From the TUC

IMF issues toolkit on how to implement Robin Hood Taxes

11 Aug 2011, by in International

The IMF has issued a working paper which explores the practicalities of implementing Financial Transaction Taxes. What’s new?  For the first time, as Oxfam’s Richard Gower points out, this is about how to implement FTTs – the implication is that the battle about whether to introduce them is over. Secondly, the paper indicates that FTTs can be easier and cheaper to implement than other taxes: indeed, there’s something inherent in financial transactions that makes them amenable to taxation, contrary to previous assumptions. Thirdly, the paper sets out that for every problem with implementation, there is a solution – good design is the critical issue. And finally, the paper sets out how FTTs can be implemented unilaterally, even if multilateral measures would be better. As ever, there’s a health warning that it is not a statement of IMF policy, although the paper itself ignores that health warning when referring to previous IMF papers!

First, the negatives: IMF staff are clearly still not totally sold on FTTs, continuing to underestminate the downsides of alternatives, and presenting reports (largely their own, so, er, not IMF policy!) which express concerns and problems as if they demonstrated incontestable shortcomings. But that’s about it. The paper is very helpful in lots of other ways, for example exploding the myth that Sweden’s experience of FTTs in the 1980s was an unavoidable disaster – better design would have avoided the problem. And whilst it is clearly true that taxing over-the-counter transactions is more difficult than exchange-traded instruments, the paper sets out how these difficulties can be overcome.

The paper provides an excellent summary of the nature of financial transactions (there are some very useful tables defining the different transaction types). It looks at the feasibility of different administrative options and how to address evasion (under-reporting, moving to other forms of transaction, or country-hopping) for exchange-traded instruments, over-the-counter instruments and foreign exchange instruments in turn.

There are some general points which are worth highlighting:

  • because the market in financial transactions is not about trading actual goods  and services, the people engaged in such trades need a way to prove that the trade has taken place (something which doesn’t apply to selling second-hand TVs, or doing a bit of refurbishment on your kitchen, for instance) – that makes the trades inherently easier to tax;
  • partly for that reason, and partly because of the complexity of such markets, there are lots of institutions which exist to mediate between buyer and seller, and they can be (and are, in the examples of countries with existing FTTs) used to levy such taxes;
  • evading FTTs can be made more difficult, more costly, and in some cases actually impossible, by developing incentives to comply or disincentives to evade (including, for example, making non-taxed trades legally unenforceable – see my first bullet). This does mean that relatively low rates of taxation can be better than higher rates, because the lower the rate, the less incentive there is to evade it – but then we’re not asking for high rates anyway;
  • the more regulated the market, the easier it is to tax it (this is an important issue for addressing over-the-counter trading, which has become easier to tax precisely because – often in the wake of financial crises – these markets have become more heavily regulated);
  • it is relatively simple to prevent or avoid attempts to shift countries (this is worth repeating because it is the commonest concern expressed by governments we are lobbying).

But the key points that stand out from the report are, I think, these:

  1. FTTs are simple and easy to implement;
  2. although exemptions are feasible, the more widespread the measure the better;
  3. multilateral agreement on implementation is better, but unilateral implementation is possible, and the downsides can be overcome;
  4. good design is crucial

Let’s leave the last words, though, to the author of the paper himself, John D Brondolo:

In principle, an FTT is no more difficult and, in some respects easier, to administer than other taxes.

45 Responses to IMF issues toolkit on how to implement Robin Hood Taxes

  1. Falco
    Aug 12th 2011, 3:57 am

    Firstly I notice that you don’t mention tax incidence, can’t imagine why. Secondly, very glad to see a Laffer Curve in the wild, “relatively low rates of taxation can be better than higher rates, because the lower the rate, the less incentive there is to evade it” and lastly “the more regulated the market, the easier it is to tax it” should have “and the less business that market will do” added to the end.

  2. A Robin Hood Tax is deliverable says IMF » Tax Research UK
    Aug 12th 2011, 8:34 am

    […] Owen Tudor at the TUC has noted: The IMF has issued a working paper which explores the practicalities of implementing Financial […]

  3. Owen Tudor

    Owen Tudor
    Aug 12th 2011, 9:25 am

    Falco, good point about incidence: but I suspect your assumption is wrong. I didn’t mention it because it’s not covered in the IMF paper. But you’re right that incidence is also a matter of design. We need a handbook on how to make sure that FTTs impact on high net worth individuals rather than those lower down the income distribution. It’s certainly true that more regulation might reduce the shadier, more dangerous end of the market (indeed that is also one of the benefits of an FTT), but it’s worth noting that if we didn’t closely regulate some industries like nuclear power or chemical production, they wouldn’t be allowed at all – markets need to be regulated so that they have public consent to exist.

  4. Tim Worstall
    Aug 12th 2011, 10:27 am

    “We need a handbook on how to make sure that FTTs impact on high net worth individuals rather than those lower down the income distribution.”

    At last, you admit and agree then that it won’t be the banks paying the tax.

    Better tell your mates over at the RHT then. Stop them miselading people.

    BTW, there isn’t any way of making sure that the incidence will only be upon HNW individuals. TYhe incidence will be upon all users of the financial system.

    Which is everyone of course.

  5. Owen Tudor

    Owen Tudor
    Aug 12th 2011, 10:43 am

    I wondered how long it would take to crank up the cracked record that is Tim Worstall! (Sorry, Tim!) I know there will never be any way of satisfying you, because arguments with you are widely known for their circularity and your strenuous efforts to miss every point going, but here goes….

