Part III
Many economists are in favor of FTT, but most of them are what I call âliberal-cause economistsâ, who are wedded to Keynesian big-government-spending solutions. We tried that in meltdown one and itâs not working so well. Taxpayers are demanding we go to Meltdown 2.0 solutions involving austerity and a reduction of big government. Why not downsize the overhead and administrative costs (and waste, fraud and abuse) of global, national and local charities and unions too? Put that savings to better use on those that need it and for the stated causes of the organizations. The goal is not administrative salaries and bonuses. Economists are like attorneys, ask four a question and you will likely get four different answers. These days, they all seem wrong too.
We live in a small world when it comes to financial transactions. Traders can access exchanges throughout the world and many do trade around the world. Youâve heard the term âregulatory arbitrageâ, thatâs when companies and people move where possible to find the weakest regulator and tax man. If the EU passes a FTT - which they may be inclined to do as their first EU federal tax â then UK banks know full well that clients will move financial transactions to the U.S.., Switzerland and Asia. Thatâs why EU and G-20 finance officials continue to call for worldwide passage before anyone country sticks their neck out first. The world canât even agree on climate control and they will never agree together on an FTT. Climate control makes sense, FTT does not.
Why the EU may be pushing harder than others for a FTT. The EU is going through its biggest financial crisis since the inception of the Euro and they are trying to keep their economic and political union together rather than allow it to fracture over the PIIGS crisis. The EU does not have a federal tax system and some are calling for the introduction of one. After all, itâs hard to be a true common union without a common tax and defense force too. Many EU countries already pay the highest income taxes in the world and they donât want another tax hike going to the EU. Plus, they donât want to give up even more sovereignty to Brussels (the next PIIGS). Northern EU countries like Germany, Finland and the Netherlands are already very upset over their taxpayers bailing out Greece and other PIIGS. Therefore, an EU income tax is out, but an EU FTT may be in. There is no love for banks in the EU either, and fewer Europeans than Americans have - or realize they have investments - in the markets. Whatâs left to tax in the EU, financial transactions, the financial services industry and /or aviation transportation?
Sweden and the UK have stated they will oppose a FTT and thatâs enough to block it, since a new EU tax would require unanimous approval of all EU member countries for passage. The German banks are expected to talk Merkel & Company out of FTT too. German banks initially said FTT was unconstitutional. Sweden tried it before and it was a tragic error. The UK has a small stamp duty tax, but many traders and banks are exempt from it. UK banks strongly-argue that a FTT will destroy their precious City â the Wall Street of Europe. They are right, as financial services are the last bastion of the UK economy. EU officials are currently pushing hard for either a worldwide FTT or an EU-wide-only FAT. This implies that a FTT is extremely unlikely to see the light of day. In my view, FTT is unconstitutional in the US too, as an illegal bill of attainder â selective and punitive taxation after the fact.
If FTT is highly-unlikely (the case), then it mostly serves a purpose for FTT-pushers as a talking (or yelling) point, a political-rallying cry to muster votes, and allay members of charitable organization and unions. Its noise meant to distract others from focusing on making spending cuts (austerity initiatives) in their own (union) ranks. Itâs a populist rant against the banks, currying favor with voters, while subjecting them to spending cuts at the same time. Political theatre with smoke and mirrors.
Brazil, a hot-money emerging market country recently raised its taxes on money-inflows, sort of a toll-tax. But this is very different from a FTT, as it taxes hot-money once and not repeatedly like FTT. According to Wikipedia, âBrazil imposed fresh controls on inflows of foreign capital in an escalation of what Guido Mantega, finance minister, recently described as a âcurrency warâ between the worldâs leading economies.â â..Mr Mantega, said Brazil would increase to 4 per cent a financial transactions tax (IOF) on money entering the country to invest in fixed income instruments, from the previous rate of 2 per cent.â Brazil hopes to slow down âhot moneyâ â money that flows in, can cause a bubble and then can leave overnight bursting the bubble. The opposite is the case in the developed world including the EU and North America. FTT scares off capital, when we need it most.
