G8 Meeting In Chicago In May.. Will They Discuss the Financial Transaction Tax

It’s fitting that the G8is meeting in Chicago this May. In a city with the highest sales tax in the country, where the state tax rate was recently increased by 66% and property taxes went up $300 per homeowner, and where 2012 state education spending was cut by a greater percentage than in any other state, a tax break of $85 million per year was given to the largest and most diverse financial exchange in the world.

The CME Group, made up of the Chicago Mercantile Exchange and the Chicago Board of Trade, had a profit margin higher than any of the top 100 companies in the nation over the past three years.

That leads us to another astonishing fact: an American mother pays nearly a 10% sales tax on shoes for her kids, while millionaire investors pay .002 percent (2-thousandths of a percent) for a financial instrument. 

The FTT is sensible, equitable, and long overdue and familiar to some of your more farsighted G8 members. The United Kingdom has had a tax on stock trades for decades. French President Nicholas Sarkozy insisted that his country, despite opposition from the European Union, would institute an FTT. Germany favors a tax, as reportedly do Brazil, Argentina, and South Africa.  The Belgian finance minister recently stated, “All goods and services are regularly subject to tax, so I don’t see why financial transactions would have exceptional protection.”

The Bank for International Settlements reported in 2008 that annual trading in derivatives had surpassed $1.14 quadrillion. For the U.S. alone, revenue estimates by the Center for Economic and Policy Research and the Chicago Political Economy Group approach a half-trillion dollars annually

The FTT would also limit the speculative trading that contributed to the financial meltdown in 2008, and which continues to devastate Greece and other financially troubled countries.

Bankers, trade associations, and conservative research groups have concocted a variety of arguments against the FTT, including its effect on ordinary investors, the practicality of collecting the tax, and the risk of exchanges bolting to other countries. But ordinary investors and retirement funds can be exempted from the tiny amount they might be taxed; the modern electronic trading system can easily incorporate a new fee; and a global tax would leave nowhere for tax avoiders to hide.

The Wall Street Journal calls the FTT a “sin tax” which would punish Main Street. It seems, rather, that Main Street has been punished by the absence of an FTT. Considerable support for the tax exists outside of the financial industry. Bill Gates, George Soros, prominent economists, Catholic development groups, National Nurses United, the Pope. In 1989 Lawrence Summers recommended a securities transaction tax. Even Fortune admits, “There is growing consensus from diverse corners of society for some sort of financial transaction tax.”

The FTT is fair and equitable, and should be instituted. How the funds are used is a different story for a different time. Banks, Financial Institutions and Major investment brokers are greedy, that do not want to give up their multimillion dollar salaries, their houses in the Hamptons, and their 2500.00 suits, and someone needs to tell these boys, that it is time to give back what you take.

8 thoughts on “G8 Meeting In Chicago In May.. Will They Discuss the Financial Transaction Tax”

  1. I don’t think the arguments against this out-dated tax have ever been “concocted”. Over time it has been subjected to vigorous testing and always thoroughly discredited. The IMF’s report I believe more than 2 years ago recommended strongly against this particular tax, favouring something called a financial activities tax. The IMF’s recently appointed general manager Ms Lagarde also warned against it. It is a bad mechanism that would hurt the wrong people. Its multiplying flow-through effects would have to be met by ordinary citizenry. That is, if it were not net revenue negative, which many astute mathematicians and economists have shown. But I am from a foreign country which would be happy to welcome CME business relocating to our shores. We are expanding our businesses into the highly competitive and burgeoning Asian region (China – your rival), Singapore, Hong Kong, South Korea, India, Thailand and Indonesia. It is a perplexing thing to see such a potentially damaging tax written up in such glowing terms, when reputable studies show it would cause far more harm than good. The majority well-informed countries dismissed this idea almost three years ago. We don’t want to see any more economic errors of judgement in the US, but in this case, your loss would be a splendid gain for us.

    1. You might be 100% correct, that the way the tax would have been implemented or regulated might have been poor, and I am not saying that it should be the tax that was proposed in the language or form that it was proposed several years ago, but a financial transaction is the goods of investors, brokers and the markets. It is a business transaction.

      Your other arguments are mute, the world is not going to run to China to conduct business because they do not have a tax there. I am not saying one country should implement without others. I am saying it is a good idea. When countries imposed income taxes there was the same argument, when countries imposed VAT tax there was the same argument. Just recently there were the same arguments made over internet sales.

      I am not suggesting how to impose it, I am saying it needs to be imposed in a way that is proper and fair.

    2. @Sydneysider

      Several G20 countries (including South Korea, India, South Africa, USA and Brazil) already apply some form of FTT. The UK’s own 0.5% tax on share transactions (the Stamp Duty) is one of the best examples of a successful FTT raising the Exchequer more than £3billion each year without a significant loss of business from London. A group of European countries including France, Germany, Spain and Italy are backing a Financial Transactions Tax and looking into ways of introducing the tax by the end of the year.

      Luckily for the average citizen, a Robin Hood Tax would only apply to casino style trading, and this market is dominated by investment banks and hedge funds, not everyday high street banking. And research suggests that the financial sector can afford to pay another £20 billion in tax.

