Nov. 30 (Bloomberg) -- John Maynard Keynes proposed a tax on financial transactions in the middle of the Great Depression, and another economist, James Tobin, revived the idea in the 1970s as a way to counter currency market speculation. Neither effort gained much acceptance. Now, a growing number of economists and politicians argue that it's time for a levy on trading stocks, bonds, currencies and derivatives. U.K. Prime Minister Gordon Brown said on Nov. 7 that a transaction tax might compensate for the billions of dollars that the public has spent on bank bailouts. Government officials in France, Germany and Austria have voiced their backing. U.S. Treasury Secretary Timothy Geithner answered Brown a day later, saying the tax was not something the U.S. would support. House Speaker Nancy Pelosi, on the other hand, says the idea has "substantial currency" among congressional Democrats. Even if political consensus on a transaction tax is lacking -- and Brown and Pelosi both say it would need to be implemented everywhere or not at all -- the idea is attracting supporters worldwide. "It's akin to a gambling tax on socially negative activities," says Andrew Sheng, a former chairman of the Hong Kong Securities and Futures Commission who now advises Chinese bank regulators. Trades that created big risks to the financial system, with the fewest benefits to the economy, might be taxed out of existence, Sheng says. That's because the tax would boost the cost of complex financial products, such as collateralized-debt obligations, that have several layers of transactions -- and slim profit margins, he says. $76 Billion The funds raised would be substantial: With stock and currency markets ringing up about $900 trillion in turnover each year and derivatives another $625 trillion, a tax of 0.005 percent might raise $76 billion annually, Sheng estimates.
U.K. Prime Minister Gordon Brown said on Nov. 7 that a transaction tax might compensate for the billions of dollars that the public has spent on bank bailouts. Government officials in France, Germany and Austria have voiced their backing. U.S. Treasury Secretary Timothy Geithner answered Brown a day later, saying the tax was not something the U.S. would support. House Speaker Nancy Pelosi, on the other hand, says the idea has "substantial currency" among congressional Democrats.
Even if political consensus on a transaction tax is lacking -- and Brown and Pelosi both say it would need to be implemented everywhere or not at all -- the idea is attracting supporters worldwide.
"It's akin to a gambling tax on socially negative activities," says Andrew Sheng, a former chairman of the Hong Kong Securities and Futures Commission who now advises Chinese bank regulators. Trades that created big risks to the financial system, with the fewest benefits to the economy, might be taxed out of existence, Sheng says. That's because the tax would boost the cost of complex financial products, such as collateralized-debt obligations, that have several layers of transactions -- and slim profit margins, he says.
$76 Billion
The funds raised would be substantial: With stock and currency markets ringing up about $900 trillion in turnover each year and derivatives another $625 trillion, a tax of 0.005 percent might raise $76 billion annually, Sheng estimates.
a tax of 0.005 percent might raise $76 billion annually
Interesting how that number scales.
A confiscatory and appallingly onerous 0.5% 'might raise' $7.6 trillion?
