over €1 billion. The scheme does not include debt securities, except convertible and exchangeable bonds, which are included but benefit from a dedicated exemption to the FTT. According to French president Francois Hollande the tax will generate €170 million in additional revenue for 2012 and another €500 million in 2013. France is the first European country to impose a transaction tax on share purchases. From 2 January 2017 settlement date the rate increased to 0.3%.
Greece
Listed shares acquired as of 1 January 2013 will no longer be subject to the sales tax; rather, any capital gains received will be added to the taxpayer's total income. Capital gains taxes such as Greece's are generally not considered financial transaction taxes.
India
Since 1 October 2004, India levies a Securities Transaction Tax (STT). As of 2020, the rate on buy and sell transactions made through a recognized national stock exchange is 0.1% paid by the seller plus 0.1% paid by the buyer. Other rates apply to derivatives transactions; for example, for sale of options on securities, the rate is 0.017% of the option premium. The tax has been criticized by the Indian financial sector and is currently under review.
Italy
Since 1 March 2013, Italy levies financial transaction tax on qualified equity transactions of up to 0.2% (0.22% in 2013) of the value of the trade. Financial transaction tax on derivatives of qualified equity transactions went into effect on 1 September 2013. The regulation is to apply the tax on the net balance of purchase and sale transactions executed same day on the same financial instrument by the same person/entity.
It applies to:
* Shares issued by Italian resident companies with a capitalization equal to or higher than 500 million euros;
* Cash equity contracts;
* Equity Derivatives contracts;
* Instruments incorporating or representing the shares (ADR, GDR) regardless the residency of the issuer;
* High Frequency Trading on cash equities and equity derivatives transactions. The liable party is the investor (net buyer) for cash equities and both parties of the derivatives contract.
Japan
Until 1999, Japan imposed a transaction tax on a variety of financial instruments, including debt instruments and equity instruments, but at differential rates. The tax rates were higher on equities than on debentures and bonds. In the late 1980s, the Japanese government was generating significant revenues of about $12 billion per year. The tax was eventually withdrawn as part of the "big bang" liberalization of the financial sector in 1999.
There were these taxes.
* exchange tax (1893-1999)
* securities transfer tax (1937-1950)
* securities transaction tax
Securities Transaction Tax (STT) is a tax payable in India on the value of securities (excluding commodities and currency) transacted through a recognized stock exchange. As of 2016, it is 0.1% for delivery based equity trading.
STT does not a ...
(1953-1999)
In 1893, the tax rates were 0.06% for securities and commodities and 0.03% for bonds.[取引所税法・御署名原本・明治二十六年・法律第六号 - 国立公文書館 デジタルアーカイブ](_blank)
/ref>
Peru
In 2003 the Peruvian government introduced a 0.1% general financial transaction tax on all foreign currency-denominated incoming wire transfers regardless of their country of origin, to raise finance for the education sector. The tax is to be assessed automatically but collected manually.
Poland
Poland charges a 1% Civil Law Activities Tax (CLAT) on the sale or exchange of property rights, which includes securities and derivatives. The tax applies to transactions, which are performed in Poland or which grant property rights that are to be exercised in Poland. It also applies to transactions executed outside Poland if the buyer is established in Poland. All transactions on a stock market, Polish treasury bonds and Polish treasury bills, bills issued by the National Bank, and some other specified securities are exempted from the tax.
Singapore
Singapore charges a 0.2% stamp duty on all instruments that give effect to transactions in stocks and shares. However, this duty only applies to actual physical documents, and is not levied on computerized transactions performed through securities accounts. Stamp duty is not levied on derivative
In mathematics, the derivative of a function of a real variable measures the sensitivity to change of the function value (output value) with respect to a change in its argument (input value). Derivatives are a fundamental tool of calculus. F ...
instruments.
Spain
The Spanish Financial Transaction Tax (FTT) was approved in October 2020 (entering into force in January 2021), allowing Spain to tax the acquisition of listed shares issued by Spanish companies admitted to trading on a Spanish or other EU-regulated markets, or on a non-EU equivalent market, with a market capitalization exceeding EUR 1 billion on December 1 of the previous year. This policy is in line with the trend initiated previously by other countries and EU partners such as France or Italy.
This indirect tax follows the "principle of issue" rather than the one of residence, applying to any acquisition of shares in Spanish companies regardless of the parties' tax residences or the location of the transaction, thus broadening the scope of application, which implications will have to be analyzed. The mode and venue of the transaction are also indifferent; if it meets the conditions, it will be subject to FTT. However, some exemptions are contemplated like acquisitions carried out on the primary market or acquisitions required for the market's effective operation, such as those required by Regulation (EU) 596/2014 on Market Abuse, among others.
The SFTT tax rate is fixed at 0.2 percent. The tax base is the total amount of taxed transactions, excluding transaction costs resulting from market infrastructure pricing, intermediation trading fees, and all other costs associated with the transaction. The taxpayer will generally be the purchaser of the shares, although some provisions are given regarding which entity is responsible for filing the tax return. Those investment services firms or credit institutions buying shares on their own account are taxable individuals, whereas the financial intermediaries involved in the transaction are substitute taxpayers. Finally, the tax period is monthly, and the tax system is self-assessed, not permitting any deferral or installment payment.
