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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.

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 Mother Jones website. 

Cross-Posted with the Huffington Post

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

At 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 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.

That 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.

Today I’m joining tens of thousands of people — in 15 cities around the country — rallying outside Wall Street institutions to tell President Barack Obama that it's time to put a tiny tax on big banks. We’re calling it a Robin Hood tax because the tiny tax will hit some of the wealthiest corporations on earth, but the money it raises will mean big bucks for people and the planet. Take back our money from the banks, give it to the people. Simple enough:

In Washington, DC, where I live, we’re heading down to JP Morgan — home to CEO Jamie Dimon who just lost $2 billion on his watch to risky trades. He told members of Congress in a hearing last week that everyone should calm down, it’s just a drop in the bucket. He's likely to stick to the same script at another hearing today.

This is exactly the problem. Wall Street fat cats don’t care if their reckless behavior makes the economy less stable. In fact, they make a lot of money when the prices of things like food and oil race up and down.

Volatility may be a cash cow for the already rich, but it undermines long-term investment in what we actually need  — like clean energy. A Robin Hood tax could curb some of that risky speculation by making high-speed trading less lucrative.

That’s part of why climate activists are calling on world leaders to tax financial speculation — and why that call is reaching a crescendo at the Rio+20 Earth Summit. People who care about our children’s future are demanding that the financial sector, which made trillions from a global economy that trashed the planet, pay its fair share to heal the environment.

The other reason is that a Robin Hood tax could raise hundreds of billions of dollars each year for building a climate-friendly economy and creating good, green jobs.

Heads of State like new French President François Hollande are committed to a financial speculation tax, and to coordinating with other European countries. Now more than ever it’s time for Obama to say yes to a Robin Hood tax.

The conservative presidential candidate has decided he can't win unless he raises taxes on the financial sector. No, I'm not talking about Mitt Romney, but this isn't a belated April fool's joke either.

French President Nicolas Sarkozy has rushed through Parliament a new tax on securities trades, hoping it will give him a boost in what is expected to be a close election against Socialist Party candidate François Hollande on April 22. The French government will start collecting revenue from the 0.1 percent tax on stock trades in August.

This is the first clear win in a two-year campaign by labor unions, environmentalists, global health and other groups for taxes on financial speculation. The ultimate goal is to have broad-based taxes on trades of all financial instruments, including stocks, derivatives, and currency, in all of the world's major financial markets. Sarkozy described his new French tax, which applies only to stock trades, as a first step towards a more comprehensive levy at the European level.

Such taxes have garnered widespread popular support because they could generate massive revenue while discouraging short-term speculation that has no real social value and can undermine market stability. Hardest hit would be the computer-driven high frequency trading that makes up about 55 percent of all trading on U.S. stock markets. Such warp speed robot trading played a role in the May 2010 "flash crash" and there are growing concerns that it could cause the next "Big One." Since these guys make money through razor-thin profit margins on zillions of trades, a transaction tax of even a small fraction of a percent could throw a major wrench in their business model. For ordinary investors, the costs would be negligible.

European State of Play

Beyond France, the European debate on financial transactions taxes has moved forward in fits and starts. In a major reversal of their earlier opposition, the European Commission introduced draft legislation last fall for a tax of 0.1 percent on shares and 0.01 percent on derivatives. But momentum behind the proposal has slowed as Germany, a key supporter, has had its hands full with another not so small matter -- the euro debt crisis. As it has sought to win over other key economies to its position on that front, Germany has tried to lower the tension level with opponents of the transaction tax by floating various compromise ideas. But the most vocal opponent, Prime Minister David Cameron, whose party receives more than half of its donations from the financial sector, has shot them all down. John Major, a previous prime minister from Cameron's party, went so far as to conjure up painful World War II memories by comparing the proposed tax to a "heat-seeking missile" aimed at the City of London (the UK's Wall Street).

Nevertheless, Max Lawson of Oxfam GB says that "despite fierce opposition and lobbying by the financial sector, there is a good chance that a coalition of European countries could push ahead and implement a financial transaction tax in 2012." He points out that nine countries representing 90 percent of Eurozone GDP recently wrote to the Danish EU Presidency to ask them to fast-track the debate on the European Commission draft legislation. A minimum of nine countries is needed for an "enhanced cooperation" agreement -- EU-speak for a pact that involves less than the full 27 member countries.

This week Germany's main opposition party, the Social Democrats, increased the odds of a breakthrough by announcing they would block a new EU "fiscal pact" to contain the debt crisis unless the ruling party moved forward on a coordinated European financial transactions tax. They have the votes to back up the threat.

U.S. State of Play

The Obama administration shifted to a neutral stance on the European proposal last fall but they have not yet expressed support for taxing speculation here in the land of Wall Street. There is, however, growing support for the general concept in the halls of Congress, thanks in part to a big educational push coordinated by Americans for Financial Reform. Last week, the 76-member Congressional Progressive Caucus released a budget proposal that includes a tax on trades of stocks, derivatives, credit default swaps, foreign exchange, and other exotic financial products that could generate an estimated $378 billion over the period 2013-2017. A summary of the bill explains that "this is a tax levied directly against the types of opaque, complex trades that Wall Street manipulators used to inflate their profits and were a direct cause of the financial crisis."

On May 18, National Nurses United will spearhead a major demonstration in Chicago to call on President Obama to tax Wall Street. Scheduled to coincide with a G8 summit hosted by Obama, the event will kick off campaigning events and activity around the world as part of a global week of action for financial transactions taxes. The AFL-CIO and other labor, environmental, and health groups have endorsed the Chicago rally.

The G8 summit offers an opportunity to shine a global spotlight on President Obama during a key moment of the election campaign. Perhaps he will be inspired by the conservative European leaders who have shown more nerve in taking on the mighty financial sector.