Financial Transactions Tax en-us Sat, 27 Dec 2014 01:00:49 -0500 Sat, 27 Dec 2014 01:00:49 -0500 The latest news on Financial Transactions Tax from Business Insider Business Insider 11 Members Of Eurozone Agree To Implement The ‘Robin Hood Tax’ Tue, 22 Jan 2013 17:12:00 -0500 Lucas Kawa <p><img style="float:right;" src="" border="0" alt="Robin Hood: Prince of Thieves " width="400" /></p><p>Eleven members of the Eurozone have finally agreed to adopt a financial transaction tax often referred to as a &lsquo;Robin Hood tax&rsquo; first discussed in September 2011.</p> <p>The tax will apply at the rate of 0.1 percent on stock and bond transactions and 0.01 percent on derivative trades.</p> <p>The countries in question are Austria, Belgium, Estonia, France, Germany, Greece, Italy, Slovakia, Slovenia, and Spain.</p> <p>According to Ed King, these <a href="">countries comprise 90%</a> of the Eurozone's GDP.</p> <p>According to the European Council, the <a href="">purpose of the tax</a> is &ldquo;to ensure that the financial sector fairly and <strong>substantially contributes to the costs of the crisis</strong> and that it is taxed in a fair way vis-&agrave;-vis other sectors for the future, to <strong>disincentivise excessively risky activities</strong> by financial institutions, to<strong> complement regulatory measures</strong> aimed at avoiding future crises and to <strong>generate additional revenue</strong> for general budgets or specific policy purposes.&rdquo;</p> <p>Oxfam estimates the tax <a href="">will boost these government&rsquo;s coffers</a> by a combined &euro;37 billion per year.</p> <p>Notably absent from this agreement is the U.K., as <em>The Guardian</em>&rsquo;s Peter Hain observes. His op-ed &ldquo;Why Labour should put the Robin Hood tax centre stage&rdquo; <a href="">lambastes the government</a> for passing up an estimated &pound;8 billion of annual revenue, which could be used to stimulate job creation.</p> <p>As the <a href="">official release</a> from the European Council notes, this is the first time that a group of member states have agreed to &lsquo;enhanced cooperation&rsquo; in the area of taxation.</p><p><a href="">Join the conversation about this story &#187;</a></p> France's Financial Transaction Tax Experiment Is Turning Into The Worst Kind Of Failure Wed, 02 Jan 2013 16:20:00 -0500 Matthew Boesler <p><img style="float:right;" src="" border="0" alt="Fracois Hollande" width="400" /></p><p>One suggestion that has gained popularity in the post-crisis regulatory debate is a tax on financial transactions.</p> <p>Proponents suggest that the tax would raise revenues for governments (at a time when such revenues are badly needed) and curb the excessive speculation that contributed to the global financial crisis.</p> <p>In August 2012, France became the first eurozone nation in the wake of the financial crisis to implement such a tax, and so far, it's been a total failure.</p> <p>In an <a href="">article for,</a> Hannah Collins explains that in France, the tax &ndash; which amounts to 0.2 percent on transactions involving buying or selling of shares of stock &ndash; is actually just shifting investors out of equities and into even riskier, more opaque products like derivatives and derivatives-based ETFs:</p> <p style="padding-left: 30px;">Investors who own French shares are selling them and taking positions on them through derivatives instruments such as contracts for difference, structured products and ETFs, according to a Paris-based lawyer. <strong>"Most structured transactions remain outside the tax," he says. "It is due only if you have actually purchased the shares."</strong></p> <p>In other words, instead of curbing excessive speculation, the tax is simply forcing those speculative activities into darker, less-regulated corners of the market.</p> <p>Logically, the tax could accelerate the rise of synthetic ETFs due to this favorable tax treatment, as Collins explains:</p> <p style="padding-left: 30px;">The FTT will give a clear tax advantage to ETFs based on swaps, says Isabelle Bourcier, director of business development at ETF provider Ossiam in Paris. "With a purely physical ETF, every time the manager buys the French stocks directly, the fund has to pay the FTT," she says. "Because the banking swap counterparty is not charged the tax if they buy the stocks for hedging, a fund that receives the performance of the basket of stocks [for which the FTT is due] through the swap would be unaffected by the FTT."</p> <p>The European Commission is contemplating instituting a financial transaction tax at an EU-wide level to address speculation and raise revenues. Unlike the French version of the tax, the EC proposal involves a tax on derivatives transactions in addition to that on regular equities transactions.