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Entries tagged "European Union"

Inside-outside Strategy on Wall Street Tax

April 24, 2013 ·

Cross-Posted with The Huffington Post

The International Monetary Fund is accustomed to rallies outside their Washington, D.C., headquarters during their annual meetings. What was different this past weekend was that the activists on the outside and several high-profile government and financial industry speakers on the inside were calling for the same thing: a financial transaction tax.

Outside, around a thousand activists called on world leaders to adopt a small tax on trades of stocks, bonds, and derivatives that could raise massive revenue for jobs, climate, global health, and other public investments.

Inside, in a somber basement auditorium, the IMF hosted a debate on the same topic. The uniform on the outside was a green Robin Hood hat. On the inside, it was a charcoal gray suit. In both spaces, however, there was the sense that the financial transaction tax is gaining momentum and credibility.

net_efekt/FlickrThe rally, sponsored by the Robin Hood Tax campaign, was not the largest to date, but it appeared to be the most diverse, with strong representation from labor, environmental, and global health groups, including National Nurses United, National Peoples Action, Friends of the Earth, Amalgamated Transit Union, Jobs with Justice, and Health GAP.

Inside the IMF, European Commission official Manfred Bergmann reported on the strong progress on his side of the Atlantic, where 11 EU governments are negotiating the final details of a coordinated financial transaction tax. The proposal on the table would tax stock and bond trades at 0.1 percent and derivatives trades at 0.01 percent. Expected revenues: as much as $45 billion per year. If the United States adopted a similar tax, it would raise an estimated $750 million to $1 billion over 10 years, Bergmann said.

Of course the IMF event was not without opposition voices. The strongest was Luc Frieden, the finance minister of Luxembourg, where a light regulatory and tax regime has boosted the size of the banking sector relative to GDP to a level similar to that of Cyprus. Frieden is particularly upset about the potential cross-border effects of the proposed EU tax.

Residents of non-participating countries will have to pay the tax if they trade with financial institutions in one of the 11 participating countries or if they trade financial instruments issued in one of those countries. The UK government has just launched a legal attack on the plan over this extra-territorial issue, a move Frieden applauded.

Avinash Persaud, a former senior executive of JPMorgan, UBS, and State Street banks, noted the irony of the UK's complaint. Britain's own Stamp Duty, introduced hundreds of years ago, is also extra-territorial. Trades of shares in British firms are taxed at 0.5 percent -- no matter who's doing the trading. An estimated 40 percent of the revenue comes from non-UK residents.

In a recent congressional hearing, U.S. Treasury Secretary Jack Lew also raised concerns about the extra-territorial impacts of the EU proposal. He failed to mention that U.S. investors have been subjected to the UK Stamp Duty and other countries' transaction taxes for some time now -- without the sky falling.

Nor did Lew acknowledge the many ways in which U.S. laws impose costs on non-U.S. entities. Take, for example, the 2010 Foreign Account Tax Compliance Act (FATCA), which requires foreign financial institutions to report information about financial accounts held by U.S. taxpayers to the IRS. Foreign banks have also complained about the extra-territorial implications of the Volcker Rule, the provision of the Dodd-Frank financial reform legislation which seeks to prevent deposit-taking banks from making bets with their own capital.

At the IMF, Persaud also scoffed at the Luxembourger's position that any transaction tax should be global: "Samuel Johnson said 'patriotism is the last refuge of scoundrels.' In this case, internationalism is the last refuge of scoundrels."

Indeed, many countries are already raising significant revenue from national financial transaction taxes. In addition to the UK, Persaud listed South Korea, Taiwan, South Africa, Switzerland, and Brazil among the countries that already have some form of the tax. He estimated their combined revenues at around $23 billion per year. Beyond the revenue benefits, Persaud argued that the current lack of taxation on trading activities creates "incentives to build edifices of value that are actually mirages" and can cause systemic risk.

The IMF event was the latest example of the Fund playing a constructive role in the debate. It didn't start out that way. In September 2009, the G20 assigned the IMF to prepare a report on "how the financial sector could make a fair and substantial contribution toward paying for any burdens associated with government interventions to repair the banking system." Initially, then-IMF Managing Director Dominique Strauss-Kahn said financial transaction taxes weren't even worth studying. In his view, such taxes were a "simplistic idea" that wouldn't work.

But in response to international public pressure, the Fund agreed not only to include the issue in their analysis but also to engage in civil society consultations. In the IMF report for the G20 leaders, they made clear their preference for other forms of financial sector taxation, particularly a "financial activities tax" on bank profits and compensation. Nevertheless, they also acknowledged that transaction taxes were administratively feasible and could raise significant revenue. And in a follow-up technical paper, they acknowledged that most G-20 countries, including Brazil, India, and South Africa, have already implemented some form of FTT. In October 2012, current IMF Managing Director Christine Lagarde said that the EU progress on a coordinated financial transaction tax was "clearly a good move."

