On Thursday, President Obama will meet with leaders of the other G20 countries. On the table will be a proposal to introduce a Financial Transactions Tax (FTT). French President Sarkozy and German Chancellor Merkel will support the proposal. If President Obama is true to his recent words sympathizing with Occupy Wall Street, he will join Sarkozy and Merkel in supporting the FTT. More likely, though, he will oppose the proposal in order to protect Wall Street, thereby continuing his pattern of progressive rhetoric that masks conservative policies.
The Financial Transactions Tax is a solid idea that has been resisted by Wall Street for years. Each trade of a financial security like a stock, bond, or derivative would be taxed a tiny proportion of its value. Since the volume of trading is so high, even a tiny tax (say 5 cents per hundred-dollar transaction) would collect tens or hundreds of billions of dollars each year.
There are three goals of the FTT proposal that will be considered at the G20 meeting. The first is to dampen high-speed automated trading and other short-term financial trades that contribute to excessive financial volatility. The second is to raise government revenues, especially in view of the fact that the financial sector is under-taxed in the G20 countries (including the US). The third is to harmonize such a tax across the G20 countries to avoid the obvious problem that a tax in one country but not others would push at least some transactions to other countries.
While this problem should not be exaggerated, it is real nonetheless. It has led individual countries to support the FTT, but only if others will also adopt it. The UK, for example, has said that it favors the tax, but only if the US joins.
The European Commission has already adopted the idea of the FTT for Europe, and is indeed requesting the US to join the EC in introducing the tax. The Commission has called on the European member states to introduce the tax on January 1, 2014. According to the Commission's calculations, a tax of 10 Eurocents per 100 Euros of securities will raise 73 billion Euros (around $100 billion dollars) or even more each year within the European Union. The Commission has rightly emphasized that the tax burden will fall mainly on wealthy taxpayers, including the owners of the securities being traded as well as the shareholders of the financial institutions doing the trades.
If history is any guide, Obama will reject the European proposal later this week, while many other G20 countries will accept it. The White House has long been the protector of Wall Street. Treasury Secretary Geithner has recently spoken out against the tax, strongly signaling that Obama will oppose the proposal when the heads of government consider the proposal later this week.
It is not as if an FTT is in any way outlandish. It is only that Wall Street remains more powerful than the 99 percent, even after all the trouble it has caused and all of the nice words that have been said about OWS. In fact, there has long been a stock transfer tax in New York State, equal to a few cents for each share traded on Wall Street (with the exact amount depending on the share price). For a share worth $20 or more, the transfer tax is 5 cents.
The tax currently raises around $16 billion per year. The joke, however, is that Wall Street is so powerful that it doesn't actually pay the tax even though it's on the books. Since 1979, New York State has collected the tax and then rebated the revenues back to the financial firms. There is no net tax collection. The UK, on the other hand, actually collects a stamp tax on trades in shares, equal to 0.5% of each transaction. The U.K. tax collects around $5 billion dollars (3 billion pounds) per year.
Obama's supporters keep hoping that the President will finally start leading the change we voted for in 2008. We keep hoping that the President will realize that whatever he has gained from Wall Street in campaign contributions has been lost many times over in the public's frustration and unhappiness with the corruption of our democracy. We keep hoping that Wall Street impunity will finally be ended.
Mr. President, this week is your chance to make good on your word. Adopt the FTT at the G20 meeting and bring the fight back to Congress. The American people will support you in the fight to restore democracy for the 99 percent.
Follow Jeffrey Sachs on Twitter: www.twitter.com/JeffDSachs
Ed Miliband, Hakan Juholt and Sigmar Gabriel: G20 in Cannes Needs to Bring the World Leadership
Progressives have to be willing to withhold their votes even if it means a painful 4 years with a Republican President. Nothing will change until Progressives are no longer taken for granted.
I hope the President does takes the right path on this one. Next he should fire Geithner.
Because I'd love to know what value inter-institutional transactions actually bring to the economy of any nation....
I'd rather go with the penny tax per transaction.
A clear, unambiguous demonstration of his real allegiance.
An acid-test of his support for the 99% or the 1%.
I'm laying odds he'll go with the 1% and then have some lame crawfish excuse.
Never mind that it doesn't matter how much taxes are raised, it will never be enough. The politicians' appetite for spending is insatiable. It's like the Magic Genie that granted the alcoholic 3 wishes. The first wish was for a bottle of whiskey that would never go empty. "Okay, " said the Genie. "What next?" and the alcoholic said " 2 more bottles."
In the UK 39% of all wealth is pensions. These will be eroded by this new frictional cost but don't let that bother you.
The EU calculates that this new tax, as all taxes tend to, will take 1.7% off growth. You can't suck cash out of an economy and give it to the state to spend on pet projects without slugging growth.
Super article sir, thank you.