</p> <p>The proposed tax on derivatives transactions, at 0.01 percent, is a mere fraction of those on stocks and bonds (0.1 percent), though. It remains to be seen whether the EC version of the tax will encourage the same investor behavior as the one in France is now.</p><p><a href="">Join the conversation about this story &#187;</a></p> France May Go It Alone On The Financial Transactions Tax Fri, 06 Jan 2012 11:16:57 -0500 Adam Taylor <p><img style="float:right;" src="" border="0" alt="merkel sarkozy in france 2" /></p><p>Yes, its true &mdash; France may decide to go ahead a financial transactions tax, even if Germany doesn't.</p> <p>Henri Guaino, a special adviser to Sarkozy, told the BFMTV news channel about the government's plans yesterday (<a href="">via The Local</a>):</p> <p style="padding-left: 30px;"><em>"There will be a decision on financial transaction taxes before the end of January as far as France is concerned,"</em></p> <p style="padding-left: 30px;"><em>"France will set the example on this issue."</em></p> <p>Asked if they will continue even if Germany does not cooperate, Guaino continued:</p> <p style="padding-left: 30px;"><em>"It is better if Germany is involved."</em></p> <p style="padding-left: 30px;"><em>"We will keep discussing it in the coming days and weeks, but France is ready to take the lead on this issue... and hopes it can bring others along."</em></p> <p>Sarkozy is a big fan of the FTT it seems, <a href="">despite analysts objections</a>.<em><br /></em></p><p><a href="">Join the conversation about this story &#187;</a></p> A Financial Transaction Tax Could Weed Out All The Pointless Trading Wed, 04 Jan 2012 11:55:00 -0500 David Crisanti <p><img style="float:right;" src="" border="0" alt="high frequency trading" /></p><p>In an editorial published in the <a class="hidden_link" href="">Wall Street Journal</a> (&ldquo;<a href="" target="_blank">Taxing Stock Trades Will Hurt Main Street</a>&rdquo;, by Yakov Amihud and Haim Mendelson, Nov 11, 2011) the authors inadvertently make the case for imposing a stock trade tax rather than opposing it.</p> <p>Their argument &nbsp;against a tax boils down to the claim that a fee of 0.25% on each trade (which is the amount a bill going through the Senate would levy) would depress stock prices 10%, which in turn would have a cataclysmic effect on our economy. But based on their own evidence the tax would not depress stock prices, and in my opinion would provide large indirect benefits.</p> <p>I have made a living since 1986 in high frequency trading and a tax of .25% would drive me out of business as I know it. However I have long recognized the potential benefits of such a tax, my own personal situation notwithstanding. To wit, a tax would reduce superfluous trading volume, volume which in and of itself does little for our nation&rsquo;s prosperity.</p> <p>Dime store economists will argue that volume provides liquidity for securities markets, which I agree is an undeniable good for an economy. But at some point the marginal gain in volume doesn&rsquo;t provide increased liquidity or any other benefit--it&rsquo;s just churn.</p> <p>It&rsquo;s difficult to say where trading volumes begin to have zero marginal value, but some numbers might help give context: from 1948 to 1983 our banking sector was responsible for between 5% and 17% of our national corporate profits, while from 1998 to 2007 the range was 27% to an astounding 40%. &nbsp;</p> <p>Meanwhile NYSE trading volume grew from 34mm shares a day in 1979, to 900mm shares a day at the peak of the dotcom bubble in 1999, to 2.5bb a day in 2007 (which is still the average in 2011). Yet between 2001 and 2011 our economy has had its worst decade by many economic measures including job creation, stock market performance, and GDP growth.</p> <p>By what mechanism has all this additional trading volume hurt our economy? One way is by using valuable resources that could have been used elsewhere, taking scientists and engineers and other talented quants (not to mention history majors) out of the lab and on to trading desks. I know this because I&rsquo;ve hired some of them myself. And what does that extra volume provide if not liquidity? Trades in and of themselves do not create wealth for an economy since trading is a zero sum game. The total wealth gained or lost in any market is only equal to the amount the market moves.</p> <p>The number of trades is irrelevant and in fact one person&rsquo;s gain is another&rsquo;s loss (or profit foregone).&nbsp; All participants can make money if the market goes up, but the same total wealth would have been created had 1/100<sup>th</sup> (or zero for that matter) of the trades taken place. In other words, if the explosion in banking profits between 1980 and 2007 have come from trading, they have come at someone else&rsquo;s expense (namely pension funds, mutual funds and non-professional participants) and have been of limited value to our economy.