At the debate, the Director of the IMF's Fiscal Affairs Department, Carlo Cottarelli, stressed that the IMF would still be pushing their "beloved" financial activities tax. But he admitted that since the IMF's 2010 report to the G20, there hasn't been much progress on that. "The momentum behind FTT was so strong, it was hard to turn in another direction. Sometimes life just isn't fair," he said with a laugh.

Follow Sarah Anderson on Twitter: www.twitter.com/Anderson_IPS

European Parliament Supports Robin Hood Tax in Landslide Vote

December 14, 2012 ·

Under pressure to address a massive deficit, legislators voted overwhelmingly this week in favor of a tax on financial speculation. This really happened, I swear.

Robin Hood Tax supporters scored a goal in Europe. Is the U.S. next? Photo by Robin Hood Tax campaign.OK, it was in Europe, not the United States. But it could happen here—and it should.

The vote in the European Parliament on December 10 was the latest in a series of victories by international campaigners for a tax on trades of stocks, bonds, and derivatives. Often called a “Robin Hood Tax,” the goal is to raise massive revenues for urgent needs, such as combating unemployment, global poverty, and climate change.

A financial transaction tax would also discourage the senseless high frequency trading that now dominates our financial markets. Recently, the chief economist of the Commodity Futures Trading Commission (the top U.S. derivatives regulator) found that such trading practices are hurting traditional investors.

In reaction to the Parliamentary vote, David Hillman, of the U.K. Robin Hood Tax campaign, said that the tax “will raise at least 37 billion euros per year for the countries involved whilst reining in the worst excesses of the financial sector.”

Nicolas Mombrial, a Brussels-based policy adviser for Oxfam, added that “The European Parliament’s overwhelming support reflects the will of Europe’s people. In cash-strapped times, an financial transactions tax is a no-brainer that is morally right, technically feasible, and economically sound.”

Read the rest of this article on the Yes! Magazine website. 

European Victory on Taxing Speculation

October 12, 2012 ·

Cross-Posted with the Huffington Post

European campaigners for a financial transaction tax have done some awfully goofy things over the past three years.

Global Day of Action FTT-Robin Hood Tax/FlickrAt one French demonstration, they stripped down to their skivvies to emphasize the small size of the tax (0.1% on trade of stocks and bonds and 0.02% on derivatives under the European Commission's proposal). In Germany, they rented a limo and crashed the Berlinale film festival, dressed as Robin Hood characters. In many countries, they've gotten elected officials to pose with silly hats and fake bows and arrows.

But after this week, the opponents of the financial transaction tax (aka Robin Hood Tax) will no longer snicker at such antics. At a meeting of European finance ministers on October 9, 11 governments committed to implementing the tax. This is two more than the minimum number needed for an official EU agreement. And it is a huge victory for those of us -- not just in Europe but also in the United States and around the world -- who've been pushing for such taxes as a way to curb short-term speculation and generate massive revenue for job creation, global health, climate, and other pressing needs.

Of course the goofy stunts weren't the only game-changers. Campaigners have also built up strong technical arguments about the feasibility of such taxes. And a growing number of financial professionals have come out in support, blunting the industry backlash.

The broader European crisis has also been a major factor. In fact, there are rumors that Italy and Spain may have sold their support in exchange for some debt concessions from Germany. The additional eight governments in the new coalition of the willing are France, Austria, Belgium, Estonia, Greece, Portugal, Slovakia, and Slovenia. More may join in the coming months.

There are still a few hurdles ahead. There will be a round of negotiations that could result in the European Commission's proposal being watered down by lowering the rates or narrowing the base to only cover securities. There will be a fight to make sure revenues help people and the planet instead of the big banks. And EU heads of state will have to vote by a qualified majority to give the initiative the green light. This means some countries that don't plan to implement the tax themselves will still need to sign off on it. The biggest opponent, UK Prime Minister David Cameron, may have some obstructionist tricks up his sleeve.

But according to Peter Wahl of WEED, one of the key forces behind the German campaign, "there is now quite a strong political will behind the project, so that we can expect definitive implementation rather soon, perhaps already during 2013."

Europe's dramatic step forward can only boost the growing U.S. grassroots efforts for a Robin Hood Tax. Our current Treasury Secretary, Timothy Geithner, has been a naysayer, sometimes even chastising European leaders for considering the idea. But with Geithner heading out the door after the election and Europe moving towards raising revenue off the tax, we may get a blast of fresh thinking.

