The point of the Tobin Tax, a tax on financial transactions proposed by liberal American economist James Tobin in 1972, is to discourage speculators in the foreign exchange market.[1] Originally, Tobin suggested that the tax be less than .1% of the volume of the transaction.[2] The following is the argument of those who support the tax. This tax would protect smaller countries from exchange-rate volatility caused by speculators, and strengthen financial sectors in developing economies.[3] Another benefit of the tax would be a revenue increase: supporters of the tax in Europe say that the tax would generate 200 billion Euros of revenue; while doubters say only 50 billion Euros would arise from the tax.[4][5] Leaders in Belgium, Germany and France endorse the tax; while the majority of British feel that the idea is “bonkers.”[6]
The Tobin tax has also met considerable opposition as it was proposed during the unveiling of the European Union budget for 2014 to 2020. The tax was originally proposed as “a levy on foreign transactions, to discourage speculative activity”[7] but is now seen by (refuters) as a tax that would “hit pension funds and other ‘long only’ savings vehicles”[8]. This will happen because the tax will apply to “all financial transactions including those on behalf of pension and investment funds”[9]. Even though the purpose of the tax is to stop fluctuations in price and thus benefit Europe, many believe that the Tobin tax may be disruptive and hurtful to the European economy. The tax is also viewed as " unworkable (too easy to avoid and likely to drive financial activity underground beyond regulatory oversight) and counterproductive (the reduction in liquidity would make asset prices more volatile)"[10]. Some believe that the banks would simply ignore the tax by "pass[ing] much of the cost on to their consumers and shift[ing] their internal hedging transactions out of Europe" while big corporations also perform their transactions abroad. The target of this legislation, the financial speculators, would also move off shore leaving the European Union with a worthless and pointless tax.
We believe that the Tobin Tax is a terrible idea. It’s unlikely that problematic financial transactions would be significantly reduced, and beneficial financial transactions certainly would be. Despite good intentions, this idea should be put to bed again.
Bibliography
Cave, Tim. “Panic grows over plans for European ‘Tobin Tax’”, July 13, 2011. http://www.efinancialnews.com/story/2011-07-13/panic-grows-over-plans-for-european-tobin-tax.
“Home | Say yes to FTT in Europe”, n.d. http://www.financialtransactiontax.eu/.
Masters, Brooke. “Warning of unintended outcomes of Tobin tax - FT.com.” Financial Times, October 5, 2011. http://www.ft.com/intl/cms/s/83379920-edde-11e0-a491-00144feab49a,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F83379920-edde-11e0-a491-00144feab49a.html&_i_referer=#axzz1aZ8jHU1o.
Pimlott, Daniel. “Q & A on Tobin tax - FT.com”, November 8, 2009. http://www.ft.com/intl/cms/s/8e68678a-ccba-11de-8e30-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F8e68678a-ccba-11de-8e30-00144feabdc0.html&_i_referer=#axzz1QPpONaJR.
The Economist. “The EU’s Budget: Stuck on Tobin again | The Economist.” The Economist, June 30, 2011. http://www.economist.com/blogs/freeexchange/2011/06/eus-budget.
[1] Daniel Pimlott, “Q & A on Tobin tax - FT.com”, November 8, 2009, http://www.ft.com/intl/cms/s/8e68678a-ccba-11de-8e30-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F8e68678a-ccba-11de-8e30-00144feabdc0.html&_i_referer=#axzz1QPpONaJR.
[2] Ibid.
[3] Tim Cave, “Panic grows over plans for European ‘Tobin Tax’”, July 13, 2011, http://www.efinancialnews.com/story/2011-07-13/panic-grows-over-plans-for-european-tobin-tax.
[4] “Home | Say yes to FTT in Europe”, n.d., http://www.financialtransactiontax.eu/.
[5] Cave, “Panic grows over plans for European ‘Tobin Tax’.”
[6] Ibid.
[7] Brooke Masters, “Warning of unintended outcomes of Tobin tax - FT.com,” Financial Times, October 5, 2011, http://www.ft.com/intl/cms/s/83379920-edde-11e0-a491-00144feab49a,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F83379920-edde-11e0-a491-00144feab49a.html&_i_referer=#axzz1aZ8jHU1o.
[8] The Economist, “The EU’s Budget: Stuck on Tobin again | The Economist,” The Economist, June 30, 2011, http://www.economist.com/blogs/freeexchange/2011/06/eus-budget.
[9] Masters, “Warning of unintended outcomes of Tobin tax - FT.com.”
[10] The Economist, “The EU’s Budget: Stuck on Tobin again | The Economist.”
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