</p> <p>Ok, so trading is a zero sum endeavor, but if higher volume means more liquidity (at least up to a point), that would indeed increase the value of all securities, which (as per the &lsquo;zero sum&rsquo; elucidation above) does create wealth. So, how much value would our markets lose if volume was decreased? The authors against the transaction tax say 10%, though they give no evidence for how they came to translate volume change to price movement.</p> <p>But they do cite studies of previous securities transaction taxes in the U.S. that found no consistent relationship between tax regime and volatility&mdash;a finding which if anything gives reason FOR a transaction tax rather than against. In my mind the reason not to impose a tax was that market makers, those providing liquidity, also known as high frequency traders, would thin considerably in the advent of a .25% tax since most of their trades have an expected return of 1/5 that. And with market makers leaving, liquidity would dry up, which I expected would lead to higher volatility, which undeniably leads to lower securities prices. But if there is no commensurate spike in volatility, then how far could security prices fall in the advent of a transaction tax?</p> <p>We cannot know for certain, but with no increase in volatility the number would be closer to zero than 10%. &nbsp;And even if it were 10%, the resulting benefit from moving valuable resources away from non-productive trading to more marginally productive sectors would more than wipe out any one time 10% drop. After all, look at what little real gain the converse has provided us.</p> <h2><a href="" target="_blank">Next: a better solution than a trading tax&mdash;mandatory and permanent banker compensation clawbacks &gt;</a></h2><p><a href="">Join the conversation about this story &#187;</a></p> EU Leaders Offer No Solutions, Rule Out Help From The ECB Sun, 23 Oct 2011 11:19:00 -0400 Simone Foxman <p><img style="float:right;" src="" border="0" alt="merkel sarkozy meeting 8-16-11 2" width="402" height="301" /></p><p>Two separate press conferences from top European leaders failed to raise hopes that a European solution would be forthcoming.</p> <p>Competing press conferences given by French President <a href="" class="hidden_link">Nicolas Sarkozy</a> and German Chancellor <a href="" class="hidden_link">Angela Merkel</a>, and by European Council President Herman van Rompuy and European Commission President Jose Manuel Barroso.</p> <p>In line with general consensus on the meeting's outcomes, leaders said they would wait until Wednesday to announce any plans for Greece, bank recapitalization, leveraging the EFSF, and changes to EU governance.</p> <p>Leaders also ruled out using the <a class="hidden_link" href="">European Central Bank</a> to help recapitalize the banks and leverage the European Financial Stability Fund, the rescue fund that will be used to stop the crisis from spreading. France's Sarkozy had previously endorsed a larger role for the ECB to the dismay of Merkel and Germany. Expanding the ECB's role would likely have violated standing EU treaties.</p> <p>A little more on what's been decided so far this weekend:</p> <p style="padding-left: 30px;">- Banks will first be asked to seek capital on their own, then seek money from their national governments, then finally the EFSF. The <a href="" class="hidden_link">ECB</a> will not be involved.</p> <p style="padding-left: 30px;">- Two options are currently on the table for leveraging the EFSF, again without the help of the ECB.</p> <p style="padding-left: 30px;">- That financial transaction tax Merkel and Sarkozy started talking about in August is getting a lot of attention. Sarkozy said that the financial sector will have to play a part in the recovery from this crisis, considering their role in catalyzing it.</p> <p style="padding-left: 30px;">- Italy got a lot of heat, as its economic situation deteriorates.</p> <p style="padding-left: 30px;">- "No solution is viable unless it enjoys the support of all European institutions," Sarkozy told the Press. No word on how they'll get all that necessary support...or when.</p><p><a href="">Join the conversation about this story &#187;</a></p> A Financial Transactions Tax Is Not The Solution To Europe's Problems Mon, 03 Oct 2011 14:22:17 -0400 Kenneth Rogoff <p><img style="float:right;" src="" border="0" alt="london stock exchange" /></p><p>Europe is already in pickle, so why not add more vinegar?</p> <p>That seems to be the thinking behind the European Commission&rsquo;s proposed financial transactions tax (FTT) &ndash; the Commission&rsquo;s latest response to Europe&rsquo;s festering growth and financing problems.</p> <p>The emotional appeal of a tax on all financial transactions is undeniable.</p> <p>Ordinary Europeans have to pay value-added tax on most of the goods and services that they buy.</p> <p>So why not tax purchases of stocks, bonds, and all kinds of derivatives?