… and dispels the case for the Robin Hood Tax in several elegant paragraphs. A financial transactions tax
is not focused on core sources of financial instability. An FTT would not target any of the key attributes—institution size, interconnectedness, and substitutability— that give rise to systemic risk.
Its real burden may fall largely on final consumers rather than, as often seems to be supposed, earnings in the financial sector. No doubt some would be borne by owners and managers of financial institutions. But a large part of the burden may well be passed on to the users of financial services (both businesses and individuals) in the form of reduced returns to saving, higher costs of borrowing15 and/or increases in final commodity prices. … It is far from obvious that the incidence would fall mainly on either the better-off or financial sector rents
These startlingly obvious points needed making, which is why I have made them here, and here and so on. They are not controversial, and don’t need a particularly high level of empirical investigation. An FTT is a bit like a higher price of doing something – a higher commission, say. You don’t need a massive regression analysis to work out that higher wholesale commissions tend to end up in higher retail prices.
What the IMF DO propose (for it is them) is extremely interesting and worthy of examination and possible support. The levy on balance sheets has been explored by Pres Obama; the FAT tax – on the total rent-surplus extracted by the shareholders and employees – much more intruiging. Naturally, Robin Hood Tax campaigners don’t like it, and call these sensible objections ‘tired and discredited’ (unlike the idea that you can take hundreds of billions from an industry without further serious ramifications, which is no doubt ‘fresh and interesting’). But their major objection is that it is NOT ENOUGH:
So, is it enough? No, not by a long chalk. The IMF report accepts that the costs of the financial and economic crisis amount to 2.7% of GDP in the advanced G20 economies (ie nearly£50bn), but the Financial Activities Tax would raise (in the UK, the only place where it gives a figure) just 0.1-0.2% – or £1.75bn to £3.5bn
That is about what CGT raises – it is not chicken feed. And it is just the Value added part – a levy on the balance sheets (15 bps on 1 trillion, say?) might raise some more too. But no: these wouldn’t on their own eliminate world poverty.
But it is still too much for some, who call it a ‘Punishment Tax’. Those freemarket lunatics the French are leading the charge:
French banks are opposed to increased taxes, arguing that the country’s regulatory and lending frameworks prevent excess, and that it has cost the taxpayer nothing. The industry has paid €2bn ($2.7, £1.7bn) to the Treasury in interest for a government support package, most of which has been repaid. The French Banking Federation argued that a tax would reduce economic growth by hampering banks’ ability to lend and has instead argued for better regulation and supervision across G20 countries
And as the recent money figures have shown, bank deleveraging is still a risk. A further interesting observation:
“The proposed taxes, however calculated, would certainly bolster government revenues but would not reduce risk in the system and, ironically, could increase it by implicitly building in an insurance to pay for banks’ risky behaviour,” said the Association for Financial Markets in Europe.
The longer term intention of the IMF is to raise 2-4% of GDP. (Is that a stock or a flow?) If a flow i.e. yearly amount, then it is a huge tax. But it is not clear and I have not read enough. But ‘Analysis by Credit Suisse, a bank, showed this could result in the loss of up to 20 per cent of pre-tax profit for the European banking sector’.
About which I don’t know what to think. If (see previous posts) banking is one big oligopoly, getting at their profits is no bad thing. But as CG observes (below), “the fact is that taxing banks removes potential equity capital and will require banks to raise more equity to be as safe as they would be without the imposition of a new tax.”
For a far superior discussion of bank taxes, whether they will happen, and so on, the peerless Chris Giles has it on his blog (which you can all read, unlike the FT, I hear)