Five years after the 2008 world financial crisis and two years after the Occupy movement it triggered, U.S. critics of the financial sector are coalescing around the idea of a Robin Hood Tax on financial transactions.

Bankers look down onto Robin Hood tax protestors gathered in New York City on Sept 17, 2013. Credit: Samuel Oakford/IPS

“The questions that Occupy raised are the right ones and it’s up to everyone else to come up with some answers,” said Robert Pollin, an economist at UMASS Amherst who works on financial transaction taxes (FTTs).

The idea, first floated by Nobel Prize-winning economist James Tobin in the early 1970s as a way to discourage overzealous currency trading, would, in its current iterations, levy a small duty on stocks, bonds and derivatives.

Though the debate over FTTs has long focused on curbing risky and unnecessary trading and “righting the market”, the Robin Hood movement attempts to shift it to one over human rights, fulfilling basic needs and not least a bit of payback for taxpayer bailouts of the financial sector.

For activists in the United States, the tax is part of what they hope will be a societal reorientation away from the privileging of an industry that has doubled its share of U.S. GDP since 1980 and drains other fields of the best and brightest.

FTTs exist in over 30 countries, many of them, like South Korea and Brazil, with some of fastest growth rates in the world.

“People don’t realise how tiny a tax we are talking about,” said Nicole Woo, director of domestic policy at the Centre for Economic and Policy Research (CEPR).

“There’s plenty of evidence out there that if revenues were to go to infrastructure spending, education and other public goods, it could increase GDP in the end and help increase employment,” Woo told IPS.

The Robin Hood Tax coalition, an umbrella group of sympathetic organisations, has put its weight behind a bill, “The Inclusive Prosperity Act,” introduced in the House of Representatives by Rep. Keith Ellison. The bill’s text is a strong critique of the financial sector and calls for the tax to pay for housing, healthcare and protecting the public sector and the environment.

The legislation would tax stock trades at 0.5 percent, bonds at .1 percent and derivatives at .005 percent.

The mix aims to “tax different markets equally”, Pollin told IPS, making it difficult for traders to flee one asset class for another. A tax in the U.S. would enjoy auto-enforcement on the part of market players because of the judicial security it provides.

“If you want to use the American legal system, you will have to trade here,” says Pollin.

Larry Summers’ decision to remove himself from consideration as chairman of the Federal Reserve in the face of a promised uproar among liberal members of Congress has Robin Hood supporters optimistic.

Summers is seen by many on the left as a leading architect of the financial crisis after he pushed for financial deregulation and opposed transparency in the derivatives market while serving as treasury secretary during the Bill Clinton administration.

A European proposal, agreed to by 11 countries, however, suffered a legal setback this month when E.U. lawyers delivered a non-binding opinion that found a continent-wide FTT used jurisdictional powers within states illegally. The decision is one of many roadblocks that supporters can expect to encounter.

For nurses at a Sept. 17 Robin Hood event in New York City, the events in Europe were noise.

“We looked around the globe and found nurses have the same issues everywhere. Austerity measures are killing us,” said Jean Ross, co-president of National Nurses United (NNU), a union of over 180,000 registered nurses and co-founder of the Robin Hood Tax coalition.

The union sees a Robin Hood Tax paying for many of the medical services which have been cut since the economic crisis.

An enemy weakened

For years, High Frequency Trading (HFT) was the oft-cited boogeyman when it came to pushing for a Robin Hood Tax. Critics claim the billions of daily trades distorted markets and added to volatility.

Fears were realised on May 6, 2010 when the Dow Jones Industrial Average fell more than nine percent only to regain those losses in a matter of minutes. Resounding blame was laid on trading algorithms that exacerbated an initial drop in the futures market. By 2012, HFT were estimated to be executing 84 percent of all trades on U.S. exchanges.

But as more HFT players enter the fray, returns in the zero sum game of shaving fractions of pennies off trades have decreased.

Large firms like KCG – itself formed when GETCO merged with near bankrupt Knight Capital after a haywire algorithm cost the latter over 400 million dollars in one day – have seen their profits cut by over three quarters from the height of the HFT boom, a period that coincided with the first volatile spurts of the crisis in 2008. Many have gone out of business.

KCG declined to comment for this story, as did industry leader Citadel Group.

That high-frequency trading may eat itself up underscores its social uselessness, says Woo. HFT proponents cite the volume and liquidity it creates – if bid and ask prices are nearly even, retail investors and pensions should pay lower prices. This is misleading, Woo told IPS.

“The liquidity provided by these traders is a sort of phantom liquidity because as soon as things start going south the computer algorithms pull all their money out, the liquidity just dries up completely,” she said.

HFT profits, even at their height, were small compared to those of the entire financial sector. Pollin’s models, using parametres similar to those set forth in Ellison’s bill, predict a drop in trade volume of at least 50 percent, putting U.S. market volume and capitalisation proportionally on par with Great Britain, where a tax of .5 percent already exists on stocks.

“Financial trading is an undertaxed sector of our economy,” says Woo.