The American economist James Tobin designed his Tobin (FTT) tax to âput sand in the wheelsâ of excess speculation. But, Tobin later decided that a FTT was a bad idea and he never supported its passage and use. Tobin realized that âsand in the wheelsâ hurts financial markets and its people â the entire economy. Who among us wants to âput sand in the wheelsâ of our markets, to hurt liquidity, prices, financings, IPOs, new capital generation and our economies? Isnât this going to hurt you! People in glass houses shouldnât throw stones.
If you insist on making bankers pay something to Main Street â to penalize âfat catâ bankers to use President Obamaâs expression - then consider a âfinancial-activities tax (FAT), instead of a financial-transactions tax (FTT). It makes some limited sense to tax the income or liabilities of big banks, whereas it makes zero sense to attempt to tax financial transactions. Again, FTT wonât be passed worldwide, so itâs a hopeless cause, whereas a FAT is passable in the EU and U.S., but only after a huge fight from banks and their lobbyists and if all political stars are in order. The IMF is lukewarm on FAT and against FTT too.
President Obama argued this well when he proposed a FAT in his current and prior year budgets. The President said itâs harder for banks to move bankers and their balance sheets to Switzerland and Asia than it is for them to move financial transactions. President Obama proposes a âfinancial crisis responsibility feeâ (FAT) which he vigorously claims is not a tax hike. His FAT is intended to recover $90 billion of TARP-related costs, which is odd, because the banks already paid back TARP with gains to the Treasury too. To date, Republicans have successfully blocked the Presidentâs FAT âtax hikeâ proposal.
For all these good reasons about FTT being unwise, unrealistic and impossible, please tell the FTT-spin doctors to cool it on their noise. Nurses, unions and charities pushing hard on FTT should invite us to see what they are trying to deflect us from in their own houses. Shouldnât nurses be more focused on solving the health-care spending, and health-finance crisis? Shouldnât unions be more focused on restructuring benefits and legacy costs for American manufacturers to be more competitive in global markets? Shouldnât charities be reorganizing, downsizing overheads and reining in corruption? FTT-pushers profess an ignorance of how modern markets operation, and their retribution tax crusade will hurt us all.
Bottom line. FTT wonât raise new tax revenues; it will reduce tax revenues, destroy markets, market-makers, traders, hurt investors and hurt the very social-spenders who tried to put their paws in the financial market bee hive.
Many economists are in favor of FTT, but most of them are what I call âliberal-cause economistsâ, who are wedded to Keynesian big-government-spending solutions. We tried that in meltdown one and itâs not working so well. Taxpayers are demanding we go to Meltdown 2.0 solutions involving austerity and a reduction of big government. Why not downsize the overhead and administrative costs (and waste, fraud and abuse) of global, national and local charities and unions too? Put that savings to better use on those that need it and for the stated causes of the organizations. The goal is not administrative salaries and bonuses. Economists are like attorneys, ask four a question and you will likely get four different answers. These days, they all seem wrong too.
We live in a small world when it comes to financial transactions. Traders can access exchanges throughout the world and many do trade around the world. Youâve heard the term âregulatory arbitrageâ, thatâs when companies and people move where possible to find the weakest regulator and tax man. If the EU passes a FTT - which they may be inclined to do as their first EU federal tax â then UK banks know full well that clients will move financial transactions to the U.S.., Switzerland and Asia. Thatâs why EU and G-20 finance officials continue to call for worldwide passage before anyone country sticks their neck out first. The world canât even agree on climate control and they will never agree together on an FTT. Climate control makes sense, FTT does not.
Why the EU may be pushing harder than others for a FTT. The EU is going through its biggest financial crisis since the inception of the Euro and they are trying to keep their economic and political union together rather than allow it to fracture over the PIIGS crisis. The EU does not have a federal tax system and some are calling for the introduction of one. After all, itâs hard to be a true common union without a common tax and defense force too. Many EU countries already pay the highest income taxes in the world and they donât want another tax hike going to the EU. Plus, they donât want to give up even more sovereignty to Brussels (the next PIIGS). Northern EU countries like Germany, Finland and the Netherlands are already very upset over their taxpayers bailing out Greece and other PIIGS. Therefore, an EU income tax is out, but an EU FTT may be in. There is no love for banks in the EU either, and fewer Europeans than Americans have - or realize they have investments - in the markets. Whatâs left to tax in the EU, financial transactions, the financial services industry and /or aviation transportation?
