What do we think about the Tobin tax ('Robin Hood tax') then?

[PollyTroll]

Explanation here

Bill Nighy/Richard Curtis video here

Blimey, hello Filly, not seen you for a while! (policywonk here)

Duncan Green (a trade and economy specialist before his current role at Oxfam, so he does know a bit about finance) has blogged today about this here

He makes the following points:

1. The financial transactions tax proposed by the Robin Hood campaign isn't an attempt to put a brake on speculative trades; it's simply 'a progressive tax, used for filling fiscal holes in the rich countries, paying for climate change adaptation and mitigation in developing countries, and funding aid pledges to the poorest countries.'
2. 'the tax on currency trades and some other bank activities would not have a big impact on the rest of us, but... a wider version of the tax that includes trading in shares is likely to have at least some knock-on effects. This definitely deserves more study both on the likely distributive impact, and possible measures to prevent costs being passed on in regressive ways, but research alone will struggle to find all the answers ? why not introduce the tax on currency trades first, then extend it slowly and monitor impact?... Saying "there?s no point in taxing banks, they?ll just pass it on" could equally apply to any form of corporate taxation. And let?s not forget that banks are seriously under-taxed compared to other sectors.'

Another issue I can see with a Tobin Tax, assuming that one were introduced on a global basis, is ensuring that the monies collected are actually used for the pan-global projects espoused by Oxfam et al. Although I do believe it would be straightforward to collect, it would be very difficult to adminster the funds once collected.

In the UK we can't even separate out NIC collected (which was originally intended to cover pensions and other social costs specifically) from income tax, so how we would create a separate pool of TT and then agree how it should be spent (i.e. paying for some of the UK bank bail out costs v. international projects) and then (presumably) contributing at least some into multinational projects and then auditing how it was spent - it's mind boggling.

I think it's a great idea. Nothing more to add.

CinnabarRed- actually that shouldnt be too much of an issue for the UK as there is already a system for collecting stamp duty on trades in Uk equities.

However, in a lot of countries, yes, this is going to be a big problem.

However, the point is that this is never going to happen because the majority of countries are just going to say no to it.

But isn't the first rule of capitalism that you pass the4 costs down?

So bank A has to pay £x in tax.

He passes that on to his clients eg pension fund managers.

Who then pass it down to the pension fund.

Hey presto, Nurse B's pension just decreased.

Sure you've made a nice lump of cash to give to Africa but let's not pretend who will actually pay it.

ArcticFox - yes I understand how SDRT is collected via CREST. But my point is that once collected SDRT just goes into the whole £550 billion tax pot - there's no mechansim to recognise SDRT as a separate revenue source for separate spending allocation. The same would be true of a TT collected via CREST or equivalent systems; it's the administration after collection that I can't quite get my head around.

Ok- with you. My bad- didnt realise it wasnt separately identifiable.

Litchick has a bloody good point. Trading expenses come off the fund, so net pensions/ investments are affected.

Meawhile the governments can waste all the money they've collected having conferences to argue about how to spend it, and then they will probably just make things worse with blundering policy.("Dead Aid" and "The Wisdom of Whores" make quite good reading for anyone sceptical about NGO activity/ the international aid industry)

If GB really wants to improve life for Africans, he should be badgering the EU to lift tariffs on agricultural products, not collecting money off bankers to fund basket weaving workshops........but that wouldnt be quite such a cheap vote winner would it?

Arctic, do you really think that international development projects can be summarised as 'basket-weaving workshops'?

Moyo's book is full of risible nonsense. There's a fascinating debate out there about aid effectiveness and transparency, but none of it took place in the pages of 'Dead Aid'.

"If GB really wants to improve life for Africans, he should be badgering the EU to lift tariffs on agricultural products, not collecting money off bankers to fund basket weaving workshops........but that wouldnt be quite such a cheap vote winner would it?"

The prime drivers when it comes to EU and Agriculture are the French and they're not easily shifted.

Lifting the tariffs wouldn't have much effect directly on the UK and probably would be a vote winner as it could be presented as an attack on "bloated and inefficient French farmers".