Sweden
In January 1984, Sweden introduced a 0.5% tax on the purchase or sale of an equity security. Hence a round trip (purchase and sale) transaction resulted in a 1% tax. In July 1986, the rate was doubled, and in January 1989, a considerably lower tax of 0.002% on fixed-income securities was introduced for a security with a maturity of 90 days or less. On a bond with a maturity of five years or more, the tax was 0.003%. Analyst Marion G. Wrobel prepared a paper for the Canadian Government in June 1996, examining the international experience with financial transaction taxes, and paying particular attention to the Swedish experience.[Financial Transaction Taxes: The International Experience and the Lessons for Canada. http://dsp-psd.tpsgc.gc.ca/Collection-R/LoPBdP/BP/bp419-e.htm ]
The revenues from taxes were disappointing; for example, revenues from the tax on fixed-income securities were initially expected to amount to 1,500 million Swedish kronor per year. They did not amount to more than 80 million Swedish kronor in any year and the average was closer to 50 million. In addition, as taxable trading volumes fell, so did revenues from capital gains taxes, entirely offsetting revenues from the equity transactions tax that had grown to 4,000 million Swedish kronor by 1988.
On the day that the tax was announced, share prices fell by 2.2%. But there was leakage of information before the announcement, which might explain the 5.35% price decline in the 30 days before the announcement. When the tax was doubled, prices again fell by another 1%. These declines were in line with the capitalized value of future tax payments resulting from expected trades. It was further felt that the taxes on fixed-income securities only served to increase the cost of government borrowing, providing another argument against the tax.
Even though the tax on fixed-income securities was much lower than that on equities, the impact on market trading was much more dramatic. During the first week of the tax, the volume of bond trading fell by 85%, even though the tax rate on five-year bonds was only 0.003%. The volume of futures trading fell by 98% and the options trading market disappeared. On 15 April 1990, the tax on fixed-income securities was abolished. In January 1991 the rates on the remaining taxes were cut in half and by the end of the year, they were abolished completely. Once the taxes were eliminated, trading volumes returned and grew substantially in the 1990s. According to Anders Borg
Anders Erik Borg (born 11 January 1968) is a Swedish politician who served as Minister for Finance in the Swedish government from 2006 to 2014. He is a member of the Swedish Moderate Party.
Youth and education
Borg was born in Skarpnäck, Sto ...
who served as finance minister in the Swedish government from 2006 to 2014, "between 90%-99% of traders in bonds, equities and derivatives moved out of Stockholm to London."
The Swedish FTT is widely considered a failure by design since traders could easily avoid the tax by using foreign broker services.
Switzerland
In Switzerland, a transfer tax
A transfer tax is a tax on the passing of title to property from one person (or entity) to another.
In a narrow legal sense, a transfer tax is essentially a transaction fee imposed on the transfer of title to property from one entity to another. ...
(Umsatzabgabe) is levied on the transfer of domestic or foreign securities such as bonds and shares, where one of the parties or intermediaries is a Swiss security broker. Other securities such as options futures, etc. do not qualify as taxable securities. Swiss brokers include banks and bank-linked financial institutions. The duty is levied at a rate of 0.15% for domestic securities and 0.3% for foreign securities. However, there are numerous exemptions to the Swiss transfer tax. These are among others: Eurobonds, other bonds denominated in a foreign currency, and the trading stock of professional security brokers. The revenue of the Swiss transfer tax was CHF 1.9 billion in 2007 or 0.37% of GDP.
Taiwan
In Taiwan, the securities transaction tax (STT) is imposed upon the gross sales price of securities transferred and at a rate of 0.3% for share certificates issued by companies and 0.1% for corporate bonds or any securities offered to the public which have been duly approved by the government. However, trading of corporate bonds and financial bonds issued by Taiwanese issuers or companies are temporarily exempt from STT beginning 1 January 2010. The Taiwanese government argued this "would enliven the bond market and enhance the international competitiveness of Taiwan's enterprises."
Since 1998, Taiwan also levies a stock index futures transaction tax imposed on both parties. The current transaction tax is levied per transaction at a rate of not less than 0.01% and not more than 0.06%, based on the value of the futures contract. Revenue from the securities transaction tax and the futures transaction tax was about €2.4 billion in 2009. The major part of this revenue came from the taxation of bonds and stocks (96.5%). The taxation of stock index future shares was 3.5%. In total, this corresponds to 0.8% in terms of GDP.
United Kingdom
Stamp Duty
A stamp duty was introduced in the United Kingdom as an ad valorem
An ''ad valorem'' tax (Latin for "according to value") is a tax whose amount is based on the value of a transaction or of property. It is typically imposed at the time of a transaction, as in the case of a sales tax or value-added tax (VAT). An ...
tax on share purchases in 1808. Stamp duties are collected on documents used to effect the sale and transfer of certificated stock and other securities of UK based companies. It can be avoided using CFDs.
Stamp Duty Reserve Tax
To address the development of trades in uncertificated stock, the UK Finance Act 1986
A Finance Act is the headline fiscal (budgetary) legislation enacted by the UK Parliament, containing multiple provisions as to taxes, duties, exemptions and reliefs at least once per year, and in particular setting out the principal tax rates f ...
introduced the Stamp Duty Reserve Tax
Stamp duty is a tax that is levied on single property purchases or documents (including, historically, the majority of legal documents such as cheques, receipts, military commissions, marriage licences and land transactions). A physical reven ...