    FTTs will indeed be paid in part by banks, although mostly by other financial institutions like hedge funds. But I know (duh!) that when financial institutions pay taxes, this may reduce (a) their capital, which is in the end the money of people who own the institutions; (b) their dividends, which again is the money of the people who own the institutions; (c) the wages and bonuses they pay to the people who work for them (hugely weighted of course towards the people at the top of the institutions; or increase (d) the prices they charge for their services which are therefore paid by their customers (customers of banks may well be ordinary people, but customers of hedge funds tend to be high net worth individuals – HNWIs). Of course there are more categories than these, but I think they’re the main ones. The objective of the Robin Hood Tax is to raise tax revenue – overwhelmingly – from HNWIs. And that can be achieved by designing such taxes with more intelligence than you, Tim, persistently and wrongly assume of people you disagree with. I think you ARE clever enough to work out ways that FTTs fall on HNWIs, despite your claim that it is impossible. You really should have more self-confidence.

  6. Tim Worstall
    Aug 12th 2011, 10:52 am

    After all of these years you are still missing the point about incidence.

    By reducing liqudity (an avowed aim of the whole process) you widen spreads.

    Wider spreads mean that every transaction costs more.

    Thus every user of the financial system is paying more for that use of the financial system. Every importer pays more for FX. So does every exporter receive less for their FX. Every pension has another bite taken out of it with every transaction. Every holiday maker pays more for their beer money.

    The entire financial system becomes more expensive to use: these costs ripple out through the economy (as Mirrlees points out, one of the major problems with transactions taxes and he’s got a Nobel and you and I don’t) and affect everyone in the costs of the financial system which are embedded in everything we buy or sell.

    And as Joe Stiglitz (another with a Nobel that you and I don’t have) has pointed out all the way back in 1980, these increased costs as a result of incidence can be greater than the amount raised by the tax.

    You are still, gloriously, missing the point of the critique.

    It is not possible to tax financial transactions without the incidence of the tax being upon everybody and everything that is produced, bought, sold, with the aid of financial transactions.

  7. stephen
    Aug 12th 2011, 11:56 am

    dear sir or madam

    i think ther should be a robin hood tax

    to get the econmy m moving again

    also to tax those caused this problem in the firstr place

  8. Tim Worstall
    Aug 12th 2011, 1:45 pm

    Oh, and Owen? They do discuss incidence:

    “Further, it has been pointed out that the real burden of an
    FTT may fall largely on final consumers rather than, as often seems to be supposed, earnings in
    the financial sector.9”

    As I’ve been saying……

  9. Owen Tudor

    Owen Tudor
    Aug 12th 2011, 1:49 pm

    Tim – bit busy so haven’t responded to your earlier post yet (will do later, promise). But just quickly, (a) one sentence merely referring to a different paper is not ‘discussion’ and (b) I’m not sure the secondary impacts of a tax as you describe counts as incidence – however, your point is clearly worth exploring, regardless of definitions, so I WILL get back to you.

  10. Tim Worstall
    Aug 12th 2011, 2:00 pm

    “(b) I’m not sure the secondary impacts of a tax as you describe counts as incidence ”

    Dear God Above.

    That’s what incidence means. Who ends up carrying the economic briden of a tax: as opposed to ends up actually sending money to the Treasury?

    In an open economy the incidence of corporation tax is increasingly upon labour: no one at all is claiming that the workers end up sending money to the Treasury. Rather that the effect of corporation tax is, in an open economy, to reduce capital investment which lowers worker productivity and thus the average level of wages in the economy.

    This is what “tax incidence” means. So, the incidence of corporation tax is, in an open economy, at least partly on labour. In a closed economy it’s on capital.

    This is all well known and non-arguable (the argument is about how much of the incidence is where).

    Are you seriously saying that your years of denying my claims about the incidence of the Robin Hood Tax are because you don’t actually know what tax incidence means?

  11. Mark Hughes
    Aug 12th 2011, 4:49 pm

    My reading of the document suggests that there are three options to consider when identifying where the burden of tax will lie. Either with the seller or the buyer or a combination of both.

    Will financial institutions try and pass on these costs rather than taking them out of their earnings? Given their behaviour recently no doubt they will try, but that is another argument for breaking up the ‘to big to fail Banks’ and to create smaller Banks, so as to encourage competition and to put a downward pressure on prices.

  12. djo
    Aug 14th 2011, 4:26 pm

    “FTTs will indeed be paid in part by banks, although mostly by other financial institutions like hedge funds.”

    What like in Sweden?

    “Are you seriously saying that your years of denying my claims about the incidence of the Robin Hood Tax are because you don’t actually know what tax incidence means?”

    100% would not surprise me, it is hard to find a person backing this tax that actually knows what there on about.

  13. Owen Tudor

    Owen Tudor
    Aug 14th 2011, 4:31 pm

    djo – while I know it would be a bit much to ask that you read the full IMF report before commenting, do at least read my blog. Then you will see that on Sweden, I say: “The paper is very helpful in lots of other ways, for example exploding the myth that Sweden’s experience of FTTs in the 1980s was an unavoidable disaster – better design would have avoided the problem.” Now, I know I owe Tim an answer. Getting round to that now.

  14. Owen Tudor

    Owen Tudor
    Aug 14th 2011, 5:07 pm

    Tim. I’ve gone back as far as the physiocrats, who I think invented the term incidence, and see that all tax ends up on the landowners. I still don’t think that what you are describing is incidence, and the two examples you have quoted – one in your Forbes column and one in your comment above – are much more about primary effects of the tax. So let’s set aside semantics about whether what you describe is incidence or not, and focus on the content of your argument. Bear in mind that this is all very difficult to argue out through Facebook – I know that is a hurdle you have to jump as well as me.

