It seems plausible that payback time has arrived for the international financial community. The principal obstacle to this happening at the moment is the Barack Obama administration’s Treasury Department, which thus far in the financial crisis could be mistaken for the executive committee of Goldman Sachs in disguise. Treasury has opposed every proposal to force the financial institutions whose reckless behavior has been responsible for a crisis that wiped out the jobs, homes, and savings of millions to assume financial accountability for what they have done.
What these institutions can now do, in return for the public funds that rescued them, is to pay off part of the enormous debts assumed by the major nations. As a result of the financial meltdown, all or nearly all the EU states are now over the deficit limit imposed by their own rules, and the rising national debt in the United States has reemerged as a legitimate concern.
Politicians talk about the supposed need to raise taxes now that the emergency funds injected into the world economy are drying up. But how do higher taxes pay for economic recovery? Treasury Secretary Timothy Geithner’s solution is growth. But where is this growth to come from when the stimulus ends, as all agree it eventually must?
Let the bankers give back what they have been given. A proposal rapidly gaining international political support, and a grudging acceptance in the financial community, is to place a very small tax on international financial transactions to pay back what governments gave the banks.
The proposed tax rate has ranged from .002 percent to .4 percent of the transaction’s value, depending on the nature of the transaction. Estimates of the amount this tax could bring in annually go as high as $650 billion. In Washington, Democratic Congressman John Larson has proposed a .25 percent tax on over-the-counter derivative transactions. Others in Congress have proposed the same rate for ordinary stock transactions, but with exemptions for individual retirement and educational accounts, as well as all for transactions under $100,000. The seven Democratic representatives who are cosponsoring this bill say that half the revenue would go to pay down the federal deficit and the rest would be applied to job-creation programs. They claim that their bill would raise some $150 billion a year.
Bankers insist that the entire international financial industry will flee from country to country to stay ahead of any taxes, just as American corporations flee from one tax haven to the next to avoid contributing anything to their nation’s well-being. Any financial-transaction tax would have to be uniform internationally, or at least incorporate the principal exchanges.
It may be necessary to go beyond exchanges because big financial operators increasingly trade directly or through unregulated mechanisms. At last September’s G20 meeting, Germany’s former finance minister, Peer Steinbruck, said: “A global financial-transaction tax, applied uniformly across the G20 countries, is the obvious instrument to ensure that all financial-market participants contribute equally. [German Foreign Minister] Frank Steinmeier and I suggest the G20 take concrete steps toward implementing a tax of .05 percent on all trades of financial products within their jurisdictions, regardless of whether these trades occur on an exchange. Retail investors could be exempt.”
Steinbruck added: “There is a clear-cut case for a global financial-transaction tax: It would be just, would do no harm, and would do a lot of good. If there is a better idea for fair burden-sharing, let’s hear it.”
The reason for Treasury Secretary Geithner’s skepticism (the tax, he has said, is “not something the United States would support”) has not been made clear. It may simply be evidence of the inveterate hostility of America’s financial community (whence Geithner comes) to taxes in general—and of a particular dread of the precedent of an international tax.
Larry Summers, director of the Obama White House’s National Economic Council, has written in favor of a securities transaction tax, however; a 1989 paper co-written with Victoria Summers said there may be times to “throw a little sand into the gears of trading markets.” Britain’s Prime Minister Gordon Brown is for a tax. So is France’s Nicolas Sarkozy.
The idea is not new. It was given renewed attention in 1971 by the economist James Tobin as a way to curb currency speculation, and was taken up by many, particularly on the left, as a fairly painless way to generate development funds for poor nations. It has been advocated for many years by Carolyn Cleary, a private economic adviser, as a noninflationary way to generate for new uses the equivalent of the “Brady Bonds” of 1989, which restored sovereign debt liquidity in Latin America.
The source of the idea was John Maynard Keynes, the author of neoclassical economic theory and the man who more or less invented the modern international economic structure at the Bretton Woods Conference in 1944. Keynes suggested the transaction tax during the Great Depression as a means of supplying needed liquidity. Like many of his other ideas, it is being resurrected amidst the wreckage of monetarism and neoliberal capitalism that surrounds us today.
© 2009 by Tribune Media Services International.