(SDRT) at a rate of 0.5% on share purchases, raising around €3.8bn per year, of which 40% is paid by foreign residents. The tax is charged whether the transaction takes place in the UK or overseas, and whether either party is a resident of the UK or not. Securities issued by companies overseas are not taxed. This means that—just like the standard stamp duty—the tax is paid by foreign and UK-based investors who invest in UK incorporated companies. In other words, the tax applies to all companies which are headquartered in the UK, albeit there is a relief for intermediaries (such as market makers
A market maker or liquidity provider is a company or an individual that quotes both a buy and a sell price in a tradable asset held in inventory, hoping to make a profit on the ''bid–ask spread'', or ''turn.'' The benefit to the firm is that it ...
and large banks that are members of a qualifying exchange) as a condition of their obligation to provide liquidity
Liquidity is a concept in economics involving the convertibility of assets and obligations. It can include:
* Market liquidity, the ease with which an asset can be sold
* Accounting liquidity, the ability to meet cash obligations when due
* Liqui ...
.
Both stamp duty and SDRT remain in place today, albeit with continued relief for intermediaries, so that about 63% of transactions are exempt from tax. SDRT accounts for the majority of revenue collected on share transactions effected through the UK's Exchanges. On average almost 90% of revenues stem from the SDRT. Only a minor part comes from Stamp Duty. Revenue is pro-cyclical with economic activity. In terms of GDP and total tax revenue, the highest values were reached during the dot.com boom years around the end of the 20th century, notably in 2000–01. In 2007–08, SDRT generated €5.37 billion in revenue (compared to 0.72 billion of the standard stamp duty). This accounts for 0.82% over total UK tax revenue or 0.30% of GDP. In 2008–09 the figure dropped to €3.67 billion (0.22% of GDP), due to reduced share prices and trading volumes as a result of the financial crisis.
United States
The US imposed a financial transaction tax from 1914 to 1966 that was originally 0.2% and was doubled during the Great Depression
The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
.
Currently, the US imposes a $0.0042 round-trip transaction tax on security futures transactions and $21.80 per million dollars for securities transactions. The tax, known as Section 31 fee, is used to support the operation costs of the Securities and Exchange Commission
The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...
(SEC).
New York
Both New York State
New York, officially the State of New York, is a state in the Northeastern United States. It is often called New York State to distinguish it from its largest city, New York City. With a total area of , New York is the 27th-largest U.S. stat ...
and New York City
New York, often called New York City or NYC, is the List of United States cities by population, most populous city in the United States. With a 2020 population of 8,804,190 distributed over , New York City is also the L ...
had a financial transaction tax, which lasted from 1905 to 1981. A study conducted by Anna Pomeranets, an economist at the Bank of Canada
The Bank of Canada (BoC; french: Banque du Canada) is a Crown corporation and Canada's central bank. Chartered in 1934 under the ''Bank of Canada Act'', it is responsible for formulating Canada's monetary policy,OECD. OECD Economic Surveys: Ca ...
, and Daniel Weaver, a professor of economics at Rutgers University
Rutgers University (; RU), officially Rutgers, The State University of New Jersey, is a Public university, public land-grant research university consisting of four campuses in New Jersey. Chartered in 1766, Rutgers was originally called Queen's ...
, found that it increased capital costs for enterprises, lowered stock prices, caused stocks to increase in volatility, and increased bid-ask spreads.
Proposed financial transaction taxes
Global Tobin tax
In 2000 a "pro–Tobin tax
A Tobin tax was originally defined as a tax on all spot conversions of one currency into another. It was suggested by James Tobin, an economist who won the Nobel Memorial Prize in Economic Sciences. Tobin's tax was originally intended to penali ...
" NGO proposed that a tax could be used to fund international development: "In the face of increasing income disparity and social inequity, the Tobin Tax represents a rare opportunity to capture the enormous wealth of an untaxed sector and redirect it towards the public good. Conservative estimates show the tax could yield from $150–300 billion annually." According to Dr. Stephen Spratt, "the revenues raised could be used for ... international development objectives ... such as meeting the Millennium Development Goals."
At the UN World Conference against Racism 2001
The 2001 World Conference against Racism (WCAR), also known as Durban I, was held at the Durban International Convention Centre in Durban, South Africa, under UN auspices, from 31 August to 8 September 2001.
The conference covered several con ...
, when the issue of compensation for colonialism and slavery arose in the agenda, President Fidel Castro
Fidel Alejandro Castro Ruz (; ; 13 August 1926 – 25 November 2016) was a Cuban revolutionary and politician who was the leader of Cuba from 1959 to 2008, serving as the prime minister of Cuba from 1959 to 1976 and president from 1976 to 200 ...
of Cuba advocated the Tobin Tax to address that issue. According to Cliff Kincaid, Castro advocated it "specifically to generate U.S. financial reparations to the rest of the world", however a closer reading of Castro's speech shows that he never did mention "the rest of the world" as being recipients of revenue. Castro cited holocaust reparations
The Holocaust had a deep effect on society both in Europe and the rest of the world, and today its consequences are still being felt, both by children and adults whose ancestors were victims of this genocide.
Evidence in Germany
German socie ...
as a previously established precedent for the concept of reparations. Castro also suggested that the United Nations be the administrator of this tax, stating the following:May the tax suggested by Nobel Prize Laureate James Tobin be imposed in a reasonable and effective way on the current speculative operations accounting for trillions of US dollars every 24 hours, then the United Nations, which cannot go on depending on meager, inadequate, and belated donations and charities, will have one trillion US dollars annually to save and develop the world. Given the seriousness and urgency of the existing problems, which have become a real hazard for the very survival of our species on the planet, that is what would actually be needed before it is too late.
Member countries have not given the UN a mandate to seek a global financial tax.
Robin Hood tax
On 15 February 2010 a coalition
A coalition is a group formed when two or more people or groups temporarily work together to achieve a common goal. The term is most frequently used to denote a formation of power in political or economical spaces.
