New taxes in the Eurozone don’t typically raise new eyebrows, but one tax proposal in particular is generating strong feelings on the American side of the Atlantic Ocean from congressional Democrats and some affiliated with the Occupy Wall Street movement who want to see it implemented globally.
In a September 28 press release, the European Commission said a new tax on all transactions between financial institutions would “make the financial sector pay its fair share.” The tax would be levied on securities and derivative transactions whenever at least one of the participating banks is located in Europe.
As part of a deal to keep the Euro currency afloat, 27 European countries recently signed on to the proposal. A European Commission study predicts the 0.1 percent tax on stock and bond trades, and a 0.01 percent levy on derivatives, will produce between $21 billion and $53 billion every year.
The fee has become a rallying cry for Occupy enthusiasts who view Wall Street, and derivatives traders especially, as the source of an impending worldwide financial collapse. They believe banks should be forced to share their wealth to pay for more social programs.
Center for Budget and Tax Accountability policy director Ron Baiman, who helped design a financial transactions tax in Chicago with an Occupy-related group called Stand Up Chicago, told The Daily Caller a global bank-transactions fee would sit well with the protest movement.
“Occupy has been very good in stimulating discussion on inequity and Wall Street’s role in it,” Baiman told TheDC. And while Obama Treasury Secretary Tim Geithner told his European counterparts in September that the United States is opposed to the idea, at least a few American lawmakers have already leaped ahead to copy it.
In November, Oregon Democratic Rep. Pete DeFazio and Iowa Democratic Sen. Tom Harkin introduced the Wall Street Trading and Speculators Tax Act, a bill that has 19 House cosponsors and two in the Senate. No Republicans have signed on, but New York Times liberal columnist Paul Krugman was among the idea’s earliest cheerleaders, endorsing a “punitive tax” in order to raise sufficient government funds to avoid future “harsh spending cuts.”
The Occupy movement sees rallying support for the DeFazio–Harkin proposal as a crucial step to prevent European banking taxes from merely driving more stock speculators into the arms of Wall Street. If the playing field were even on both sides of the Atlantic, as the Huffington Post has reported, “there would be little haven left for speculative trading.” (RELATED: Full coverage of the European debt crisis)
“Everyone would agree that globally would be best,” Baiman told TheDC. A globalized bank-transactions tax is already favored in some form by billionaires Bill Gates, Warren Buffet and George Soros, former Vice President Al Gore, consumer activist and serial presidential candidate Ralph Nader and Pope Benedict XVI.
Soros, in particular, has enthusiastically championed the idea since at least 2009, when then-UK Prime Minister Gordon Brown proposed it publicly. The idea, Soros said, “fit in with everything I’m saying needs to be done. … The banks should, when they can, be a source of taxation, having been a drain on taxpayers.”
TheDC spoke with economic and policy analysts from three free-market think tanks on two continents. They all dismissed the idea.
Sam Bowman, an analyst with London’s Adam Smith Institute, told TheDC in an email that “The chances are zero” of a global banking tax “as long as Zurich, Singapore, Hong Kong, Wall St and the City are all in existence: The governments of all of those financial centres will block one.”
Heritage Foundation senior research fellow David John, has already testified before the Senate Finance Committee in opposition to the tax. The chance that the European experiment will spread across the globe, he said, is “somewhere south of nil.”
Competition between cities that are home to financial markets, he said, will all but guarantee that capital will flow wherever such taxes are not in force.
Still, in agreeing to the bailout of many of its weakest members, the Eurozone is on the precipice of moving forward. The treaty that includes the new tax must be ratified by each of the member countries; but if it passes, it will create a new launching pad for the fee’s global spread. And more power will be transferred from the parliaments of individual European nations to the EU headquarters in Brussels.
Noting Geithner’s coldness to the idea of a global bank-transactions tax, Cato Institute senior fellow Dan Mitchell noted some irony in an interview with TheDC. “From what I understand,” he said, “President Obama is on the right side of this issue.”
If Obama and Geithner are on the right side, however, the United Nations is not. “If we have a global financial transaction tax, say of 0.5 percent,” UNAIDS director Michel Sidibe told Reuters last week, “we will have $226 billion. Ten percent of that resource is enough for financing the fight against HIV/AIDS,”
Heritage’s John dismisses this idea. “They [the UN] don’t have the power to levy such a tax.”
Rep. Defazio remains hopeful that Congress will do what the UN cannot.
“I voted against the absurd bank bailout and the Bush Administration’s cowboy capitalism, markets-know-best, deregulation-at-all-costs policies,” he said when he and Sen. Harkin proposed their bills.
“We cannot wait for the next bubble to pull us out of the recession … This legislation will ensure Wall Street pay for needed investment to get our country back on track”.
But Cato’s Mitchell said that while the Democrats’ success might make the Occupy movement happy, it will only serve to distort financial markets — sending dollars, Euros and other currencies where they wouldn’t otherwise go on their own.
“I want financial markets to chase the most efficient forms of capital,” he told TheDC. “Such a tax merely gets in the way of that endeavor and perverts that process.”