    Your concern about the increase in the spreads and increased volatility of prices that would follow a reduction in trading volume created by the tax, and an increase in the costs of transactions, assumes that any increase in liquidity is automatically beneficial, which we don’t accept. FTTs would, if perfectly implemented (and as my original post and the IMF study show, THAT is the key issue) increase transaction costs by a margin that is sufficient enough to restrain unproductive trading without reducing the optimum level of liquidity for a normal functioning of the market. Higher transaction costs (e.g. in short-term intra-day and high frequency trading) will gear liquidity towards longer-term, more productive investment. The current level of liquidity comes from the global savings glut, i.e. the Asian and German current account surplus and the enormous wealth ‘overhang’ of the rich that is constantly looking for investment opportunities. It hasn’t been universally beneficial. Our view is that, whilst the cost of all transactions will indeed rise, they will be borne by those who are mostly engaged in financial transactions.

    I accept that some secondary costs will certainly be rolled over to all, however our assessment is that the overall social gains of an FTT to most people would outweigh the costs to most people. And, as you suggest, the benefits are not just the revenue raised, either – they include the longer term oriented economy which would result from disincentivising short-termism, and offsetting the costs of public sector cuts, the costs of climate change, and the costs of global poverty. I’ve never believed that an FTT is good per se, only that it is better than the alternative.

    You mentioned Mirrlees and Stiglitz, and it’s been a while since I’ve reviewed the literature – can you send me the references to save me searching them out, so I can respond directly to those points? Without looking at the actual papers, however, I note that they were published long before the massive expansion in the market in financial transactions (which I think may be characterised as qualitatively different, not just larger). So their comments then might not apply now.

    Incidentally, I know we’ve got under your skin and I’m sorry for that, but suggesting that the Robin Hood Tax campaign has been running “for years” is only true in a very, very limited sense: we launched in February 2010 so we’ve been going for 1.5 years. I recognise that for both of us, it may seem longer, and certainly the underlying idea has been around since Keynes first proposed it in 1936 although, see points about Mirrlees and Stiglitz above, I am not arguing that because he proposed it then, it couldn’t be wrong now ;-)

  15. Tim Worstall
    Aug 14th 2011, 6:30 pm

    “Your concern about the increase in the spreads and increased volatility of prices that would follow a reduction in trading volume created by the tax, and an increase in the costs of transactions, assumes that any increase in liquidity is automatically beneficial, which we don’t accept.”

    No, I don’t assume that. I assume only that an increase in liquidity will reduce spreads. Which isn’t all that amazing a prediction really: an increase in the number of buyers and sellers in a market will reduce spreads.

    So, let us look at FX as an example. Currently a well traded pair might have a spread of 1 basis point. Possibly even 0.5 bps on something like €/$.

    So, let us add a 0.5 bps tax (0.005%, as you are suggesting). This might be on both sides, perhaps 1 bps total, I don’t know.

    Now, we’re going to reduce liqudity, this is certain. This is even an aim of yours (note that I’m not assuming this liqudity is in itself beneficial here. I’m only assuming that it changes the spread).

    How much are we going to reduce liquidity? How long is a piece of string really, but we can take a stab at it. Part of your and the RHT spiel is that 90% of FX is purely speculative. So are we going to get rid of all that speculative stuff? Mebbe: which brings liqudity in the markets down to late 70s, early 80s levels. Back when spreads were 10 bps on a well traded pair.

    So, now all FX transactions which still take place are costing 10 bps spread plus our 0.5 or 1 bps tax. So every transaction which uses FX, all imports, all exports, any thing and everything made with an import or export, has this 10 bps increase embeded into is. So, the costs to everyone of buying anything imported, exported, associated with an import or export (say, my lamb cutlets from Wales were treated with a vaccine from Switzerland, which is Mirrlees point, that such transactions taxes cascade through the economy and are thus to be avoided if there is an alternative) has this extra cost built into it.

    So, absolutely everyone in an economy like ours is paying the 10 bps.

    But we’re only raising 0.5 bps (or 1 bps) in tax. The costs to everyone are 10 bps, that’s the incidence. But we’re actually getting 0.5 bps in tax revenue. The incidence (and this is Atkinson and Stiglitz, 1980) is 10 to 20 times the revenue raised.

    This is an appallingly bad tax then. Everybody’s paying vastly more than the actual revenue collected.

    OK, maybe moving out to 1-0 bps is extreme. Perhaps we only move out to 2 bps. 1 bps. But note, if the movement in spreads is only 0.5 bps as a result of the 0.5 bps tax, then the incidence is still 200 % of the revenue raised (because of course we add the actual tax being paid to the larger spread when measuring what the economic impact of the tax is).

    There’s only one point at which the incidence isn’t higher than the revenue raised: that’s when spreads don’t move at all. And that’s absolutely not going to happen, is it? You don’t even want that to happen.

    To change markets for a moment, we know absolutely that spreads won’t move. Take our 0.005% tax on overnight interbank lending. Currently LIBOR is what, 0.25%? Annually? 280 banking days in a year (ish, ish). You get 0.0009% interest on an overnight loan then. What’s the effect of that. 0.005% tax then? Umm, well, we’ve just pushed the overnight interest rate up to 0.0059% (assuming we don’t tax the in and the out of the cash). We’ve just pushed overnight interest rates up to 1.65%. Or we’ve just made sure that there is no overnight loans, the shortest will be a week.

    Rilly? We want to raise short term interest rates do we? Or destroy the ability of the banks to manage cash with overnight loans? Isn’t that what we just spent hundreds of billions on making sure could still carry on?