 

Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies.
Follow her on Twitter: www.twitter.com/Anderson_IPS 

The European Financial Transactions Tax: Robin Hood or Sheriff of Nottingham?

July 3, 2012 ·

The leaders of continental Europe's four biggest countries agreed at last week's euro zone summit on the principle that the European Union should move toward imposing a tax on financial transactions. Though it was hardly mentioned in the U.S. press, the agreement was big news in Europe. The leaders say they will raise funds equal to 1 percent of total euro zone gross domestic product through a financial transactions tax (FTT), though no details were forthcoming on just what would be taxed or at what rates.

Robin Hood Tax supporters create a pop-up casino opposite the Mansion House bankers’ banquet, 15th June 2011. Photo by Robin Hood Tax/ flickrThat President François Hollande of France, Chancellor Angela Merkel of Germany, Prime Minister Mario Monte of Italy and Prime Minister Mariano Rajoy should all take time out from acute crisis talks to agree on any long-term policy position is remarkable. That they should agree on a new tax is more remarkable still. Nonetheless, Chancellor Merkel stated flatly that she was "pleased that all four here have committed to a financial transactions tax."

FFTs are nothing new. They used to be called "stamp duties" and all industrialized countries used to have them. Today, they survive mainly in real estate transfer taxes. Stamp duties on frequently traded financial instruments like stocks and bonds were eliminated in the twentieth century in most countries under pressure from the finance industry.

When the world went off the gold standard in 1971 and modern foreign currency markets came into existence, economist James Tobin recommended that a small transactions tax be applied to foreign exchange transactions as a way to prevent instability in these new markets. He argued that the hyper-efficiency of foreign exchange markets could lead to unwanted volatility that might harm countries' real economies and that a transactions tax would reduce these tendencies.

If Tobin was right for the foreign currency markets, he was even more right for stock markets. He couldn't anticipate in 1972 that by 2012 stocks would be traded electronically at such high speed that banks would move their computers physically closer to the exchanges so that their trading orders would be executed faster. Tobin taxes are probably more important today for damping down volatility in share markets than in currency markets.

The goal of a Tobin tax on financial transactions is not to take from the rich and give to the poor. It's to prevent the rich from destroying the economy for the rest of us. Tobin taxes are meant to slow down runaway markets, to let a little air out of inflating bubbles and in general to give people and governments just a little more time to respond to economic problems before they get out of hand. Tobin taxes give the real economy just a miniscule edge over the speculative economy. Usually, that's all that's needed to prevent the speculators from running roughshod over the rest of us.

What turns a Tobin tax into a Robin Hood tax is what you do with the money you collect. President Hollande et compagnie have made no mention of taking from the rich to give to the poor. Their plan, to the extent that they have one, seems to be to use the proceeds of a FFT to fund the European Union budget. At best, the money collected might go to the poor of Europe. There's certainly no talk of spending it on the poor of the world.

And, yet, the rich countries of the world - including the euro four and the United States - have all agreed to dedicate at least 0.7 percent of their national incomes to official development assistance (ODA) to poor countries. This foreign aid commitment has been in place in various forms since 1970, though it has been met by only a few (mainly Nordic) countries. Since the beginning of the global financial crisis, levels of ODA have actually declined for many countries.

United States ODA to poor countries is only 0.21 percent. The top three recipients are Afghanistan, Iraq and Pakistan, which hardly suggests that our aid money is independent of our foreign policy goals. France, Germany, Italy and Spain give 0.50 percent, 0.39 percent, 0.15 percent and 0.43 percent, respectively (2010 figures from the Organisation for Economic Co-operation and Development).

The numbers being mooted for the euro zone FTT are tantalizingly similar to the figures that developed countries have committed to spending on foreign aid. It is, however, highly unlikely that any money raised will be used for this purpose. A new tax imposed during an upturn might go to aid. A new tax imposed during a downturn will inevitably be spent at home.

The best solution might be a threshold split. The first 0.5 percent of gross domestic product raised by an FTT could be spent on national debt relief. Any remaining sum could then go to the aid budget. The advantage of such an arrangement would be to make the tax politically palatable now, but morally palatable later. It would also make the tax anti-cyclical: in a downturn the money raised would stay at home, while in an upturn it would go abroad. Wins all around.

But waiting in the wings is the sheriff of Nottingham. The UK's Chancellor of the Exchequer, George Osborne, staunchly opposes a European FFT that might cover British-based companies. Of course, if it doesn't include the UK, a European FTT would just drive business to London. The City of London is by far the world's largest offshore financial center, dwarfing other even shadier British territories like Bermuda, the Channel Islands, the Cayman Islands, the Isle of Man and the Turks and Caicos Islands.