Many even on Wall Street, especially those whose profits are reliant on long-term trends, agree.

A lack of tax on commodity trading can in fact be a burden on the average consumer. Legislation will help consumers by discouraging speculation in commodity markets, says Kenneth Zinn, political director at NNU. “There’s a surcharge on gasoline that’s simply Wall Street speculation.”

After watching a bruising battle over healthcare that ended in the Affordable Care Act, the nurses union is gearing for a fight with the financial industry, another special interest group which will fight tooth and nail to protect its privileged place in the economic pecking order.

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.”

Washington scepticism

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.

Climate, development

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.”

Non-governmental organisations across Europe welcomed the move by 11 European Union countries Tuesday to move forward with the introduction of a financial transaction tax (FTT), but they urged national governments to ensure that a part of the revenues would be allocated to development.

Calling the tax a ‘golden anniversary’ present, because it came on the 50th anniversary of French-German friendship, a coalition of more than 70 NGOs appealed to French President Francois Hollande and German Chancellor Angela Merkel to spread a “public message of solidarity outside their borders” to guarantee that the FTT would be used particularly in the fight against poverty and HIV-AIDS, and to combat climate change.

“We are happy to see that the process is moving ahead but we’re very worried that the issue of allocating part of the money to development is not going to be taken up,” said Friederike Röder, a spokesperson for anti-poverty group ONE, which was co-founded by rock musician Bono.

“What can happen is that the countries will be so pleased to see additional revenues coming in that they might use the funds for their general national budgets and not be willing to earmark any for development,” she told IPS.

So far, Hollande is the only head of state who has said the FTT will go partly for development. France and Germany spearheaded adoption of this “major milestone” for EU tax guidelines, as the European Union’s taxation commissioner Algirdas Semeta put it on Tuesday. The decision came after a meeting of the EU’s 27 finance ministers in Brussels, but France had long been pressing for the move.

Former French president Nicolas Sarkozy vowed a year ago to implement the FTT without waiting for his European or G20 partners to come on board. “If France waits for others to tax finance, then finance will never be taxed,” Sarkozy said at the time.

The country’s parliament approved the tax and it was introduced last February during the waning days of Sarkozy’s presidency, but without the development aspect. Under Sarkozy’s socialist successor Hollande, who won the presidency last May, the law was amended to allocate an unspecified percentage of the tax revenue to development aid, compared with the 50 percent that French NGOs had requested.

During his campaign, Hollande had supported the so-called Robin Hood tax, amid vows to tax the rich and to alleviate poverty. His government has now pledged that this year 60 million euros of the funds from the FTT will be assigned to development aid, a sum that may account for only about 4 percent of the revenues, according to NGOs. But once the tax is fully in place, the government is expected to allocate 10 percent of the revenues for development.

“This would happen as from 2015, and it’s still way lower than what we expected,” Röder told IPS. “But what we have to acknowledge is that the law now stipulates that a part of the revenue will go to development, which is clearly progress.”

For Germany, Merkel had said that the tax would be the “right signal to show that we have understood that financial markets have to contribute their share to the recovery of economies,” but she wanted all members of the 27-nation European Union to agree on the measure before its imposition.

However, some EU members such as the United Kingdom, which already has a stamp duty, and Sweden have remained opposed to the idea, and it was only through the EU’s “enhanced cooperation procedure” that the FTT was given the green light for 11 instead of all 27 member states. Under this procedure, a minimum of nine EU member countries are allowed to establish integration or cooperation if they wish, without the others being involved.

The 11 nations backing the tax are Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain. A 12th country is expected to join the group, according to sources in Brussels.

The measure will go now go before the European Parliament as a formality, to approve the European Commission’s proposal that transactions in shares and bonds be taxed at 0.1 percent, and trades in derivatives at 0.01 percent.

Overall, by implementing a levy of this percentage on financial transactions, France could gain up to 12 billion euros a year, according to the International Monetary Fund. At the European level, about 50 billion euros could be raised annually, the IMF says.

Some EU governments may consider using FTT revenues to support the banking industry, but several NGOs said that banks have continued to make profits despite being the main cause of the euro zone’s ongoing economic crisis. Governments in Spain, Greece and several other countries have had to prop up banks that were floundering after bad investments.

“The European FTT is a major step forward, but the main aim of this tax should be the fight against hunger, poverty, pandemics and climate change,” said Alexandre Naulot of Oxfam France. “A joint announcement by François Hollande and Angela Merkel would complete a constructive European approach in these times of crisis and budget cuts.”

Meanwhile, Khalil Elouardighi, chief campaigner for Coalition PLUS, a group of organisations that work to combat HIV/AIDS, told IPS: “If European leaders see the tax only as a way to plug their immediate budget problems as opposed to a once-in-a-century opportunity to finally finance those global challenges that are a huge threat to everybody, that would be a complete mistake.”

The group says that the financial transaction tax in France alone could help to treat an additional 400,000 people living with HIV/AIDS in the developing world, and there would still be “money left over” for many other problems. (END)