I presume everybody interested in the FTT has seen this?

http://www.ids.ac.uk/go/idsproject/assessing-the-tobin-tax

FTT would provide additional financial means without putting burden on real economy.

I know you are a campaigner and therefore not interested in giving due weight to counter arguments, but really, this is a lie. The incidence of the tax is of course a matter of debate, but one way or another it will be paid by individuals or, if you don’t mind the somewhat sloppy language, by businesses.

you cannot take £Xbn from the economy without, erm, taking £Xbn from the economy. If it was really true that there is a “real” and a “not real” economy, then reductio ad absurdum the thing to do is extract £infinity from the “not real” economy and spend it in the “real”.

n.b. it probably bears repeating, but acknowledging that an FTT would have a burden on the real economy is not an argument against the tax – all taxes have real burdens, and the debate is about whether we need to raise more tax revenue and if so where we want that real burden to fall. For whatever reason, supporters of this tax cannot resist making silly arguments along the lines of “all benefit, no cost”

This is dreadfully depressing news. Once the EU starts collecting taxes I think we’ll have a revolt.

I’m still thoroughly unconvinced by a tax on financial transactions. It, to me, is a recipe for higher costs for consumers, and hardly a disincentive for big risky transactions…quite the opposite.

File this under “sounds good in theory, if you don’t try and think about the consequences”

Look at the neo-liberal squeal like a little pig at the thought that the fat cats might, after 30 years, have to pay something back!

Go on tell us about “the Laffer Curve” again, the neo-liberal rationale for tax cuts for the rich

But what does Dr. Laffer say about his eponymous curve?

“The Laffer Curve should not be the reason you raise or lower taxes”

Who’s talking about tax cuts? No-one here.

@ 3

I think there should be a lot more collecting of taxes by whoever, it might stop us getting into situations like a possible Greek default, which could have momentous consequences.

Why are the Greeks in the economic doo-doo?

“It’s because they are a lazy, bunch of bastards who ponce off other countries!” scream the neo-libs

Or possibly not according to City credit analyst Jan Randolph of IHS (so probably not a member of the SWP) “The achilles heel of the Greek economy is tax evasion. If the rich paid their taxes there would’t be a problem”

@ 2 Luis

” – all taxes have real burdens, and the debate is about whether we need to raise more tax revenue and if so where we want that real burden to fall.”

How about we start with the rich?

This debate will no doubt descend into another along the lines of that regarding corporation tax, and people telling us that in the end it will be “all” of us who pay indirectly etc.

I agree with you about the importance of the debate about where the real burden will fall, I think what sticks in the throats of a lot of people is that the burden seems to fall disproportionately on those least able to cope with it, and that our political leadership (if that isn’t too grand a term for the shower of political incompetents and pygmies of all parties) appear to have little clue how to bring this about other than advocate variations of what we’ve always done.

chip butty, what you seem to think are opposing arguments (one “neo lib” the other about tax evasion) are in fact part of the same story. The Greeks do have a major problem with chronic tax evasion and hence for years they ran a large public sector deficit financed by external borrowing.

I’d love it if the FTT made the “fat cats” pay – I’d be wholeheartedly behind it. Regretably, if the FTT does raise £Xbn, I don’t think that £Xbn is going to be coming out of bankers pockets (although there may be some reduction in earnings, dividends and bonuses, my guess is much of the tax will in effect be passed on in higher prices)

Galen

How about we start with the rich?

okay with me!

fwiw, I’m not strongly opposed to the FTT – I think we do need to raises taxes, and raising taxes from the providers and customers of financial services seems like a reasonable move to me but I don’t think it’s going to reduce volatility or be paid by “bankers” or any other of the campaign’s silly claims, and my main reservation is that I think the consequences are hard to predict, and we could either see a lot of activity just moving to less regulated offshore, and certain financial markets (short-duration stuff) are going to be wiped out and I don’t know that’s going to be entirely benign. Who does?

7. chip butty

Or possibly not according to City credit analyst Jan Randolph of IHS (so probably not a member of the SWP) “The achilles heel of the Greek economy is tax evasion. If the rich paid their taxes there would’t be a problem”

He is simply wrong. The Greek deficit is some 15% of GDP. Government debt is some 120% of GDP. GDP is a bit over $300 billion. So that is a deficit of some $45 billion. There are only 4 million economically active Greeks plus about another million immigrants. Let’s say that is about $10,000 per Greek taxpayer. This is just to cover the deficit – what they are spending that they don’t have this year.

To cover the debt, you’re talking something like $90,000 per taxpayer. Interest on that alone would mean every Greek taxpayer would have to cough up some thing on the order of $5,000 a year. If they were as credit worthy as, say, Belgium.

In other words, this is beyond paying. It is half the average income. It is not a problem of getting the rich to pay. Greece does not have that many rich people. How could you expect the Top Ten percent of earners to pay something on the order of $150,000 a year? It is not even a question of getting the middle class to pay. If half tax payers paid, they would have to come up with some $30,000 a year – more than the average income. And this is not to pay for all the things the government does. This is simply to pay off the debt and cover the deficit. It would have to be paid first before a single school teacher, or policeman or nurse.

