STOCKMARKET WATCH -- Wednesday, 11 July 2012

[Demeter]

41. Can a Financial Transactions Tax Work in America? An FTT FAQ

http://truth-out.org/news/item/10232-can-a-financial-transactions-tax-work-in-america-an-ftt-faq

What Are the Potential Benefits of an FTT?

An FTT accomplishes two goals. Most importantly, it raises money. Unlike most taxes, however, it does so in a way that is arguably beneficial to the economy as a whole. While most taxes involve some sacrifice from taxpayers in order to promote the common good, the FTT promotes the common good directly through the "positive externalities" it generates for the economy. Positive externalities are improvements to economic efficiency that result from changes in behavior. A well-designed FTT would discourage speculation and computer-driven high frequency trading in financial instruments. That would reduce market volatility and increase access to capital markets for ordinary borrowers and investors. Even if an FTT raised no money, it would still improve the economy.

What Are the Potential Drawbacks?

For bankers, brokers and high-frequency traders, there are many potential drawbacks to an FTT. Many of them might lose their bonuses and some of them might lose their jobs. Investment banking and financial trading in general would likely become less profitable. Some ultra-luxury industries that depend on huge bankers' bonuses, like yacht-building, fine watches, auctioneering and exotic travel could also suffer.

How Much Money Would Be Raised by an FTT?

It depends on the rate of the tax and what financial instruments are covered by the tax. In the United Kingdom, the FTT (called "stamp duty&quot applies only to trading in stocks and bonds and is set at 0.5 percent of the transaction amount. This tax raises over $5 billion per year, according to data from the UK Institute for Fiscal Studies. Since US stock and bond markets are about ten times the size of the UK's markets, a similar US tax would raise about $50 billion per year. The US Congressional Joint Committee on Taxation estimates that $43 billion per year would be raised by an FTT on stock trading alone. Stock and bond trading are only two kinds of financial transactions and, as new forms of financial instruments are created, they are becoming less important. A broad-based FTT that covers stocks, bonds, foreign exchange, commodities and derivatives could be expected to raise at least twice as much as an FTT on stocks and bonds only. The amount raised will depend on the specifics of the tax, but a realistic goal for a US FTT should be to raise at least $100 billion per year.

How Hard Would It Be to Collect Taxes Through an FTT?

The FTT is one of the easiest kinds of taxes to collect because it is collected centrally by large banks instead of taxpayer by taxpayer like most other taxes. According to the Economist magazine, it costs just 3 cents in administrative expenses for every $100 raised through the UK stamp duty, versus $1.42 for the personal income tax and $1.25 for the corporate income tax. "Stamp duty is one of the easiest taxes to administer," according to the LowTax.net web site based in the British Virgin Islands. Of course, LowTax.net views that as a problem: they think the British government will never give up its FTT because it is too easy to collect.

Wouldn't Banks Just Move Trading Overseas to Avoid Paying the Tax?

It depends how the tax is set up. A well-designed tax won't allow trading to be moved overseas, though banks are sure to lobby for a tax that would allow this....