Formation
According to ''A Gui ...
of 50 charities and civil society organisations launched a campaign for a Robin Hood tax on global financial transactions. The proposal would affect a wide range of asset classes including the purchase and sale of stocks, bonds, commodities, unit trusts, mutual funds, and derivatives such as futures and options.
G20 financial transactions tax
A G20 financial transaction tax (G20 FTT) was first proposed in 2008. A G20 proposal for a FTT to raise revenue to reduce global poverty and spur global economic growth failed to gain support at the 2011 G-20 Cannes summit
The 2011 G20 Cannes Summit was the sixth meeting of the G20 heads of government/heads of state in a series of on-going discussions about financial markets and the world economy.
The G20 forum is the avenue for the G20 economies to discuss, plan ...
. Nevertheless, French President Nicolas Sarkozy
Nicolas Paul Stéphane Sarközy de Nagy-Bocsa (; ; born 28 January 1955) is a French politician who served as President of France from 2007 to 2012.
Born in Paris, he is of Hungarian, Greek Jewish, and French origin. Mayor of Neuilly-sur-Se ...
said he planned to still pursue the idea. According to Bill Gates
William Henry Gates III (born October 28, 1955) is an American business magnate and philanthropist. He is a co-founder of Microsoft, along with his late childhood friend Paul Allen. During his career at Microsoft, Gates held the positions ...
, co-founder of Microsoft
Microsoft Corporation is an American multinational technology corporation producing computer software, consumer electronics, personal computers, and related services headquartered at the Microsoft Redmond campus located in Redmond, Washing ...
and a supporter of a G20 FTT, even a small tax of 10 basis points
A basis point (often abbreviated as bp, often pronounced as "bip" or "beep") is one hundredth of 1 percentage point. The related term ''#Permyriad, permyriad'' means one hundredth of 1 percent. Changes of interest rates are often stated in basis ...
on equities and 2 basis points on bonds could generate about $48 billion from G20 member states or $9 billion if only adopted by larger European countries.
United States financial transaction tax
Different US financial transaction tax (US FTT) bills have been proposed in United States Congress, Congress since 2009. In that year, Nancy Pelosi, the speaker of the United States House of Representatives, as well as other Democratic members of Congress, endorsed a global (G20-wide) FTT, with the revenue raised in the U.S. to be directed to infrastructure, deficit reduction, and job creation. This proposal failed to win the support of the Obama administration, with Treasury Secretaries Timothy Geithner and Jacob Lew, as well as Larry Summers, opposing the idea. The Obama administration instead proposed a Financial Crisis Responsibility Fee.
The main differences between various FTT proposals in Congress has been the size of the tax, which financial transactions are taxed and how the new tax revenue is spent. The bills have proposed a .025%–.5% tax on stocks, .025%–.1% tax on bonds and .005%–.02% on derivatives with the funds going to health, public services, debt reduction, infrastructure and job creation. The United States House of Representatives, House of Representatives has introduced since 2009 ten different US FTT related bills and the United States Senate, Senate has introduced four. The bills in the Senate have been variously sponsored by Tom Harkin (D-Iowa) or Bernie Sanders (I-Vermont). The bills in the House have been variously sponsored by Peter DeFazio (D-Oregon), John Conyers (D-Michigan) or a number of other Representatives.
The US FTT bills proposed by Rep. Peter DeFazio (D-Oregon) and Sen. Harkin (D-Iowa) have received a number of cosponsors in the Senate and House. The Let Wall Street Pay for the Restoration of Main Street Bill is an early version of their cosponsored US FTT bill which includes a tax on US financial market securities transactions.[ The bill suggests to tax stock transactions at a rate of 0.25%. The tax on futures contracts to buy or sell a specified commodity of standardized quality at a certain date in the future, at a market determined price would be 0.02%. Swap (finance), Swaps between two firms and credit default swaps would be taxed 0.02%.] The tax would only target speculators, since the tax would be refunded to average investors, pension funds and health savings accounts. Projected annual revenue is $150 billion per year, half of which would go towards deficit reduction and half of which would go towards job promotion activities. The day the bill was introduced, it had the support of 25 of DeFazio's House colleagues.[
]
European Union financial transaction tax
The EU financial transaction tax (EU FTT) is a proposal made by the European Commission in September 2011 to introduce a financial transaction tax within the 27 member states of the European Union by 2014. The tax would only impact financial transactions between financial institutions charging 0.1% against the exchange of shares
In financial markets, a share is a unit of equity ownership in the capital stock of a corporation, and can refer to units of mutual funds, limited partnerships, and real estate investment trusts. Share capital refers to all of the shares of an ...
and Bond (finance), bonds and 0.01% across derivative contracts. According to the European Commission it could raise €57 billion every year, of which around €10bn (£8.4bn) would go to Great Britain, which hosts Europe's biggest financial center. It is unclear whether a financial transaction tax is compatible with European law.
If implemented the tax must be paid in the European country where the financial operator is established. This "R plus I" (residence plus issuance) solution means the EU-FTT would cover all transactions that involve a single European firm, no matter if these transactions are carried out in the EU or elsewhere in the world. The scheme makes it impossible for say French or German banks to avoid the tax by moving their transactions offshore, unless they give up all their European customers.
According to John Dizard of the Financial Times, the unilateral extension of extraterritorial power can only cause problems:- From a US perspective, this unilateral extension of extraterritorial power by the commission goes beyond anything attempted since the US and Great Britain concluded the Treaty of Paris ending the Revolutionary War in 1783. Most institutions that try to do something like that have their own navy, and usually a larger one than the sovereign territory where they are attempting to impose the tax.