Sweden and the UK have stated they will oppose a FTT and thatâs enough to block it, since a new EU tax would require unanimous approval of all EU member countries for passage. The German banks are expected to talk Merkel & Company out of FTT too. German banks initially said FTT was unconstitutional. Sweden tried it before and it was a tragic error. The UK has a small stamp duty tax, but many traders and banks are exempt from it. UK banks strongly-argue that a FTT will destroy their precious City â the Wall Street of Europe. They are right, as financial services are the last bastion of the UK economy. EU officials are currently pushing hard for either a worldwide FTT or an EU-wide-only FAT. This implies that a FTT is extremely unlikely to see the light of day. In my view, FTT is unconstitutional in the US too, as an illegal bill of attainder â selective and punitive taxation after the fact.
If FTT is highly-unlikely (the case), then it mostly serves a purpose for FTT-pushers as a talking (or yelling) point, a political-rallying cry to muster votes, and allay members of charitable organization and unions. Its noise meant to distract others from focusing on making spending cuts (austerity initiatives) in their own (union) ranks. Itâs a populist rant against the banks, currying favor with voters, while subjecting them to spending cuts at the same time. Political theatre with smoke and mirrors.
Brazil, a hot-money emerging market country recently raised its taxes on money-inflows, sort of a toll-tax. But this is very different from a FTT, as it taxes hot-money once and not repeatedly like FTT. According to Wikipedia, âBrazil imposed fresh controls on inflows of foreign capital in an escalation of what Guido Mantega, finance minister, recently described as a âcurrency warâ between the worldâs leading economies.â â..Mr Mantega, said Brazil would increase to 4 per cent a financial transactions tax (IOF) on money entering the country to invest in fixed income instruments, from the previous rate of 2 per cent.â Brazil hopes to slow down âhot moneyâ â money that flows in, can cause a bubble and then can leave overnight bursting the bubble. The opposite is the case in the developed world including the EU and North America. FTT scares off capital, when we need it most.
The American economist James Tobin designed his Tobin (FTT) tax to âput sand in the wheelsâ of excess speculation. But, Tobin later decided that a FTT was a bad idea and he never supported its passage and use. Tobin realized that âsand in the wheelsâ hurts financial markets and its people â the entire economy. Who among us wants to âput sand in the wheelsâ of our markets, to hurt liquidity, prices, financings, IPOs, new capital generation and our economies? Isnât this going to hurt you! People in glass houses shouldnât throw stones.
If you insist on making bankers pay something to Main Street â to penalize âfat catâ bankers to use President Obamaâs expression - then consider a âfinancial-activities tax (FAT), instead of a financial-transactions tax (FTT). It makes some limited sense to tax the income or liabilities of big banks, whereas it makes zero sense to attempt to tax financial transactions. Again, FTT wonât be passed worldwide, so itâs a hopeless cause, whereas a FAT is passable in the EU and U.S., but only after a huge fight from banks and their lobbyists and if all political stars are in order. The IMF is lukewarm on FAT and against FTT too.
President Obama argued this well when he proposed a FAT in his current and prior year budgets. The President said itâs harder for banks to move bankers and their balance sheets to Switzerland and Asia than it is for them to move financial transactions. President Obama proposes a âfinancial crisis responsibility feeâ (FAT) which he vigorously claims is not a tax hike. His FAT is intended to recover $90 billion of TARP-related costs, which is odd, because the banks already paid back TARP with gains to the Treasury too. To date, Republicans have successfully blocked the Presidentâs FAT âtax hikeâ proposal.
For all these good reasons about FTT being unwise, unrealistic and impossible, please tell the FTT-spin doctors to cool it on their noise. Nurses, unions and charities pushing hard on FTT should invite us to see what they are trying to deflect us from in their own houses. Shouldnât nurses be more focused on solving the health-care spending, and health-finance crisis? Shouldnât unions be more focused on restructuring benefits and legacy costs for American manufacturers to be more competitive in global markets? Shouldnât charities be reorganizing, downsizing overheads and reining in corruption? FTT-pushers profess an ignorance of how modern markets operation, and their retribution tax crusade will hurt us all.
Bottom line. FTT wonât raise new tax revenues; it will reduce tax revenues, destroy markets, market-makers, traders, hurt investors and hurt the very social-spenders who tried to put their paws in the financial market bee hive.
