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Wednesday, October 1, 2014
- Two European policymakers on Monday called on their U.S. counterparts to rethink opposition to proposals for a small tax on stock purchases and other financial transactions, which proponents say could raise hundreds of billions of dollars for poverty alleviation, action on climate change and financing international development.
“It’s quite important for us to see others moving at the same time,” Christopher Leslie, a member of the Labour Party and shadow financial secretary to the British Treasury, said Monday at a panel discussion here.
“It’s an incredibly brave journey by those countries in the European Union who have begun to enter into this … but I also want to persuade the United States to have a little think about this as well. We can all take small steps together in the right direction.”
The call comes just weeks after 11 European Union member states (though not the UK) announced that they would aim to impose such a levy, called a financial transactions tax (FTT), by the beginning of next year. That move signified the first time that EU tax decisions have been made by less than consensus, as well as the first time that any FTT has been imposed internationally.
To date, some 23 countries have legislated in favour of some kind of FTT, including the UK, Switzerland, Hong Kong, Japan and others. The United States remains the only major financial centre not to do so.
“We are ready to lead the way to show that FTT can and should be applied,” Algirdas Semeta, the European Commissioner for Taxation and Customs Union and the architect of the new 11-member agreement, said here Monday.
“A precedent will be set with a regional FTT in 11 member states – this is a chance to prove the benefits of a well-designed FTT and to confound the long-time cynics.”
Semeta says that several other countries have already expressed an interest in joining the new FTT zone – and hints at greater designs.
“Today, a global FTT may seem a very remote possibility,” he admitted. “But let’s not forget that even two years ago the same could have been said of a harmonised FTT in the EU. New ground is being broken.”
As for his current trip to Washington, Semeta continued: “We all know that the United States remains sceptical about the FTT. But the tax also has its supporters here, which I want to encourage.”
The idea of taxing transactions involving stocks, bonds and derivatives has been discussed by economists for decades. Yet it has seen a significant resurgence in recent years as governments around the world struggle to close holes in their budgets following the 2008 global economic crisis.
That budgetary drive has coincided with increased public and regulatory anxiety over the perception of an out-of-control financial sector in which speculation and overleveraging is rife. Proponents say an FTT could cut down on the incentive to engage in short-term computer-driven trading involving split-second transactions, which critics say massively increases volatility in global financial systems.
Both the U.S. government and business community remain against any such new levy. Yet until 1960 the United States, too, had an FTT, notes Lynn A. Stout, a law professor at Cornell University, which she says proves that doing so is politically feasible.
“The single biggest obstacle that I see to [doing so again] is simply the enormous amounts of money the trading middlemen – who are the only people who reliably profit from secondary market trading – have poured into press releases and political donations to try to convince average Americans that somehow they will be harmed by this,” Stout said at Monday’s panel discussion.
Indeed, in 2010 the International Monetary Fund (IMF) found that the U.S. financial sector was notably under-taxed, and many are now hoping that the E.U. decision could provide evidence to end the argument.
“This will be significant in the U.S. discussion, as one of major critiques that came from the [Obama] administration a couple years ago is that trades will move overseas, particularly to competitors in Europe,” Nicole Woo, director of domestic programmes, with the Center for Economic and Policy Research, a liberal think tank, told IPS.
“So this undermines that major critique, and also opens up the conversation to more seriously consider such an approach on our shores.”
For the moment, however, President Barack Obama’s administration has expressed opposition to the new EU proposal. A spokesperson for the U.S. Treasury told IPS in an e-mail, “[W]e do not support the proposed European financial transaction tax, because it would harm US investors in the United States and elsewhere who have purchased affected securities.”
While the former head of the Treasury, Timothy Geithner, was known for being sceptical of the efficacy of the FTT approach, his replacement has yet to express a public opinion on the issue. However, according to polling in December on behalf of Friends of the Earth, an environment advocacy group, around 65 percent of U.S. respondents support the idea of an FTT.
And Woo points out that some 15 bills with FTT-like initiatives were proposed in the U.S. Congress last year, a spike that shows significant political interest. Although none of those bills became law, at least one will reportedly be re-tabled within the coming week, with others sure to follow.
Even with just 11 members, the EU FTT could bring in as much as 47 billion dollars a year. In the United States, some say such a tax could result in 50 billion dollars a year, far greater than the current yearly budget cuts being fiercely debated in Washington.
Yet even as lawmakers may become increasingly enticed by the prospect of such sums, the European Commission’s Semeta is clear that part of that money will need to be used for international, collective responsibilities.
“We should not forget that many developed countries have very high commitments in terms of financing development and climate change,” he said.
“The best solution would be the introduction of such a tax globally … and I will talk with the [Obama] administration about how we can progress in this area. Of course, I do not believe that my visit today will convince the administration to adopt this tax, but little by little we can progress on the subject.”