Quote from Explorer: to balance the UK's books
... and that is the main reason why the "charities" ask for even more of the fund investors money. Gordon the Alleged Furniture Kicking Bully needs some image softening, so he is hijacking good causes for his own promotional purposes. Because the UK charitable industry does not need triple-digit billion amounts. It needs
as little as 0.5% of that $400 bn (0.0047=(11%*GBP10bn*1.7)/$400bn) to plug its current funding deficit. According to the recent BBC Radio 4 report analyzing the relationship between charity organisations and the media (an Archive on 4 programme called "Please Give Generously"), the UK charities run a GBP10bn per year industry, which currently has a mere 11% funding gap, indicating a quite stable revenue base (most of their benefactors being elderly females).
The existing UK Robbin' Hoodie tax, which raises GBP 3-4 bn a year (nearly half of that from abroad) could grow the UK charitable industry revenues by 30%, if Gordon was kind enough to keep his promises - and he
should be asked to do so, as soon as their campaign to extend his Duty to the entire world fails. But that viral video would have to be modified a bit, given that banks are exempt from Stamp Duty Reserve Tax. Foreign and UK investors, plus some little old ladies... no, these guys are not photogenic at all!
Before the alliance with Gordon the Alleged Bully, charities have not even dreamt of such sums. No, their ambitions used to be much more modest, an order of magnitude smaller, motivated not by revenge or 1930's-style success envy, but by pragmatic revenue raising attemps and thus were co-operative, low-impact,
as volume-neutral as possible. Charities were not millitant before their pact with Brown.
Their least incompetent researcher (and probably least biased too), R. Schmidt, in his 2007 report for the North-South Institute (a Canadian NGO whose "research supports global efforts to [..] improve international financial systems and institutions", which is an euphemistic way of stating "wants to put the Tobin tax on the G7 agenda"), analyzed a narrow currency-only transaction tax (i.e. planning to tax one of the two markets excluded by DeFazio proposal - here's an international consistency for you). Assuming that all currency market participants pay the full cost of the bid-ask spread (as opposed to earning it in their capacity of dealers/MMs), and assuming that no untaxed substitutes exist for spot currencies (such as futures and ETFs), Schmidt (2007) finds that that a CTT rate of 0.00005 would be nearly volume-neutral, reducing foreign exchange transaction volumes by "only" 14%. However, such volume-neutral Tobin tax
would raise relatively little revenue, estimated at around $33 bn annually, i.e. an order of magnitude less than the "
carbon tax [which] has by far the greatest revenue-raising potential, estimated at $130-750 bn anually". Notice that their own most competent researcher
did not recommend the FTT option at all!
So the NGOs used to ask for less than 10% (33/400) of what they demand now that they teamed up with Gordon. And even though they
lack any research to back it up, not only peer-reviewed, but even internal, they
extended their tax to other instruments. And here lies their gravest error - their tax rates for non-currency instruments are totally
arbitrary, nowhere near as carefully chosen as that of Schmidt (2007) for currencies.
While a 0.00005 rate for currencies could be arguably sustained by some retail traders (who have to pay such spreads, unlike dealers, who earn them, and would just add the tax to the spreads), the 0.5% tax rate for stocks, which has been
simply copied from the existing UK Stamp Duty rate, is a vast overestimate, nowhere near volume neutrality.
Even without any econometric modelling one can notice that retail brokerage fees start in the US from as low as 1 USD per 200-share transaction, so given that a typical US stock is priced at around 35 USD, the FTT tax rate for US stocks transactions, which would be comparable with the current level of retail transaction costs, must not exceed 0.014%. A tax revenue based on this estimate (around $14 billion dollars anually from US stocks transactions) would be however similar to the
total amount of transaction costs paid by investors to the entire US securities industry, which as a whole earns around $19 billion anually in commission revenues from exchange-traded products (according to SIFMA). So in other words, that "tiny" 0.014% FFT tax on stocks would be equivalent to
a 75% tax on the brokerage industry revenues from commissions (not profits!),
But that's not what the Robin Hood campaign proposed... they wanted 35 times more! - their unsubstantiated (even by internal research) tax rate for stocks was a staggering 0.5% (without any exemptions for derivatives). How likely is a competitive industry to
raise its prices by 3500%? I'd say not very.
