Tax Law

Robin Hoods Aim Their Bows at Financial Transactions

Legend has it that Willie Sutton, bank robber extraordinaire, when asked by the FBI why he robbed banks, stated that it was "because that's where the money is."  To a certain extent, this reasoning-to look to where the money is--might provide a decent starting point for the government in determining the most effective way to generate additional revenue.  Recent legislation introduced in the House by Representative Peter DeFazio (D - OR) (H 3313, "reflect this philosophy  ("Wall Street Trading and Speculators Tax Act") and the Senate by Senator Tom Harkin (D - IA) (S 1787, "Wall Street Trading and Speculators Tax Act") seems to reflect this philosophy.

Both pieces of legislation would impose a .03 percent financial transactions tax on stock, bond and derivative trades, beginning in 2013.  The proposed legislation is intended to generate revenue that would be allocated between a job creation reserve fund and deficit reduction.  The tax would be imposed on anyone trading stocks, currencies, or debt instruments, and would apply to both buyers and sellers. Much of the income generated would come from large banks, hedge funds and brokers with frequent trades. 

The idea of a financial transactions tax, or "Robin Hood tax" as it has come to be called, is not a new one in the United States. The Revenue Act of 1914 levied a 0.2 percent tax on all sales and transfers of stock. In 1932, Congress more than doubled the tax to help ensure the nation's financial recovery and create jobs during the Depression. The tax remained in effect until 1966.  Since the elimination of the tax in 1966, the United States has occasionally toyed with the idea of a financial transactions tax, but without any significant movement towards its reinstatement.  Now, however, the tax seems to have attracted the attention of a diverse group of people, including finance professionals and economists; labor unions interested in job creation programs; philanthropists; and, populist movements , such as the Occupy Wall Street (and Occupy ____ (fill in the blank)) groups.   

Proponents of the tax assert that, in addition to raising revenue and reducing the deficit, the tax would also help to rein in volatile speculative transactions. Representative DeFazio has argued that the tax proposed in his introduced legislation would have only a minimal impact on traditional trading, but would have a far greater impact on high volume trading, which many have argued is one of the biggest factors in creating a negative economic environment. Opponents of financial transactions taxes, however, argue that during these times in which we have an economy precariously poised for recovery, a new tax that takes aim at the recovering stock market might have a deleterious effect.  Further argument is made that, with the volume of financial transactions conducted and the difficulty of keeping track, such taxes might easily be cumbersome and costly to administer.  Despite the populist interest in a financial transactions tax, the opponents of the legislation, most especially Wall Street and associations representing investment professionals, would most certainly ensure an uphill battle in Congress.

There are other countries that either have a financial transactions tax, or have recently explored the institution of such a tax.  Britain has had a stock trading tax for many years, which has provided much needed revenue and does not seem to have adversely affected the London markets. More recently, Prime Minister Mario Monti of Italy announced his intent to pursue the imposition of tax on certain financial transactions in an effort to combat his country's financial woes.

On a more global level, the European Commission has proposed a 0.1% tax on the trading of shares and bonds, with a 0.01% rate applying to other products, which would take effect in 2014.  While a tax of this nature on an international level has its supporters, most notably President Nicholas Sarkozy of France and German Chancellor Angela Merkel, the tax failed to evoke a great deal of interest at the November G20 meeting in Cannes, largely due to opposition from some of the major players, including the United States, China, and Great Britain.

Only time will tell whether there will be sufficient support on either a national or international level for a financial transactions tax, but, given the current economic environment, it's hard to argue with a tax that seems to go where the money is.


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  • The financial transactions tax concept has cousins -- Admission and user fees charged at public facilities and national parks, for example. Toll roads, which exist ostensibly to allocate costs to drivers who actually use these thoroughfares, serve as another example. But really, these taxes are, by and large, inefficient revenue generators. They are also extremely irritating to those who pay them. They serve to some degree as behavior modifiers, causing many to consider how to work around the pesky charges (toll road users turning to alternate roadways) - and sometimes causing users to forego the benefits of the public service altogether (staying away from national parks). In general, “piecework” taxes are a real pain.
  • Susan, Great title and commentary on many levels. Interesting that a similar tax was doubled during the depression, a similar time for many. Really nice also that you give proponents’ and opponents’ arguments, as well as progress of this type of tax globally. Agree with your final statement, “it's hard to argue with a tax that seems to go where the money is,” but as you indicate some do, and unfortunately, probably many more don’t care. Howard