Being faced with stiff resistance from some non-eurozone EU countries, particularly United Kingdom and Sweden, a group of eleven states began pursuing the idea of utilizing enhanced co-operation to implement the tax in states which wish to participate. Opinion polls indicate that two-thirds of British people are in favour of some forms of FTT (see section: #Public opinion, Public opinion).
The proposal supported by the eleven EU member states, was approved in the European Parliament in December 2012, and by the Council of the European Union in January 2013. The formal agreement on the details of the EU FTT still need to be decided upon and approved by the European Parliament.
Evaluation
Effect on volatility
Proponents of the tax assert that it will reduce price volatility. In a 1984 paper, Lawrence Summers and Victoria Summers argued, "Such a tax would have the beneficial effects of curbing instability introduced by speculation, reducing the diversion of resources into the financial sector of the economy, and lengthening the horizons of corporate managers." It is further believed that FTTs "should reduce volatility by reducing the number of noise traders". However most empirical studies find that the relationship between FTT and short-term price volatility is ambiguous and that "higher transaction costs are associated with more, rather than less, volatility".
A 2003 IMF Staff Paper by Karl Habermeier and Andrei Kirilenko found that FTTs are "positively related to increased volatility and lower volume". A study of the Shanghai and Shenzhen stock exchanges says the FTT created significant increases in volatility because it "would influence not only noise traders, but also those informed traders who play the role of decreasing volatility in the stock market." A French study of 6,774 daily realized volatility measurements for 4.7 million trades in a four-year period of index stocks trading in the Paris Bourse from 1995 to 1999 reached the same conclusion "that higher transaction costs increase stock return volatility". The French study concluded that these volatility measures "are likely to underestimate the destabilizing role of security transactions since they – unlike large ticks – also reduce the stabilizing liquidity supply".
A 1997 study of the UK Stamp Duty, which exempts market makers and large banks that are members of a qualifying exchange, found no significant effect on the volatility of UK equity prices.
Effect on liquidity
In 2011 the IMF published a study paper, which argues that a securities transaction tax (STT) "reduces trading volume, it may decrease liquidity or, equivalently, may increase the price impact of trades, which will tend to heighten price volatility". A study by the think tank Oxera found that the imposition of the UK's Stamp Duty would "likely have a negative effect on liquidity in secondary markets". Regarding proposals to abolish the UK's Stamp Duty, Oxera concluded that the abolition would "be likely to result in a non-negligible increase in liquidity, further reducing the cost of capital of UK listed companies". A study of the FTT in Chinese stock markets found liquidity reductions due to decreased transactions.
Effect on price discovery
An IMF Working Paper found a FTT impacts price discovery. The natural effect of the FTT's reduction of trading volume is to reduce liquidity, which "can in turn slow price discovery, the process by which financial markets incorporate the effect of new information into asset prices". The FTT would cause information to be incorporated more slowly into trades, creating "a greater autocorrelation of returns". This pattern could impede the ability of the market to prevent asset bubbles. The deterrence of transactions could "slow the upswing of the asset cycle", but it could also "slow a correction of prices toward their fundamental values".
Habermeier and Kirilenko conclude that "The presence of even very small transaction costs makes continuous rebalancing infinitely expensive. Therefore, valuable information can be held back from being incorporated into prices. As a result, prices can deviate from their full information values." A Chinese study agrees, saying: "When it happens that an asset's price is currently misleading and is inconsistent with its intrinsic value, it would take longer to correct for the discrepancy because of the lack of enough transactions. In these cases, the capital market becomes less efficient."
Revenues
Revenues vary according to tax rate, transactions covered, and tax effects on transactions. The Swedish experience with transaction taxes in 1984–91 demonstrates that the net effect on tax revenues can be difficult to estimate and can even be negative due to reduced trading volumes. Revenues from the transaction tax on fixed-income securities were initially expected to amount to 1,500 million Swedish kronor per year but actually amounted to no more than 80 million Swedish kronor in any year. Reduced trading volumes also caused a reduction in capital gains tax revenue which entirely offset the transaction tax revenues.
An examination of the scale and nature of the various payments and derivatives transactions and the likely elasticity of response le
Honohan and Yoder (2010)
to conclude that attempts to raise a significant percentage of gross domestic product in revenue from a broad-based financial transactions tax are likely to fail both by raising much less revenue than expected and by generating far-reaching changes in economic behavior. They point out that, although the side effects would include a sizable restructuring of financial sector activity, this would not occur in ways corrective of the particular forms of financial overtrading that were most conspicuous in contributing to the ongoing financial crisis. Accordingly, such taxes likely deliver both less revenue and less efficiency benefits than have sometimes been claimed by some. On the other hand, they observe that such taxes may be less damaging than feared by others.
On the other hand, the case of UK stamp duty reserve tax shows that provided exemptions are given to market makers and banks, that FTT can generate modest revenues, at the expense of pensioners and savers. Despite the tax rate of 0.5% on the purchase of shares, the UK managed to generate between €3.7 and €7.4 billion in Stamp duty in the United Kingdom#Revenues from stamp duties, revenues from stamp duties per year throughout the last decade. Also the cases of Japan, Taiwan and Switzerland suggest that countries may generate sizable amounts of income by introducing FTT on a national scale. If implemented on an international scale, revenues may be even considerably higher, since it would make it more difficult for traders to avoid the tax by moving to other locations.
; Projections of FTT proposals
*''Worldwide'': According to the Robin Hood Tax campaign a FTT rate of about 0.05% on transactions like stocks, bonds, foreign currency and derivatives could raise £250 billion a year globally or £20 billion in the UK alone.
*''United States'': The Center for Economic and Policy Research estimates a US FTT to raise $177 billion per year.