But we've not got a hope of getting it changed, we can't even sort out the CAP and our rebate, so it's just seen as best that the Government doesn't mention it.

What we need is to sit down and think about how we can remedy the damage this Government has done to one of our principal revenue generators and one of the few things which still makes Britain great on this planet. It is because of the City of London that all those on benefit in Scotland have reasonable lives. By punching at the heart of the City Brown is damaging the poor in his constituency. Governments handle cash very very badly. Much gets wasted on admin. Just look at the £6m a year it is going to cost to administer MP expenses and the £1m revenue it will generate. It's just typical of what the state does - pays people for doing little far too much because it's not subject to market forces. Put that plan to any private company and they'd say you're paying more than you're saving let's see plan B.

There is no way every country on the planet will agree and therefore organisations will just base themselves where they don't have to pay the tax. I have an island in Panama. I'm not saying I particularly want to live in Panama or even Zug where I was 2 weeks ago with it's 10%? personal tax rates or Bulgaria (10%) but I do earn enough to insulate myself from the worst effects of those countries and live pretty well there. We can all do a Guy Hands except the poor of course so they get left in a rump state with no revenue generation and a bloated public sector paying back over the 40 years it is going to take current debts.

I'm slightly off topic as the Tobin tax is supposedly international but it is certainly not popular. They had to suspend the voting on in yesterday somewhere over alleged rigging though.

So let's start from the premise that all tax is legalised theft and see how we can get it down to about 10% and what cut backs we can make in state provision of lots of things across a broad set of areas. Sadly due to the mess Brown has made we will be cutting right back savagely whoever is in power anyway whatever tax rates are in place but it will be much worse if we've destroyed the City in the process.

"What we need is to sit down and think about how we can remedy the damage this Government has done to one of our principal revenue generators and one of the few things which still makes Britain great on this planet."

It would be better to step back and review how we let one sector of industry become pretty much the sole generator of wealth in the UK.

In part it is galling that when we have to bale that sector out they have the power to basically give us the finger and do pretty much whatever they like.

More importantly though it's never wise to put all your eggs in one basket, as we can see what happens when that basket drops.

However yes I do agree that we have to treat the financial sector relatively carefully, like it or not they are the linchpin of our economy right now.

"Governments handle cash very very badly"

Consider that the banks are the ones that blew themselves to bits, had to accept massive Government hand outs and willingly sold out their capitalist principles in their rush for those hand outs.

Who is the really bad one when it comes to handling cash?

"So let's start from the premise that all tax is legalised theft and see how we can get it down to about 10%"

If all tax if theft then surly 10% is still 10% theft and therefore wrong?

Not very consistent....

Europe went through the sufferings of WW2 before it shifted to a position of relative socialism and state provision via taxation.

Now it's made that transformation it will probably take as radical an event to shift people back away from that.

I don't agree with Xenia that tax is legalised theft - it's part of a complex social contract between a government and the people, and most people in the UK are compliant with tax payments because they understand that it's fundamentally the right thing to do (which doesn't mean they don't grumble about it, of course!). The UK has collectively made a decision through many years of general elections that we want an expensive societal infrastructure and that has to be paid for - we will never be able to get our tax rates down to 10% (as Switzerland or Ireland have done in the past) because we have a different level of infrastructure in a different type of country.

That said, I do think that the 50% income tax rate was a tipping point for many of the higher paid; those that are genuinely internationally mobile, like Guy Hands, will seriously consider moving. If I were Guy Hands I would hate to live separately from my wife and children for tax purposes only (they're still in the UK; he hasn't visited the UK once in the months since he moved to Guernsey) but I support his fundamental right to make that decision.

If I were the Chancellor and in desperate need of funds to shore up the Budget deficit, I would raise VAT to 20%. I calculate that it would cost the average family an extra £1.50 per week in tax, but would cost the highest paid considerably more as a percentage of their expenditure (contrary to popular belief, VAT in the UK is a progressive tax due to the wide range of exemptions targeted at the lower paid. The same can't be said for other jurisdictions where VAT is definitely a regressive tax).

