Financial-transaction tax remains a hot button issue

October 21, 2009 | By: Robert A. Green, CPA

The financial-transaction tax is still a hot topic in the U.S. and internationally.

In the U.S., supporters of this tax believe it’s a way to raise revenue from banks (and other traders) who are making “too much money” and paying “much too high bonuses.” Left-wing lawmakers continue to claim Wall Street caused the market meltdown, so it should pay for the cleanup, and lumps all traders into this group. Wall Street professionals are cleaning up the mess by making billions in trading profits and they are ready to fork over half those gains to the government in tax withholding on bonuses. But lawmakers are willing to cut off their own noses by trying to prevent the bonus payments, which would eliminate tax revenue. They don’t realize that leaving these profits in the banks will probably lead to little to no tax payments, because the banks can offset those in-entity profits with net operating loss (NOL) carryovers. Unintended consequences are the biggest problem with lawmakers who don’t understand all the nuances of a certain business. See my further reply on this point at http://dealbook.blogs.nytimes.com/2009/10/16/transaction-tax-is-floated-on-capitol-hill/#comment-327433 .

As I predicted over the past few months, the financial-transaction tax has moved to the global stage, beyond the fringe extreme-left part of the U.S. Congress, as sponsored by Congressman Peter DeFazio (D-Ore.). A “currency tax” or “global tax” or “Tobin Tax” is deemed by some to be a valid way of raising new (tax) revenue on financial transactions. This global transaction tax has become part of the debate for coordinated worldwide-efforts for financial reform and systemic risk. A few weeks ago, the financial-transaction tax was fiercely debated in European capitals as part of EU financial reform efforts, G20 financial efforts and in individual countries such as the UK, Germany and France. See my quick comments on that below.

As leaders and financial institutions globally have joined the debate, in general, politicians on the left, often in favor of “taxing the rich,” are calling for this global tax, and politicians on the center and right disagree, suggesting a FDIC-type fee instead.

Here is one good article on this global tax:
“IMF Examines Global Tax on Financial Institutions”http://online.wsj.com/article/SB125450903842060037.html

EliteTrader.com members continue to monitor the story with postings of all the links. Seehttp://www.elitetrader.com/vb/showthread.php?threadid=150546

I left this comment on the Wall Street Journal site next to the article: “The less political-minded ministers are right: Using an FDIC-type fee to insure the global financial system and build an international bailout fund (an international FDIC system) makes sense. That FDIC-type fee is properly rifle-targeted, fairly applied, easily assessed and collected. Conversely, a financial-transaction tax is unfairly shotgun-targeted and applied, and very difficult to assess and collect.

“Proponents of the shotgun-approach transaction tax display emotion and antagonism against the rich and financial centers (NYC and London). They want to use the shotgun approach to punish and create fear against unbridled financial capitalism. Tax proponent Frank-Walter Steinmeier used talk of this tax to burnish his campaign for German Chancellor and he lost that election badly. Re-elected German Chancellor Angela Merkel suggested a fee or other system was more appropriate. UK Chancellor of the Exchequer Alistair Darling remains the emotional whipping boy tyrant against his own London financial center. Certainly his Labour party is reeling in the polls and the Tories are expected to win the next election. Economic populism against the rich and banks may seem like a good idea, but as we try to climb out of this jobless-recession, it’s being exposed as more harmful than good.”

Just the French are left and they seem to be overtaken by those who want to hold off.

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