    “Our view is that, whilst the cost of all transactions will indeed rise, they will be borne by those who are mostly engaged in financial transactions. ”

    As you can see from my FX example, this simply isn’t true.

    “I accept that some secondary costs will certainly be rolled over to all”

    As I say, entirely possible, actually, most likely, those costs will be higher than the revenue raised.

    Now, about this:

    “Higher transaction costs (e.g. in short-term intra-day and high frequency trading) will gear liquidity towards longer-term, more productive investment.”

    This is something you have to prove, not assume as you do. And there aren’t any economists (thre’s an awful lot of think tankers posing as economists who do however) who do so assume.

    And these:

    “offsetting the costs of public sector cuts, the costs of climate change, and the costs of global poverty.”

    Are indede all problems which need solving. Heck, I’ve even written a whole book on the climate change one. But a tax which imposes more costs than the revenue it raises isn’t a sensible way of handling any of them. Not when we think that the average deadweight cost of taxation is somewhere between 20 and 35% of the revenue raised. Given that, why on earth would we plump for a tax which we think has a cost somewhere between 100% and 2,000% of the revenue raised? given that we’re not mind-garglingly stupid that is?

  16. djo
    Aug 14th 2011, 6:32 pm

    “better design would have avoided the problem.”

    No, better design is not going to stop accounts migrating to Asia and America, you do not hold business hostage to the EU zone. You speak of the long-term yet fail to note that in the short term corporations have to exchange huge sums of money on the foreign exchange, are they going to do it in a country that imposes a financial transaction tax? Your a mentalist if you think they are. As for some one with a long term view on currency’s like my self who on average trades in lots of one thousand contracts, am I going to be able to take a long term approach when there is a daily financial transaction tax added to the roll over ( you know what that is right?)

    The answer again is no, in fact if I were to remain here with the burden of two financial transaction tax costs to pay per day on large positions the incentive would be to trade the short term only because then I would not be sitting on positions that are not moving yet are running up large costs.

    Even if you could perfectly implement the tax ( making it so no one can avoid it is your only true concern,you neither understand or care for the markets ) the fact still remains that it is a problem,the solution to a dysfunctional market is effective continuous repricing which is accomplished through high frequency trading. When that happens people do not accumulate massive positions whose value is suddenly repriced. The repricing occurs continually.

    A financial transaction tax specifically penalises markets that reprice in a timely fashion.If intervention is needed it is needed to address those markets
    which DONT turn over a high rate of transactions, those markets where the price discovery mechanism is opaque rather than transparently continuous and automatic.

    Imagine if the illiquid market in mortgage derivatives had been subject to the kind of high turnover, high liquidity trading that we see in the currency markets. Those instruments would have been repriced far earlier, far more efficiently – if you really think you can control the amount of liquidity removed from the market using a tax, to just take “the bad out” while leaving the good, you really are in for a shock.

    This would be a short term disaster before its forced reversal,with the current confidence crisis in the markets and they danger they are in I can not belive the lunacy required to promote this, but then again coming from the same fiscally aware and responsible people that bought us the Euro and continent bankrupting debt what do you expect.

    There is some opportunity how ever for the day you remove arbs/high frequency and short term traders from the market…or will short selling be banned on that day to?

  17. djo
    Aug 14th 2011, 6:47 pm

    “Given that, why on earth would we plump for a tax which we think has a cost somewhere between 100% and 2,000% of the revenue raised? given that we’re not mind-garglingly stupid that is?”

    How about the existing revenue that will be lost? If there aim was actualized and they did in fact remove speculation from EUROPE’S markets, I do not think people appreciate how much capital gains and related income tax revenue would no longer see the light of day for these governments..what are they going to do wish it back into existence or just ask Asian government’s to hand the business back?

  18. Tim Worstall
    Aug 14th 2011, 8:14 pm

    “spreads won’t move.”

    Replace”won’t” with “will” of course.

  19. djo
    Aug 14th 2011, 11:23 pm

    The tone here is that liquidity beyond a point is negative, so for example if 90% of the speculative trades are removed from Forex leaving just those who need to exchange extremely large sums of money, how is the market going to look without the liquidity to absorb that at all times? Stable hmm?

    And how does this address:

    Corrupt/incompetent credit rating agency’s?

    Governments spending well beyond there means?

    Experiments such as the Euro currency that from the start had faults that would eventually cause major issues?

    Banks risky lending practices and corrupt activity’s?

    How does making non-taxed trades legally unenforceable address ANY of these issues? The cause of the current mess? And how does making non-taxed trades legally unenforceable in the EU have any impact on my money in an account being legally and honestly traded in a country that is not silly enough to impose this tax?

  20. Timmy elsewhere
    Aug 16th 2011, 2:58 pm

    […] wanted to repeat these phrases: The cause of my demand is their latest nonsense on the Robin Hood Tax. You know the one, that Richard Curtis thing where if we just took pennies […]

  21. djo
    Aug 16th 2011, 9:07 pm

    “Following the weak GDP data this morning, the markets were hoping that we would have seen a more dramatic announcement to support the euro markets and we did not receive that,” Mark Bronzo, who helps manage $26 billion at Security Global Investors in Irvington, New York, said in an e-mail. “The markets declined when a financial transaction tax was raised, as the concern is this will hurt the already weak economies of Europe.”

    Great great great!

    “Sweden’s Levy
    A 1996 report on financial transactions taxes for the Canadian government found that Sweden’s 1984 levy of 1 percent on equity trades, doubled two years later, caused half of the country’s trading to move to London by 1990, a year before the tax was abolished. Capital gains revenues decreased as volume sank, “almost entirely offsetting revenues from the equity transactions tax,” the report said.”