*''European Union'': The European Commission expects its proposed EU financial transaction tax of 0.1% on bond and equity transactions, and 0.01% on derivative transactions between financial firms to raise up to €55 billion per year.
Effect on share prices
According to a European Commission working paper, empirical studies show that the UK stamp duty influences the share prices negatively. More frequently traded shares are stronger affected than low-turnover shares. Therefore, the tax revenue capitalizes at least to some extent in lower current share prices. For firms which rely on equity as marginal source of finance this may increase capital costs since the issue price of new shares would be lower than without the tax.
Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University, and formerly Chief Economist at the IMF, argues that "Higher transactions taxes increase the cost of capital, ultimately lowering investment. With a lower capital stock, output would trend downward, reducing government revenues and substantially offsetting the direct gain from the tax. In the long run, wages would fall, and ordinary workers would end up bearing a significant share of the cost. More broadly, FTTs violate the general public-finance principle that it is inefficient to tax intermediate factors of production, particularly ones that are highly mobile and fluid in their response."
Progressive or regressive tax
An IMF Working Paper finds that the FTT "disproportionately burdens" the financial sector and will also impact pension funds, public corporations, international commerce firms, and the public sector, with "multiple layers of tax" creating a "cascading effect". "[E]ven an apparently low-rate [FTT] might result in a high tax burden on some activities." These costs could also be passed on to clients, including not only wealthy individuals and corporations, but charities and pension and mutual funds.
Other studies have suggested that the financial transaction tax is regressive in application—particularly the Stamp Duty in the UK, which includes certain exemptions only available to institutional investors. One UK study, by the Institute for Development Studies, suggests, "In the long run, a significant proportion of the tax could end up being passed on to consumers." Another study of the UK Stamp Duty found that institutional investors avoid the tax due to intermediary relief, while short-term investors who are willing to take on additional risk can avoid the tax by trading noncovered derivatives. The study concluded, therefore, "The tax is thus likely to fall most heavily on long-term, risk-averse investors."
Technical feasibility
Although James Tobin had said his own Tobin tax idea was unfeasible in practice, a study on its feasibility commissioned by the German government 2002 concluded that the tax was feasible even at a limited scale within the European time zone without significant tax evasion. Joseph Stiglitz
Joseph Eugene Stiglitz (; born February 9, 1943) is an American New Keynesian economist, a public policy analyst, and a full professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the Joh ...
, former Senior Vice President and Chief Economist Chief economist is a single-position job class having primary responsibility for the development, coordination, and production of economic and financial analysis. It is distinguished from the other economist positions by the broader scope of respons ...
of the World Bank
The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Interna ...
, said, on 5 October 2009, that modern technology meant that was no longer the case. Stiglitz said, the tax is "much more feasible today" than a few decades ago, when Tobin recanted. However, on 7 November 2009, at the G20
The G20 or Group of Twenty is an intergovernmental forum comprising 19 countries and the European Union (EU). It works to address major issues related to the global economy, such as international financial stability, climate change mitigation, ...
finance ministers summit in Scotland, the head of the International Monetary Fund
The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster globa ...
, Dominique Strauss-Khan, said, "transactions are very difficult to measure and so it's very easy to avoid a transaction tax." Nevertheless, in early December 2009, economist Stephany Griffith-Jones agreed that the "greater centralisation and automisation of the exchanges' and banks' clearing and settlements systems ... makes avoidance of payment more difficult and less desirable."
In January 2010, feasibility of the tax was supported and clarified by researcher Rodney Schmidt, who noted "it is technically easy to collect a financial tax from exchanges ... transactions taxes can be collected by the central counterparty at the point of the trade, or automatically in the clearing or settlement process." (All large-value financial transactions go through three steps. First dealers agree to a trade; then the dealers' banks match the two sides of the trade through an electronic central clearing system; and finally, the two individual financial instruments are transferred simultaneously to a central settlement system. Thus a tax can be collected at the few places where all trades are ultimately cleared or settled.)
When presented with the problem of speculators shifting operations to Offshore financial center, offshore tax havens, a representative of a "pro–Tobin tax" NGO argued as follows:
Gradual implementation feasibility
There has been debate as to whether one single nation could unilaterally implement a financial transaction tax. In the year 2000, "eighty per cent of foreign-exchange trading [took] place in just seven cities. Agreement [to implement the tax] by [just three cities,] London, New York and Tokyo alone, would capture 58 per cent of speculative trading." However, on 27 June 2010 at the 2010 G-20 Toronto summit, the G20 leaders declared that a "global tax" was no longer "on the table", but that individual countries will be able to decide whether to implement a Bank tax#1. Financial stability contribution (FSC), or "Bank tax", levy against financial institutions to recoup billions of dollars in taxpayer-funded bailouts.
Political support
Supporting countries
*: In early November 2007, then Argentinian president Néstor Kirchner initiates and supports a regional Tobin tax. The proposal is supported by the Bank of the South.
*: In August 2011, the Austrian government states its support for a FTT, including a European FTT, in case of lacking political support to implement it on a global scale.
*: On 15 June 2004, the Commission of Finance and Budget in the Belgian Federal Parliament approved a bill implementing a Spahn tax
A Spahn tax is a type of currency transaction tax that is meant to be used for the purpose of controlling exchange-rate volatility. This idea was proposed by Paul Bernd Spahn in 1995.
Early history
The initial idea for a currency transaction t ...
.
*: On 20 October 2009 the Government of Brazil officially supports a FTT.