</p> <p>Surely, such a tax will hit wealthy individuals and financial firms far more than anyone else, and, besides, it will raise a ton of revenue.</p> <p><a class="hidden_link" href="">Indeed</a>, the European Commission estimates that its proposed tax of only 0.1% on stock and bond trades, and 0.01% tax on derivatives, will raise more than &euro;50 billion per year.</p> <p>As a bonus, an FTT will curb destabilizing speculation in financial markets.</p> <p>If only it were so simple. Of course, taxation of financial firms&rsquo; profits and bonuses should be made more similar to that of other economic activities.</p> <p>Excessive leverage needs to be reined in. A return to pre-2007 levels of macroeconomic and financial stability would support growth. Unfortunately, much as FTTs are the darling of leading liberal economic commentators and Robin Hood NGOs, they are an extremely misguided approach to achieving such worthy ends.</p> <p>True, great thinkers like <a class="hidden_link" href="">John Maynard Keynes</a> and the late Nobel laureate James Tobin floated various ideas for taxing financial transactions as a way to reduce economic volatility. (Tobin&rsquo;s tax applied specifically to foreign-exchange trading.) But, since then, the idea has received close attention from many economic researchers, and, frankly, it is hard to find their research results supportive.</p> <p>Such taxes surely reduce liquidity in financial markets. With fewer trades, the information content of prices is arguably reduced. But both theoretical and simulation results suggest no obvious decline in volatility. And, while raising so much revenue with so low a tax rate sounds grand, the declining volume of trades would shrink the tax base precipitously. As a result, the ultimate revenue gains are likely to prove disappointing, as Sweden discovered when it attempted to tax financial transactions two decades ago.</p> <p>Worse still, over the long run, the tax burden would shift. 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.</p> <p>All of this is well known, even if prominent opinion leaders, politicians, and philanthropists prefer to ignore it. The European Commission has surely been strongly cautioned by the Fiscal Affairs Department at the International Monetary Fund, whose economists have thoroughly cataloged the pros and cons of FTTs. So why did the Commission go forward with the idea?</p> <p>The most generous interpretation is that the Commission simply does not believe economists&rsquo; estimates and analysis, and views an FTT as more workable than is commonly realized (a scenario that calls to mind the debate surrounding the creation of the euro.) It is true that Latin American governments, particularly the Brazilian authorities, succeeded in raising more revenue from taxes on bank withdrawals (a crude version of an FTT) than most policy analysts thought possible. On the other hand, Latin America&rsquo;s long-term growth record is hardly an advertisement for the approach, and accounting for lost tax revenues due to lower GDP would surely yield a less impressive fiscal outcome..</p> <p>Another possibility is that the Europeans concluded that an FTT&rsquo;s political advantages outweigh its economic flaws. After all, there certainly is a case to be made that an FTT has so much gut-level popular appeal that politically powerful financial interests could not block it. One can almost buy this idea, except that the tax is so counterproductive in the long run that it is hardly obvious that it would be better than nothing.</p> <p>There are more cynical interpretations of the European Commission&rsquo;s motives. Perhaps officials noticed that virtually everything in Europe is already heavily taxed. So, rather than finance the European Union&rsquo;s institutions through greater contributions from existing tax bases, they are seeking a consensus for new revenue sources. Or perhaps the Commission realizes that the FTT will be dead on arrival, owing to disputes within Europe, and simply wants to gain political capital from an enormous popular proposal.</p> <p>After the financial crisis erupted with full force in 2008, former US Federal Reserve Chairman <a class="hidden_link" href="">Paul Volcker</a> claimed that the only worthwhile financial innovation in recent decades was the ATM. And, as the Oscar-winning documentary <em>Inside Job</em> rightly points out, no one whose other, less useful innovations helped cause the financial crisis &ndash; politicians, financiers, and many others &ndash; has really paid a price.</p> <p>There is, in short, ample reason to be angry at financiers, and real change is needed in how they operate. But the FTT, despite its noble intellectual lineage, is no solution to Europe&rsquo;s problems &ndash; or to <a>the world&rsquo;s.</a></p> <p><em>This <a href="" target="_blank">post</a> originally appeared at <a href="" target="_blank">Project Syndicate</a>.</em></p><p><a href="">Join the conversation about this story &#187;</a></p>