    Great great great!

    Ah but a well designed tax that cant be avoided within the market will see Europes markets dismissed all together

    Great great great!

    http://www.bloomberg.com/news/2011-08-16/asian-stocks-gain-on-takeovers-valuations-euro-trades-near-3-week-high.html

  22. Owen Tudor

    Owen Tudor
    Aug 16th 2011, 9:12 pm

    djo, very, very briefly because it’s not worth getting agitated over, the Swedish FTT taxed share trading conducted in Sweden. Hey presto, it moved to Denmark, London, etc. The UK has for decades taxed share trading in shares for companies registered in the UK, which you can only escape paying if you don’t buy them. Hey presto, the trading doesn’t move and the UK raises about £3bn a year in taxes and has one of the largest stock exchanges in the world. Tim is raising far more complex problems, but I’ll get round to answering them when I’ve done more important/urgent work. But the Swedish case is not difficult at all, it was a simple (and simple to avoid) design error.

  23. Tim Worstall
    Aug 16th 2011, 9:50 pm

    “The UK has for decades taxed share trading in shares for companies registered in the UK, which you can only escape paying if you don’t buy them. Hey presto, the trading doesn’t move and the UK raises about £3bn a year in taxes and has one of the largest stock exchanges in the world.”

    Quite true. That £3 billion number comes from here:

    http://www.ifs.org.uk/comms/comm89.pdf

    About which they say:

    “Basic economic theory suggests that transaction taxes such as stamp duty harm the efficiency of the stock market by choking off trades that would benefit both parties to the transaction. This may in turn reduce the efficiency of the economy by slowing down the reallocation of resources to where they are most productive”

    And, um, oh aye?

    “Tim is raising far more complex problems, but I’ll get round to answering them when I’ve done more important/urgent work.”

    No, I’m not raising more complex problems. I’m just the guy talking about the “basic economic theory”.

    Bring it on Owen, bring it on.

  24. djo
    Aug 16th 2011, 10:10 pm

    Hey presto, government data shows that a large percent of all UK financial transactions are exempt from the tax. Many large banking and investment firms are fully or partially exempt and many London traders do their business on US or other exchanges to avoid the tax entirely.

    The negative effect on funds that do pay the tax are clearly documented and:

    “Outgoing chairman of the LSE, Don Cruikshank, predicted in 2003 that if changes weren’t made to stamp duty legislation, total losses of trading could be as much as GBP1tn.

    He was quickly proved right, when in May 2004 Inland Revenue figures showed that revenues from the tax on share trading fell from GBP4.5bn in the 2000/2001 tax year to GBP2.6bn in 2003/2004.

    The UK government had thus — in that period alone — foregone GBP2.5 billion in revenues from stamp duty on shares as fund managers and investors turned towards derivatives to escape the tax.” ~ Its not really all that great in its self…

    But you are correct the Swedish case is not difficult at all, it was a simple to leave the country and not touch its markets, just as simple as it is to leave the EU and not operate in its markets.

    By the way, the UK has a stamp duty for stocks, the UK does not have a stamp duty for its foreign exchange operations, operations which have a direct effect on corporations who must exchange funds in order to conduct business in fact there’s not much at all the foreign exchange arena does not impact when it comes to business.

    I am very interested to know why it is you will not explain how this tax has any impact on the root causes of the financial crisis and why you avoid at all costs explaining why it is acceptable to implement a tax that will cause another one, if all you can do is explain how you can force people to bend to your will without explaining how price discovery, liquidity…wait…you want liquidity destroyed…

    I don’t have much faith in what you propose..

  25. Mark Hughes
    Aug 17th 2011, 12:35 pm

    The IfS document was published in 2002 before the current crises, it recommends raising corporation tax, to enable a reduction in stamp duty. In the last budget the government reduced corporation tax, the argument being that this will encourage businesses to set up in Britain. It also states that it is a viable tax for the near future, the fact that it states that there are problems with having a tax does not reveal very much, for neo-liberals there are always problems with having a tax.

    For us that promote a social model of government, the problem is not having a tax, raising revenues and reinvesting in social projects is the only way to stimulate growth. It certainly aint going to come from the finance sector, too big, too dangerous and too selfish. It has no sense of serving the common good, it is all about greed and profit, it recents paying taxes but benfits the most from having a civil society based upon the rule of law.

    The finance sector has had it good for thirty years and rather than create wealth it has brought the global economy to its knees, rather than seeing it as their responsibility to start getting the world’s economy going again, they revert to self interest, an attitude that got us into this mess in the first place, unbelieveable.

  26. Mark Hughes
    Aug 17th 2011, 1:11 pm

    Some spelling mistakes replace ‘recents’ with ‘resents’and of course ‘benfits’, should be benefits.

  27. djo
    Aug 17th 2011, 2:18 pm

    So tell us Mr Mark Hughes, how does a financial transaction tax address the root causes of the crisis, how does it aid economic recovery and stop future problems?

  28. Mark Hughes
    Aug 17th 2011, 8:32 pm

    In reply to djo:

    The FTT is not about addressing the root causes of the financial crises or about aiding economic recovery. To stop future financial crises we are going to have to initiate new legislation and re-introduce the kinds of protections that where implemented after the last great depression of the 1930s. Protections which were removed due to the arguments of neo-liberals who espoused the self-regulating qualities of the free market, arguments that we have now found to our great cost, to be mistaken.