I also think it's important to understand the difference between high street banking and city/speculative banking (albeit that oftentimes both types of business are owned by the same company).

The problem for most companies was that their city banking operations imploded, but the whole company had to be saved because the (generally sound) high street banking operations are too important to be allowed to go under.

Personally, I'd like to see high street banking under separate ownership from city banking so that if a city banking operation fails then it can be allowed to go under.

"The problem for most companies was that their city banking operations imploded, but the whole company had to be saved because the (generally sound) high street banking operations are too important to be allowed to go under."

Certainly in America there was massive problems with "high street banking" and the mortgages they had let people take out.

That was arguably the Achilles heel that that started the dominoes falling and the banks collapsed as "city banks" had traded and sold the risk of those mortgages.

So certainly in the states it was that the high street banks weren't "generally sound". I'm not sure about how our ones operate though....

i can cope with 10% theft but not 50% ahnd it's not 50% of course because the Government in effect lies. It's 5.15% I think when the new NI is in place and for some people just over into £100k like my brother etc I think it's nearer 70% because you lose all your personal allowances and all your pension contributino allowances etc and so he won't be stirring himself at weekends to earn more. He'll stay home with his little children as that's his tipping point.

I'd be happy if we have to have any higher taxes to haev more VAT. It's a tax on middle Britain but I don't spend. I'd rather walk or go to the library or sit at home and think. I pay very little VAT. I'm not consumerist. I'd rather spend an hour singing or reading than shopping - I never voluntarily enter a shop. Mortgage interest is my biggest expense of course I adore this recession. Nothing can help me so much as low interest rates. Thank God for the banking collapse some of us say... never had so much work either and morally and for the people of the UK I think sometimes it does people good to have less and rethink their values. Perhaps we should be raising our glasses of tap water and thanking those of the big banks who got involved with US toxic debt that they did so... all part of the cycles we have always had anyway. Fascinating reading my late grandfather's 1920s scrap book recently after my father's death - the previous crash etc.

Yes, fair point BadgersPaws. I was certainly thinking in terms of the UK when I wrote that. That said, some of the worst mortgage offenders in the US were actually stand alone mortgage providers rather than high street banks (Fanny Mae and Freddie Mac). And it was the speculative banking operations that securitised the subprime mortgage debts and sold them around the Globe....

"I'd be happy if we have to have any higher taxes to haev more VAT... I pay very little VAT"

That's really rather illuminating.

Basically "I'm in favour of a tax system where the burden is shifted away from me."

"go to the library"

Well that library probably wouldn't be there in a low taxation/low public spending UK.

There is a good argument to be had go a "low direct & high indirect taxation" economy.

However when argued like has been with a NIMBY attitude to tax it really has been shot in the foot.

It's a bit of a leap to say people have no humility if they think the Robin Hood tax is a bad idea. Isn't it?

And LOL about the OP's confusion between 0.5% and 0.05% - it's only 90% less.

The FT's excellent journalists give the tax the once over here

Taxes on consumption whether they benefit me or not are still taxes and I'd still like them lower but they only affect the profilgate and consumeristic people and it's better they are hit than those who work hard and just save their money. What we really need is much less tax, much less state and in fact now we have the internet libraries are not quite needed in the way they were. Perhaps those who pay high taxes should get credit. I think once you pay a certain level you should get an invitation to no 10 and a certificate from the Government saying how grateful the nation is for your hard work rather than the typical British socialist view that they want to kick you in because you work hard and they are jealous. Perhaps we could also give those who pay the most tax certain extra benefits like right to go to the front of queues on trains or better access to the better state schools not that we use state schools anyway or front of the queue for NHS operations just as a token to make us feel people are grateful we work so hard to keep them on their benefits etc.

Brilliant Xenia. That's one for the 'Best of' collection

Hi PollyTroll,

ok here we go, sorry for the long drawn-out answers, hope this helps..