      This way the banks are paying their fair share to society and the money can go towards helping those most in need, living in poverty here in the UK and abroad.

  2. “All goods and services are regularly subject to tax, so I don’t see why financial transactions would have exceptional protection.”

    Now they are taxing our money itself. Money is not a good or service.

    1. You are correct, money is not a good or service, but a financial transaction is a service. It should therefore be taxed in some way or form. It is only for taxing financial transaction, not for the purpose of taxing people or businesses, except if you are in the business of financial transactions. If I am a manufacturer and I product a product and I sell that product it is taxed. If I am a broker or a dealer, I am buying or selling an asset providing a service such as a transaction, it is the same. You have to look at a financial transaction as their inventory or their service.

  3. “an American mother pays nearly a 10% sales tax on shoes”

    Now she will have to pay tax on her money itself. Brilliant.

    If i move $10,000 from one account to another, i just received $10,000 in service? Just ignore the real service of the $20 wire fee or the $20 in broker and exchange fees. I should be taxed on my own money? It would be like relocating and needing to hire someone to drive the $10,000 car to my new location. I would have to pay tax on the value of the car. I just paid for $10,000 worth of service?

    “For the U.S. alone, revenue estimates by the Center for Economic and Policy Research and the Chicago Political Economy Group approach a half-trillion dollars annually”—Truly amazing when that is multiples more than the profits of the entire financial sector.

    “The United Kingdom has had a tax on stock trades for decades.” —the tax applies to retail investors only. Banks, exchanges and traders were intentionally made to be tax exempt.

    “The FTT would also limit the speculative trading that contributed to the financial meltdown in 2008, and which continues to devastate Greece and other financially troubled countries.”—Greece and other countries have accumulated tremendous debt from over-extending the government. Now they want speculators to buy up their debt.

    “But ordinary investors and retirement funds can be exempted from the tiny amount they might be taxed”—The transaction tax is a cascading tax that investors and pension funds will pay anyway. There are as many as a dozen transactions that will be taxed in the chain of processing a purchase of stock. Our transaction might receive an exemption, but we will pay tax on all of the other transactions. IMF states in the Final Report For The G-20, June 2010 about the financial transaction tax, “Its real burden may fall largely on final consumers rather than, as often seems to be supposed, earnings in the financial sector…A tax levied on transactions at one stage ‘cascades’ into prices at all further stages of production.” Don’t forget that the bid-ask price will increase from 1 cent to an estimated 25 cents or more. That alone would cost around 1 percent yield loss each time you or your fund manager buys and sells.

    It won’t work anyway. Swedish Finance Minister Anders Borg warns often that the same FTT in Sweden saw implementation costs of the tax out-run its own revenues. FTT revenues achieved 3 percent of revenue projections before subtracting reduced GDP revenue losses in all other areas.

    From the UK’s European Scrutiny Committee quoting the European Commission’s 1223 page FTT Impact Assessment (even before the damaging relocation effects): a 3.43% fall in EU GDP equates to a fall in economic output worth €421 (£362) billion and a 0.34% fall in employment equates to a loss of 812,000 jobs.

    The recent EFAMA study finds that if FTT were in place for 2011, it would have cost investors and pensions an astounding EUR 38 billion for UCITS funds alone.

    Analysis conducted by BlackRock finds the cascading tax will cost money market funds in Europe 7.82 percent annually, effectively destroying their existence. Equity fund yields will be reduced by 2.52 percent annually. That would reduce retirement account yields by one half over a lifetime career. No promises of tax breaks could ever make up for that.

    1. You are totally mistaken, money is not a financial transaction. Paying for something with money or depositing money is not a considered a financial transaction. When you purchase one currency for another, that is no different then purchasing a car for money, it is a purchase. When an investment house buys bonds that they make billions of dollar of profit on that is a transaction. Most private citizens, consumers and others would not ever be effected by the financial transaction tax, and I am sure that any tax proposed would be only on very large transactions, most likely exceeding 1 million dollars in value. So it is most likely never to be paid by an individual that has to pay 10% tax on her shoes unless she is wearing very expensive shoes.

      This tax would be an industry tax, applied to transactions that effect specific industries, and the lobbyists try to make consumers and everyday people think it will cost them or effect them.. How does the millions of dollars paid to bankers and traders effect me.. Greatly..It will only effect the huge profits these businesses earn and help force them to repay the cost to taxpayers who have paid so dearly these few years, help to pay for better monitoring and enforcement.

      Just the other day, I was reading an article about a currency trader who was suing his employer for millions of dollars. This trader told his boss he was suicidal, under so much pressure to generate income and profit, 3 people in his department had been let go and he was doing all of their work.. His boss told him to “buck up and deal with it”.

      There currency trader/banker is suing the firm over mental anguish.. and normally I would sympathize with him, until I read that he earn 3.6 million USD. He could just as easily quit or hired a shrink or at the salary retire,, or “buck up’…

      I think a financial tax would be a good way to reign in an out of control industry. I am not saying how to institute the tax or how to make it work or how to make it fair, I am just saying it is needed along with monitoring and enforcement.

      Maybe this trader earning his 3.6 million dollar can help your mother buy shoes.

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