*: President of Cuba, Fidel Castro
Fidel Alejandro Castro Ruz (; ; 13 August 1926 – 25 November 2016) was a Cuban revolutionary and politician who was the leader of Cuba from 1959 to 2008, serving as the prime minister of Cuba from 1959 to 1976 and president from 1976 to 200 ...
advocated a global FTT at the UN World Conference against Racism 2001, September 2001 World Conference against Racism to be used as a World Conference against Racism 2001#Compensation for Colonialism and Slavery, compensation for colonialism and slavery.
*: In December 2011, Estonian prime minister Andrus Ansip said his country was prepared to support a FTT "if it increases the stability of the financial system and prevents competition distortions."
*: The Government of Finland, Finnish Government supports a FTT since 2000.
*: In late 2001, the French National Assembly passed a Tobin tax amendment, which was overturned by the French Senate in March 2002. On 19 September 2009 the Government of France supports a FTT. On 5 February 2010 Christine Lagarde, then Minister of Finance (France), Minister of Economic Affairs, Industry and Employment of France supported a FTT. On 1 August 2012, French president Hollande introduced a unilateral 0.2 percent FTT.
*: On 10 December 2009 the Chancellor of Germany (Federal Republic), Chancellor of Germany Angela Merkel revises her position and now supports a FTT. On 20 May 2010, German officials were understood to favor a Financial Transaction Tax over a financial activities tax.
*: Greece supports a FTT.
*: Ireland is in favor of EU-wide FTT, but not supporter of a Eurozone FTT.[
*: In January 2012, new Italian prime minister Mario Monti said Rome had changed tack and now backed the push for a financial transaction tax, but he also warned against countries going it alone.
*: In December 2011, prime minister of Luxembourg, Jean-Claude Juncker backed an EU-FTT, saying Europe can't refrain from "the justice that needs to be delivered" out of consideration for London's financial industry.
*: In October 2011, Dutch prime minister Mark Rutte said his cabinet supports a FTT but opposes an introduction in only a few countries.
*: Portugal supports a FTT.
*: In October 2011, Finance Minister Pravin Gordhan strongly supports a FTT.]
*: Slovenia supports a FTT.[
*: Spain supports a FTT.]
*: The president of Venezuela, Hugo Chávez supports a FTT in 2001. In 2007 Chávez proposed a regional FTT for Latin America together with former Argentinian president Nestor Kirchner.
Other supporters
Over 1,000 economists (including Nobel laureate Paul Krugman, Jeffrey Sachs and Nobel laureate Joseph Stiglitz
Joseph Eugene Stiglitz (; born February 9, 1943) is an American New Keynesian economist, a public policy analyst, and a full professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the Joh ...
), more than 1,000 parliamentarians from over 30 countries, the world's major Labour movement, labor leaders, the Association for the Taxation of Financial Transactions and for Citizens' Action, Occupy Wall Street protesters, Oxfam, War on Want and other major development groups, the World Wildlife Fund, Greenpeace and other major environmental organizations support a FTT. Other notable supporters include the Archbishop of Canterbury, Bill Gates
William Henry Gates III (born October 28, 1955) is an American business magnate and philanthropist. He is a co-founder of Microsoft, along with his late childhood friend Paul Allen. During his career at Microsoft, Gates held the positions ...
and Michael Moore. David Harding (finance), David Harding, founder and CEO of one of London's biggest hedge funds has given qualified support for a European Union financial transaction tax, European tax on financial transactions, breaking ranks with many of his peers fiercely opposed to such a measure. George Soros
George Soros ( name written in eastern order), (born György Schwartz, August 12, 1930) is a Hungarian-American businessman and philanthropist. , he had a net worth of US$8.6 billion, Note that this site is updated daily. having donated mo ...
, put forward a different proposal, calling rich countries to donate their special drawing rights
Special drawing rights (SDRs, code ) are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund (IMF). SDRs are units of account for the IMF, and not a currency ''per se''. They represent a claim ...
for the purpose of providing international assistance, without necessarily dismissing the Tobin tax idea.[ It has been widely reported that the Pope backs such a tax. However, the reality is that a commission of the Vatican of which the Pope is not a member merely said that such a tax would be worth reflecting on.
Another group of EU FTT supporters it is integrated b]
European federalists
In their opinion FTT would constitute, among other things,
fair political initiative in the current financial crisis and it would represent an EU added value
The European Commission has proposed a regional FTT to be implemented within the European Union (or the Eurozone) by 2014.
Opposing countries
*: Paul Martin, Finance Minister (Canada), Canadian Finance Minister opposes a FTT in 1994. On 23 March 1999 the House of Commons of Canada passed a resolution directing the government to "enact a tax on financial transactions in concert with the international community". However, in November 2009, at the G20
The G20 or Group of Twenty is an intergovernmental forum comprising 19 countries and the European Union (EU). It works to address major issues related to the global economy, such as international financial stability, climate change mitigation, ...
finance ministers summit, the representatives of the Minority governments in Canada, minority government of Canada spoke publicly on the world stage in opposition to the resolution. Canada's finance minister, Jim Flaherty, restated Canada's opposition to a Tobin tax, saying: "It is not something we would be interested in in Canada. We are not in the business of raising taxes, we are in the business of lowering taxes in Canada. It is not an idea we would look at."
*: China opposes the tax because it may add more burdens on domestic banks.[
*: The British government supports FTT only if implemented worldwide. In 2009, Adair Turner (chair) and Hector Sants (CEO) of the UK Financial Services Authority both supported the idea of new global taxes on financial transactions.] On the other hand, the Bank of England strongly opposes a FTT. Its governor Mervyn King (economist), Mervyn King dismissed the idea of a "Tobin tax" on 26 January 2010, saying: "Of all the components of radical reform, I think a Tobin tax is bottom of the list ... It's not thought to be the answer to the 'Too Big to Fail' problem—there's much more support for the idea of a US-type levy."
