Quote from Explorer:to ensure the cost of any bank failure is borne as much as possible by the private sector through a financial transaction tax. [...]
Well, citation needed
When we look into the source... the manipulation becomes apparent. The European Commission staff working paper written in answer to the Parliament question ("resolution" of 10 March) clearly comes in favor of the
levy on bank liabilities. Such levy would be based on the Swedish Model "Stability Fee" (proposed by Minister Borg in January), where the tax base is the leverage of bank balance sheets. It is also essentially the same as the Obama's bank levy ("Financial Crisis Responsibility Fee"), only the tax rates differ (0.036% and 0.15%, respectively). The tax bases differ as well, but the differences are semantic (Swedish "selected parts of the institution's liabilities" vs. U.S. "covered liabilities", i.e. total consolidated assets worldwide less Tier 1 capital and less deposits covered by a guarantee scheme).
Both levies have
limited time horizons, because they are intended as insurance premiums against systemic risks (i.e. bail-outs future and past). Come to think of it, these two countries are the only ones qualified to teach the world on the relative merits of both bank liability levy and FTT, because both countries have tested these two solutions, and both have abolished the FTT, and now independently propose direct levies on bank liabilities.
It is worth noting that the concluding section of the recent EC staff paper does not even mention TTaxes - not even once. Neither does the Executive Summary section, which clearly states what could be done: "consideration could be given to the introduction of new
taxes on leverage or risk taking by financial intermediaries"
Summary table in the Annex mentions only disadvantages of FTTs- let's just recap these as the current European Commission
stance on this subject. These are not merely staff opinions, because there are no disclaimers, and the Contex section clearly states the document was written in reaction to the Parliament March resolution requesting an assessment of an EU-wide FTT (see p. 7):
1) Effects on market efficiency:
negative, because:
- trading volumes (liquidity) would be reduced,
- the impact on statistical volatility is unclear,
- the impact on persistent deviations from fundamental equilibrium is unclear,
- the price discovery mechanism would be affected, which could have negative impact on allocative efficiency,
- evasion is highly probable, both geographical and through untaxed alternatives, both of which would lead to market distortions and efficiency losses,
2) Fairness (effects on equity and income distribution):
unclear, because it depends on the actual tax incidence - the ability of financial intermediaries to pass on the costs to their clients (in particular those initiating the transaction) and differential ability to avoid such taxation (e.g. evasion is more likely in wealthy individuals, while pension fund transactions are an easy target),
3) Legal and administrative aspects:
negative, because such taxes are not permitted under:
- the principle of free movement of capital - one of the Four Freedoms protecting the ability of goods, capital, services, and people/labour to move freely within the EU (Art. 63 of the Treaty on the Functioning of the EU prohibits "all restrictions on the movement of capital between Member States and between Member States and third countries", and which applies to international capital movements as well, e.g. money transfers from the EU to the U.S., see:
http://en.wikisource.org/wiki/Conso...s_and_Capital#CHAPTER_4:_CAPITAL_AND_PAYMENTS),
- international trade agreements, which prohibit any restrictions on international transfers and payments for current transactions (Art. XI of the General Agreement on Trade in Services, GATS); a currency transactions tax could therefore constitute a breach of the EU's GATS obligations (this anti-tax argument
applies also to the U.S., and could have been derived from Tobin's 1978 paper which clearly envisaged taxing "speculation disguised as trade"),
- the European Council Directive against indirect taxation in any form, already pointed out in the previous Commission response given by Comissioner Covacs (
http://www.elitetrader.com/vb/showthread.php?s=&postid=2726020&highlight=European#post2726020) (Article 5 (2) of Directive 2008/7/EC prohibits any form of indirect
tax on the creation, issue, admission to quotation on a stock exchange,
trading with stocks, shares or other securities of the same type, or of the certificates representing such securities).
Source: Innovative financing at a global level, European Commission Working Document SEC(2010) 409; Brussels, 1.4.2010, URL:
http://ec.europa.eu/economy_finance...tive_financing_global_level_sec2010_409en.pdf ] The relevant sections of the attached article are on pages 20-27 and 52.