To have any hope of helping the ordinary citizens of Europe and the poor people of the rest of the world, a European FTT would have to be coupled with European legislation to prohibit the trading of European financial instruments outside Europe. This is technically feasible, but it would require a higher level of commitment than European leaders have shown to date.

To be morally and politically palatable, a FFT should have a built-in threshold beyond which any funds collected would go straight to official development assistance. On the one hand, it is politically unrealistic to expect a European FTT to be devoted entirely to foreign aid. On the other hand, a narrowly targeted FTT designed only to respond to the current euro crisis might simply be repealed once the crisis passes. A well-designed FTT should serve both purposes.

Throughout this debate it must be remembered that a well-designed FTT will pay for itself. The original Tobin tax idea wasn't about feeding the poor. It was about improving economic performance by damping down the worst excesses of financial markets. Runaway markets can severely misallocate financial capital. We should all have learned that lesson in 2007, if not in 1929. If we can save the euro while improving the economy and at the same time divert part of the benefit to help the poorest people on Earth ... why not?

The sheriff might just have to accept a happy ending after all.

Europe Takes the Lead in Drive to Tax Speculators

March 10, 2011 ·

Protestors in Germany advocating for the Robin Hood TaxHigh-speed rail, universal health care, quality cheese. Let's face it — the Europeans often leave us Yanks way behind. And now they appear on track again, with solid progress this week towards adopting an innovative proposal to pay for the costs of the global economic crisis.

On March 8, the European Parliament voted 360-299 in favor of introducing financial transactions taxes, tiny levies on trades of stocks, derivatives, currency, and other financial instruments. The proposal could generate an estimated $200 billion per year in revenue for European governments to channel into job creation and other urgent needs. At the same time, it would discourage the type of risky, short-term speculation that got us into this economic mess in the first place.

What's most astounding is that the tax proposal sailed through despite the European Parliament's strong right-wing majority. Yes, there are still places in the world where folks from across the political spectrum can have a rational discussion about fair taxation.

The vote came after more than a year of global advocacy by labor union, anti-poverty, environmental, and other citizens groups. On February 17, activists in 25 countries carried out a Global Day of Action. See this video and this map to get a sense of the breadth of this campaign, from Nepal to Mexico in the global South and from Canada to Japan in the North. German activists staged one of the most elaborate publicity stunts. They dressed up as glamorous Robin Hoods and Maid Marians to crash the Berlinale film festival, arriving in a white limousine and then parading down their own red carpet.

While the message seems to be getting through in Europe, U.S. activists have not had much luck. While not publicly offering much of an explanation, U.S. Treasury Secretary Timothy Geithner has reportedly consistently dismissed the idea at G-20 meetings. A WikiLeaks cable from 2009 revealed that then British Prime Minister Gordon Brown was deeply frustrated by Geithner's opposition.

This week's vote signaled that many key European leaders are no longer willing to let the Obama administration hold them back. The Parliament's resolution calls on the EU to adopt transactions taxes, regardless of whether the United States or other major economies take similar action.

On the bright side, the United States doesn't appear to be actively trying to block European progress. This is a pretty big deal, considering that President Barack Obama stacked his European embassies with former financial executives (e.g., former Citigroup Vice Chair Louis Susman in London and former Goldman Sachs executive Philip D. Murphy in Berlin) and the Wall Street lobby would no doubt love the administration's help in preventing what for them would be an unnerving precedent.

The campaign for Europe to pioneer financial transactions taxes is, however, far from over. The European Parliament has clout as a directly elected body, but it does not have binding authority over taxation matters. National governments will make the final decision, and while heavyweights Germany and France are strongly in favor, there are some problematic holdouts, namely Italy and the UK. The European Commission, the civil service for the EU, is also not yet convinced.

Nevertheless, according to Owen Tudor, Head of International Relations for the UK's Trade Union Confederation, the European Parliament vote broke a big logjam. One of the main obstacles, Tudor says, "has been the buck-passing of world leaders, who are always looking for someone else to make the first move, or for everyone else to agree before they will. Apart from the clear failure to understand what the word 'leader' actually means, this is almost always only an excuse for inaction, which lets the financial sector off the hook while public services are slashed, the poor get poorer and the world heats up."

More than 20 years after Europeans could zip along on bullet-speed trains, Americans are still stuck on bumpy railways or clogged freeways. The Obama administration recently announced plans to expand U.S. investment in high-speed rail. It's also high time for them to get on board the international campaign to tax the speculators, in part as a way to pay for things like transportation infrastructure. Otherwise, this could well be one more area where we'll be stuck in the slow lane for years to come.