*: India remains opposed to a global FTT. A senior Finance Ministry official argued that the proposed tax would put an additional burden on the domestic banking system.[
*: Sweden opposes a FTT if it is applied only in the European Union.]
*: The US Secretary of the Treasury Lloyd Bentsen initially supported a FTT in 1994. In 2004, Representative Chaka Fattah of Pennsylvania introduced a bill in the US House of Representatives (H.R. 3759) that would require a study to reform the Federal tax code through eliminating federal income tax and replacing it with a transaction fee-based system. In 2010 he introduced the "Debt Free America Act" (H.R. 4646), that goes further and proposes to enact a 1% FFT and eliminate federal income tax. Both bills never made it out of committee. On 24 September 2009, Paul Volcker (former US Federal Reserve chairman) "said he was 'very interested' by ideas for a tax on transactions between banks". On 3 December 2009, 22 representatives in the United States House of Representatives supported the "Let Wall Street Pay for the Restoration of Main Street Bill", which contained a domestic financial transaction tax. On 7 December 2009, Nancy Pelosi, Speaker of the United States House of Representatives stated her support for a "G-20 global tax".[ However, already on 6 November 2009, US Treasury Secretary Timothy Geithner, following UK Prime Minister Gordon Brown's call for a global FTT, expressed US opposition to the proposal saying: "A day-by-day financial transaction tax is not something we're prepared to support". Instead Geither favors an Bank tax, ongoing levy charged against large banks.] On 13 December 2009, Paul Volcker, chairman of the US Economic Recovery Advisory Board under President Barack Obama, said he "instinctively opposed" any tax on financial transactions. "But it may be worthwhile to look into the current proposals as long as the result is not predetermined. That would at least end all this renewed talk about the idea, but overall I am skeptical about these ideas." By 2011, Volcker was more open to the idea of a transaction tax as a means to slow down trading.
According to Ron Suskind, the author of "Confidence Men", a book based on 700 hours of interviews with high-level staff of the US administration, President Obama supported a FTT on trades of stocks, derivatives, and other financial instruments, but it was blocked by Obama's former director of the United States National Economic Council, National Economic Council Larry Summers.
Other opposers
Most hedge funds managers fiercely oppose FTT.[ So does the economist and former member of Bank of England Charles Goodhart. The Financial Times, the Asia-Pacific Economic Cooperation Business Advisory Council, the Confederation of British Industry, and the Adam Smith Institute have also spoken out against a global financial transaction tax.]
IMF's position
In 2001, the IMF conducted considerable research that opposes a transaction tax. On 11 December 2009, the Financial Times reported "Since the 7 Nov [2009] summit of the G20 Finance Ministers, the head of the International Monetary Fund, Mr Strauss-Kahn, seems to have softened his doubts, telling the CBI employers' conference: 'We have been asked by the G20 to look into financial sector taxes. ... This is an interesting issue. ... We will look at it from various angles and consider all proposals.'" When the IMF presented its interim report for the G20 on 16 April 2010, it laid out three options: a bank tax
A bank tax, or a bank levy, is a tax on banks which was discussed in the context of the financial crisis of 2007–08. The bank tax is levied on the capital at risk of financial institutions, excluding federally insured deposits, with the aim of ...
, a Financial Activities Tax (FAT), and a third option (which was not promoted but not ruled out), a financial transaction tax. On 16 April 2011, the IMF stated, it does not endorse a financial transaction tax, believing it "does not appear well suited to the specific purposes set out in the mandate from the G-20 leaders". However, it concedes that "The FTT should not be dismissed on grounds of administrative practicality".
Challenging the IMF's belittling of the financial transaction tax, Stephan Schulmeister of the Austrian Institute of Economic Research found that, "the assertion of the IMF paper, that a financial transaction tax 'is not focused on the core sources of financial instability', does not seem to have a solid foundation in the empirical evidence." Additionally, the IMF's watchdog group, the Independent Evaluation Office (IEO), released a report in 2011 which questioned the quality and level of bias in the IMF's research between 1999 and 2008. The report indicated that "there is a widely held perception that IMF research is message driven. About half of the authorities held this view, and more than half of the staff indicated that they felt pressure to align their conclusions with IMF policies and positions."
Public opinion
![Europeans for Financial Reform support a Financial Transaction Tax (cropped)](https://upload.wikimedia.org/wikipedia/commons/7/72/Europeans_for_Financial_Reform_support_a_Financial_Transaction_Tax_%28cropped%29.jpg)
Europe
A 2011 survey published by YouGov suggests that more than four out of five people in the UK, France, Germany, Spain and Italy think the financial sector has a responsibility to help repair the damage caused by the economic crisis.[
] A 2011 Eurobarometer poll of more than 27,000 people found that Europeans are strongly in favour of a Financial Transactions Tax, by a margin of 61% to 26%. It found that Europeans "strongly support the various measures that the European Union could adopt to reform the global financial markets... about the introduction of a tax on financial transactions, this proposal is nevertheless supported by more than six out of ten respondents (61%). A quarter of Europeans are against it, possibly because of the fear that they themselves might be subject to this tax."Eurobarometer 74 – Economic Governance in the European Union
, p. 13–14, European Commission, 12 January 2011
See also
References
{{DEFAULTSORT:Financial Transaction Tax
Financial transaction tax,
International taxation
Economic globalization