    The FTT is about saying to the financial sector, you have to contribute to the reduction of the nation’s debit and thus addressing the nation’s deficit, a problem which the financial sector with backing of neo-liberals caused.

    I know that this will hurt those people who work in this sector but hey! Welcome to our world.

  29. djo
    Aug 17th 2011, 9:47 pm

    – FTT is not about addressing the root causes.

    – FTT is not about economic recovery.

    – FTT is about “saying” to the financial sector you have to contribute more than the vast vast sums of capital and economic activity to the economy than you already do, and in the process we will take away your ability to actually do this.

    ~ Understood.

  30. Mark Hughes
    Aug 18th 2011, 11:08 am

    Whether the Financial sector contributes vast sums of capital and economic activity is open for discussion. If you include the data of the current crises, it can be argued that the contribution of the financial sector has been over-estimated. Its contribution to GDP included the wealth created by such things as derivatives and other financial innovations linked to the sub-prime mortgage scandal. Now known to be of no value, hence the reduction of today’s GDP compared to 2007/08. Also the wealth that it did create prior to 2007/08 has virtually been wiped-out, so I would take this into account when assessing what contribution the financial sector has made to the British economy.

    The problem is that the Financial sector is too big and it has become the only game in town. We now realise that we need to develop a manufacturing base, which of course the finance sector should be supporting by investing in this area. However it is becoming increasingly apparent that the finance sector is reluctant to lend money to small businesses because of the problem with liquidity. Instead investors seem to want to play on the commodity markets instead, create problems in other areas of the economy, with price inflation.

  31. djo
    Aug 18th 2011, 2:09 pm

    The government/banker created sub-prime mortgage scandal should have been dealt with in a much firmer way but that has nothing to do with foreign exchange operations – general stock activity’s in fact it has little to do with the rest of the financial sector, they just suffered as a hole due to the corruption of a few to.

    A financial transaction tax attacks markets that reprice in a timely fashion ( its a shame the sub-prime market never did that eh? ) It as you say becoming increasingly apparent that the finance sector is reluctant to lend money to small businesses because of the problem with liquidity so you propose a tax that not only will destroy the interbank market liquidity but further inhibit the ability of banks to lend to businesses…

  32. Mark Hughes
    Aug 18th 2011, 4:02 pm

    Yes, it is a terrible shame that there will be innocent victims due to the financial sectors mistakes, but maybe those who work in FX are not going to be as affected as much as those who are currently losing their jobs.

    If the Banks are not lending to small businesses, then you can’t lose what you haven’t got, although of course this maxim doesn’t apply to the financial sector. They can lose everything and more.

  33. djo
    Aug 18th 2011, 5:34 pm

    “maybe those who work in FX are not going to be as affected as much as those who are currently losing their jobs.”

    London is by far the most important global centre for foreign exchange trading. The business activity jobs and tax revenue create are vital for the UK, there are thousands and thousands of jobs that depend on the London markets you simple have no idea what you are talking about,you your self admit the tax will not address root causes or enhance recovery ,you just a conviction that some one, some organization, some function..some anything should be held responsible and pay for the crisis.

    “If the Banks are not lending to small businesses, then you can’t lose what you haven’t got, although of course this maxim doesn’t apply to the financial sector. They can lose everything and more”

    And who are the idiots who gave guarantees to the banks? Who are the idiots who by there handling of the sovereign debt crisis they created are about to cause the absolute out right collapse? Lets take more of there advice! They seem qualified enough to dish it out, results speak for them selves.

  34. Mark Hughes
    Aug 18th 2011, 6:19 pm

    I think you over state the case, thousands are going to lose their jobs because of the implementation of a FTT, I don’t believe this to be true.

    The FTT is not about being punitive, there are two ways of addressing the debt/deficit, you either raise taxes or cut spending. This is about raising a tax, to address the imbalance.

    I suppose your worry is that those within the FX markets will up root and look to set up camp somewhere else, this concerns the issues around tax avoidance which should be the next thing that the TUC campaigns against.

  35. djo
    Aug 18th 2011, 7:36 pm

    “”I think you over state the case, thousands are going to lose their jobs because of the implementation of a FTT, I don’t believe this to be true.”

    Ok ok you got me, with one million people currently working in the financial services sector in the UK and with Foreign exchange turnover in the UK reaching more than $1.9 trillion on a daily basis, accounting for 36.7% of the global total in 2010 you are correct, you are going to reduce liquidity and activity with the tax but no jobs will be lost, pushing up the price of doing business massively while attracting the same amount of investors who support those jobs,to “think” or “not believe” when it comes to issues of vital importance is frankly not enough after all it was “thought” ( and all evidence against ignored ) that the Euro would work out just fine…

    “The FTT is not about being punitive, there are two ways of addressing the debt/deficit, you either raise taxes or cut spending. This is about raising a tax, to address the imbalance.”

    Do you people lack the even most basic understanding of economics and mental spark that the best you can come up with is a tax that changes nothing for the better, aids nothing in recovery and costs somewhere between 100% and 2,000% of the revenue raised – are you stupid? How does this tax address the imbalance between what governments spend and what it can realistically spend without destroying its country? Oh..it does not! An imbalance worth addressing is encouraged to continue after all “money grows on trees”

    “I suppose your worry is that those within the FX markets will up root and look to set up camp somewhere else, this concerns the issues around tax avoidance which should be the next thing that the TUC campaigns against.”

    Good luck taxing foreign corporations operating and paying tax under and to a foreign government, it will not even be tax avoidance but come to think of it you could not stop people doing that when they had no real cause to, you have not got a chance in hell if you give them a cause to.