What about it being passed on to consumers?
Obviously money doesn't come out of thin air, (although in the world of finance, it sometimes seems to come pretty close). The money raised will have an impact on bank revenue (with highly paid City traders feeling the hit). However, campaign research and work by Rodney Schmidt suggests that the banks could contain a large part of the initial burden of taxation without passing it on to consumers. A tax on equities already affects a more diverse group of people than just simply large-scale traders ? but it is both manageable and progressive, in the sense that the burden of the tax is largely borne by those most able to carry it, unlike many other forms of taxation, with normal people not feeling the impact.

How will it be collected?
The principle point is that financial markets are automated. Transaction taxes can be collected at the point when deals are settled. In the case of foreign exchange, for example, 10 years ago collection may have been difficult but automation of the financial markets means revenue collection is now straight forward. Ironically the banks themselves brought in computer systems to make the markets more secure and reliable ? which would also make evasion difficult.

Will it make the market more volatile?
Leading economists such as Paul Krugman agree that the financial crisis was caused by too much money sloshing around the world economy and being invested in risky sub-prime assets as a result. This tax would make the market a more sensible size, and reduce risk, which is why Krugman, Stiglitz and other economists support this tax, as does Lord Turner, the head of the FSA. Over the medium term this tax will stabilize the amount of liquidity in the market, leading to fewer financial crises, and making the financial sector the servant of the real economy and not the master.

On china...
Ideally an FTT would be best if it was applied globally by everybody. But while this is being negotiated at the G20 and elsewhere, there is nothing to stop governments taking steps, either as a group of like-minded countries, or unilaterally, both towards a broader FTT and as a show of leadership that the social contract between banks and society will change. Also, the majority of the world?s financial transactions take place in Britain and the US (85%) as well as in Germany and Chinese currency tends to stay within country.

let me know if you need more info,
Sarah

It sounds an awful idea. Let us hope it doesn't get enacted. of course it get passed on - down to the poorest of the poor. It will affect the value of your pension fund for a start. Sectoral taxes distort the economy.
I suppose if China does better becuse it doesn't take part it owns most of US debt - am I right - so this increases the power China has over the rest of us? Is that the effect - so it means give more power to the Chinese?

The FT link above is worth reading... including
" The plan is for the US$400bn that could be generated by a global Robin Hood Tax to be split equally, with $200bn spent domestically and $200bn spent around the world.

Of the money spent globally, $100 billion would go towards international development and US$100 would support developing countries as they adapt to climate change.

The $200bn to be spent domestically would make serious inroads into tackling the structural factors that mean more than 13 million people in the UK live in poverty

Sounds great. Except, umm, why would the $200bn be available to the UK? Surely it would be divided between the whole world? Would Britain get half on the grounds that the City dominates foreign exchange, the biggest international market? No. How much would it get?

6.7bn people in the world, so $29 each (no, I didn?t do that in my head). Alternatively, if Britain tries to keep all the money, other countries are guaranteed to respond by cutting their ?Robin Hood? rate, to attract the City?s business - it is highly mobile, after all. If all Britons get is $29 each, at the risk of destroying the City, that isn?t worth it. If there was a way to secure $200bn, or $3,278 each, that would be great - but there isn?t.

On top of that, the developing country and climate change money would be put in the hands of the UN. Yes, you heard right: the UN.

Funds would be managed by a UN mechanism, to ensure they are allocated fairly and according to each country?s particular needs.

Expect much corruption in a process overseen by the UN? Well, take a look at the UN-administered oil-for-food regime in Iraq, pre-invasion. According to the US DoD, there were $4.4bn of illegal surcharges (plus the smuggling). A Robin Hood Fund might be differently structured, but with many of its members cocking a snook at the rule of law, what chance would a UN fund have of staying corruption-free?"

I have no doubt that the banks could swallow the tax...to be honest they could probably afford to give half their profits away and still break even.

But will they?
Do we seriouslt believe that the banks won't pass down the cost to their clients.

As Xenia says it won't affect the rich too much. Sure their pension fund will deplete by 10% but they have other investments to rely upon.

But what about nurses, and soldiers?