  36. Mark Hughes
    Aug 19th 2011, 12:50 am

    You just don’t get it, in pursuit of your individual wealth, you are neglecting the common good. You over emphasise the social good of the FX markets by stating that these markets keep the wheels of the global commerce turning, but there is another side of FX markets which is to do with speculation, about the exchange between the price of two different currencies, which does not produce jobs or improve the working conditions of those who have jobs. So I would state once again, that you over state your case, as regards how important the FX markets are to the British economy. Yours is a sector which didn’t exist until thirty years ago, before then we had the Bretton Woods agreement which looked to regulate the expatriation of currencies and thus try to regulate the trade imbalances.

    We are in a position when we start to revisit the ideas behind the Bretton Woods agreement; does this solution to the ninety thirties offer solutions to today’s problems? Maybe its time for those who work in the FX to consider how they can maintain their income in the new situation, a situation which attacks the very fabric of our society, do not be fooled, Capitalism is facing a crises, you can either try and maintain profits or you can try and contribute to a solution which may mean that Capitalism survives to fight another day. I hope and I think given your previous comments you will put your support behind your own individual needs and wants before that of the common good, so add to the pressure on modern Capitalism for change and reform.

    Your sector, the FX sector is becoming an increasingly small cog in the wheel of the common good, it adds little, may be a few people employed. But jobs are being lost, why are those in the FX area worth more than those in other areas such as youth work, education etc? You look to maintain your own individual wealth whilst espousing arguments for the common good,totally reprehensible. Time to put your individual needs to one side and join the common good, I think you may find this hard, but work at it, it will bring you more fulfilment, than working at trying to avoid the FTT.

  37. Mark Hughes
    Aug 19th 2011, 1:37 am

    Another thing, you ask whether those of us who look for reforms, ‘are stupid’? Some people who are by all accounts perceived to be very clever people have brought us to this financial crises. Its not whether you are clever or not but about where you apply your intelligence, if you apply your intelligence for your own individual gain, you may lose your perspective for the common good. So whilst you may experience some short term gain, society might raise its ugly head and start creating problems if it doesn’t get a fair share.

    Yes we may be stupid but we are sincere, whilst you are highly intelligent but lack any moral conviction. The question for society as a whole is where does its interests lie? Is it with intelligent people who make sure that they have a greater share of the world’s wealth or does it its interests lie with making sure that everyone has a more equal share of the world’s wealth?

  38. djo
    Aug 19th 2011, 3:02 pm

    “Another thing, you ask whether those of us who look for reforms, ‘are stupid’? ”

    I ask if those of you who propose totally economically illiterate reforms that destroy the system making life harder for every body and in the process sending the last of our industry’s to Asia are stupid yes, this is no claim to being “super clever” my self and because I have done well using a system after many thousands of hours invested does mean I am greedy or out to defend “my individual wealth”

    Capitalism is facing a crises you say, I cant agree, in fact people interfering with capitalism for the “greater good”,you know “poor people have a right to a mortgage even if they can not afford it” and “a single currency will stabilize the region its for the greater good”..

    The greater good time and time again has dropped every one in the sh#t, those pushing for the greater good time and time again are those who do not understand the system they are trying to influence, yes they are sincere but there hate for those in the system and there lack of understanding always screws things up.

    Stood on the side lines demanding in return for nothing because the world should ” be” the way they see it, you cant do some thing productive, they cant even understand the system enough to create there own wealth never mind enhance the lives of others, they just shout away..the greater good…the greater good..the greater good… but as you say FX or markets are not important..good luck in this greater good world of yours:)

  39. djo
    Aug 19th 2011, 4:21 pm

    Deleting comments we do not like now? Very professional, I guess calling into question how qualified you are to dictate such issues is some thing else we need to ignore.

  40. Owen Tudor

    Owen Tudor
    Aug 19th 2011, 4:33 pm

    djo – your comment was deleted because it was grossly offensive and inaccurate. Many of your posts on this theme are very rude and we try to keep this blog a place for debate, not abuse. I would urge you to moderate your language. As you can see from the fact that we have only removed one of your many comments, it is abundantly clear that we do not delete comments just because we do not like them.

  41. djo
    Aug 19th 2011, 4:56 pm

    Owen, how is pointing out the fact that because your experience is within the Health and Safety Commission, the Civil Justice Council, the Social Security Advisory Committee, the Industrial Injuries Advisory Council and the Wilton Park Advisory Council and adding to that the fact you claimed questions being put to you based on basic economic theory were “complex”, how does pointing this fact out as good reason for you not being qualified to dictate regulation of markets you know little of come across as ” grossly offensive and inaccurate “.

    How does pointing out that despite the ambitions of the greater good the markets are as vital to the global economy as they ever were come across as offensive?

    The idea is stupid it addresses nothing and the issues it causes, issues you have yet failed to respond to because they are beyond your ability to respond to far out weigh any benefits. This is not for the greater good this is desperation from the European union which is dangerously close to collapse due to there own illiteracy and poor economic governing( the greater good ) – if the Euro was never coined for the greater good we would not be in the situation casting a shadow over the present day.

  42. Owen Tudor

    Owen Tudor
    Aug 20th 2011, 12:53 pm

    djo – had you put your comments in that way, they would not have been “grossly offensive and inaccurate”. You didn’t. However, I am happy to reply to the comment you now make more politely. Firstly, the bodies you cite which I have sat on are not the sum total of my experience and shouldn’t really be held to be evidence of anything to do with my experience (my role on each was merely to represent the views of the trade union movement). You don’t know what my experience or knoweldge is, but my academic knowledge is an economics degree: the same one the Chancellor of the Exchequer has, in fact, from the same institution. If he’s qualified, I am (actually, as I tell people regularly, I rather worry that neither of us is, and he’s the Chancellor!)

    And you have mis-read or misunderstood what I was saying about complexity, I think (maybe I mis-wrote). What I meant was that the EXAMPLE that Tim Worstall was quoting about the effect of FTTs on spreads and liquidity was a complex one, not that the theory underlying it was. I think that’s borne out by the fact that Tim rarely goes to that level of complexity when HE writes about FTTs – the word limits we all usually work to, and the spread of experience/knowledge of the people we are writing for, make that a sensible choice on his part!

    But the main point I’d make about your comment is this: you ask what gives me the right to “dictate” regulation of markets, and the answer is of course, nothing does or could – I’m not in a position to “dictate” anything, except inasmuch as I’m one of the hundreds of millions of citizens in democratic states who should indeed have the power to “dictate”, collectively, what regulation covers markets like finance. It’s not even as if I’m in a position to “dictate” what a Financial Transactions Tax would be – I’m just one person involved in running the campaign in support of the idea.

    I am, however, intrigued by this: on this blog, as on many others, the opponents of FTTs almost universally make vitriolic ad hominem attacks on the supporters and proponents, and that strikes me as strange (I’m not saying the proponents aren’t sometimes like that too, but very rarely, and far, far less.)

    I assume that in part this is because you and other opponents think this is a monumentally stupid idea (although huge numbers of very clever, knowledgeable people ARE in support of it, including many economists and whole governments, so it could easily be wrong, but is very unlikely to be monumentally stupid, although I know you genuinely believe it to be so), but that you are very, very scared that it will happen regardless.

    But it makes people THINK that you are over-reacting because it’s a good idea, likely to happen, and you either just don’t like it, or will be personally disadvantaged by it. Moderating the language – and dropping the ad hominem attacks – would probably give your arguments more power. (So I really shouldn’t be handing out this free advice!)

    Enjoy the rest of the weekend.

  43. Tim Worstall
    Aug 20th 2011, 2:12 pm

    “I’m not saying the proponents aren’t sometimes like that too, but very rarely, and far, far less.”

    That would be Murphy and his declarations that all neoliberals are baby eating kitten torturers then, would it?

    “I assume that in part this is because you and other opponents think this is a monumentally stupid idea”

    Only partly. I mean, intending to decrease price volatility while actually increasing price volatility could be described as stupid. But my real objection all along has been that it’s a terribly misleading campaign. As per the discussion of incidence above.

    It purports to be a tax on banks and or bankers. But it isn’t. And that’s misleading, isn’t it?

  44. Owen Tudor

    Owen Tudor
    Aug 20th 2011, 4:39 pm

    Tim – I don’t think Richard thinks AL neoliberals are baby eating kitten torturers, but if he does it’s only because he knows them personally! ;-)

    As you will recall, I have always accepted that when campaigners say “banks and bankers”, that’s shorthand for the finance sector and the ‘masters of the universe’ who run it – the major impact of FTTs would fall immediately (I’m coming to that) on hedge funds and investment banks rather than retail banking. And I think it’s fair to say that people don’t generally draw a big distinction between Stephen Hester and Guy Hands. I respect your view that this is “misleading”, but I don’t agree: it’s shorthand, and is explained whenever we have more space. AS a journalist, you use such shorthand yourself.

    Serious question about your last point, though – I thought your argument was that – through the spreads/liquidity impact – the taxes would impact on ordinary people/the whole economy AS WELL AS on the finance sector, but now you seem to be suggesting it would impact either MORE HEAVILY, or ONLY on people outside the finance sector. Is that what you’re arguing?

  45. Tim Worstall
    Aug 20th 2011, 5:11 pm

    Incidence. There are two things here. Statutory incidence.

    In short, who hands over the cheques. This is obviously upon the investment banks and the hedge funds etc who use them most heavily. Just as the statutory incidence of employers; nation insurance is upon employers and corporation tax upon corporations.

    Then there is economic incidence. Any tax means, in the end, money coming out of someone’s wallet. Whose? With corporation tax it’s either the shareholders or the workers, the more open the economy the more of it comes out of the workers’ pockets. Employers’ national insurance it could be either employers (ie, shareholders again) or the workers. The general worked through result is that at least some of it and most think all of it (even Murphy thinks all of it) is paid by the workers in lower wages.

    These are well known and well worked out examples of economic incidence of a tax.

    My argument has been all along that the similar incidence of an FTT will be upon all consumers of anything made which uses those parts of the financial system which carry the statutory incidence. That is, upon consumers generally.

    In detail, taking dealing spreads in FX. This sounds very strange indeed but it’s actually possible that the dealers in FX will be making higher profits as a result of such a tax. There will be fewer transactions, yes. Less flow as a result of those widened spreads. But the people who stay in the game will be earning *higher* profits and thus, one would assume, higher incomes, as a result. Because spreads are higher and higher spreads mean more profits.

    However, I’m much less sure about that part. Incidence will be:

    1) Definitely upon all consumers. This is the incidence of the tax itself: it will definitely be passed on to consumers. But also the wider margins as a result of the taxes will be passed on to all consumers. And as I’ve said, those wider margins could/will mean that the incidence is a number of times higher than the revenues raised.

    2) Maybe, I’m not sure (as I’ve really only just started thinking about it) we’ll also see the incomes of those still dealing FX rise as those margins rise. Perhaps fewer of them, dealing with a smaller flow, but making more profits out of each transaction. That’s just the flip side of there being higher margins. Really not sure of this second point though.