A grown up conversation must start with the basic fact that the spending is so out of control that there is no level of taxation on anyone that would mean the Greeks could pay.

8. Galen10

How about we start with the rich?

When it comes to all forms of taxation except VAT the rich already pay vastly more than their share in the UK.

I agree with you about the importance of the debate about where the real burden will fall, I think what sticks in the throats of a lot of people is that the burden seems to fall disproportionately on those least able to cope with it

If that argument is not aimed at the VAT then it is simply old fashioned incitement to class hatred. Because it is irrational. The real burden does not fall on the poor, in Britain at least it falls on the super earners.

“When it comes to all forms of taxation except VAT the rich already pay vastly more than their share in the UK.”

And also have more than their share of disposable income after the fact too.

Of course, the FTT will have a real burden on banks (or their shareholders). However, this is a reallocation of a burden currently being borne by society as a whole for implicit state guarantees for the financial sector which is not been paid for.

There is also good evidence to suggest that banks are engaged in oligopolistic behaviour (I think Lord Turner agreed with this) and therefore are maximising profits at economically inefficient levels. So while the FTT may impose a real burden on the banks, it is possible that the benefits to society as a whole will outweigh these costs.

To those that say this will simply mean “higher costs to consumers” – you can say the same about VAT. Of course, some indirect tax costs will be passed on but some will inevitably be absorbed by otherwise highly profitable banks.

“However, this is a reallocation of a burden currently being borne by society as a whole for implicit state guarantees for the financial sector which is not been paid for.”

So rather than rely on tighter regulation and everything around that, we should instead institutionalise the putting of general public’s money aside for the chance that a collapse may occur again?

We’re all paying for the bank’s mess, and the answer to that is to continue paying in a more indirect fashion forever more?

@ 12

I would agree with you about the complexity of the Greek economic problems and it looks like there is no easy way out (or possibly any way out).

But I am sick of chauvanistic, bordering on racist, depictions of oridnary Greeks as a lazy bunch of spongers living off other countries money. The formation of the Euro was never properly thought through and you have to start somewhere with where Greece’s problems originated and tax evasion by the rich played a major role.

As for “When it comes to all forms of taxation except VAT the rich already pay vastly more than their share in the UK.

It’s been shown this week that the richest are now richer than before the credit crunch. (“We all in this together” yeah, right) Up from £333.5 billion to £395.8 billion.

The combined wealth of these overvalued individuals is now over 40% of our country’s total sovereign debt.

Room enough there for a substantial wealth tax before we start expropriating the rights and earnings of people who actually need what money they possess.

And then we have pension tax relief: according to the TUC, the top 1% get one third of the total.

Time to limit this to 20%.

PS
(Some of these rich are financiers who taken ‘a position’ on a Greek default; in other words default and years of misery for Greeks but another handsome profit for financiers.)

People should be careful what they wish for – if you’re prepared to surrender power to the EU because you broadly agree with the principle behind it then that’s another little bit of British sovereignty eaten away…

Why do I think the biggest winners out of all this will be the US, India and China?

http://outspokenrabbit.blogspot.com/

@16 Chip Butty

“But I am sick of chauvanistic, bordering on racist, depictions of oridnary Greeks as a lazy bunch of spongers living off other countries money. The formation of the Euro was never properly thought through and you have to start somewhere with where Greece’s problems originated and tax evasion by the rich played a major role.”

But the Greeks are living off other Countries money. Tax evasion at all levels of Greek society is a problem, as is the bloated inefficient public sector.

The Greeks deliberatly falsified their accounts to gain admission to the Euro.

Why should other countries be expected to bail out Greece?

http://www.economist.com/blogs/charlemagne/2010/03/empathy_short_supply

@Luis Enrique

“The incidence of the tax is of course a matter of debate”

Sure, but I think there’s a danger of basing policy on speculation about incidence. A lot of neoliberal types use ‘tax incidence’ as a blunt instrument of an argument to propose – surprise surprise – tax cuts for business. The logic seems to be “if we tax businesses, they’ll *probably* pass the cost on to the public, so we might as well just tax the public”. How convenient. Surely any business that *doesn’t* pass the cost of higher taxes on to the public will be more competitive in terms of price and, therefore, more profitable as they nab a bigger market share. You never hear Laffer logic being used in this sense, do you?

pasha,

well, tax incidence shouldn’t be used as an argument to cut taxes on businesses – because if you want to maintain tax revenues, you’d have to raise taxes elsewhere which also has incidence on prices and wages. (The respectable argument for cutting taxes on businesses involves the effect on levels of real investment in productive capital).

however, if you dislike policy based on speculation, you ought to be very wary indeed of any claim that you can impose a tax on economic activity (as opposed to say a personal income tax), and only leave the bosses and the shareholders worse off. The claim that an FTT could raise £Xbn and only leave “bankers” worse off by £Xbn is speculative in the extreme (actually, contrary to most empirical research – it’s not as if people haven’t looked for evidence on incidence questions).

but as I say, this argument is a red herring – if the Robin Hood campaign would stop making it, people wouldn’t need to keep arguing about it.

This discussion may be moot. Do you really think our government is going to let the EU levy taxes in Britain? I couldn’t see the last government doing that either, to be fair (they were sensible enough to see that was electoral suicide and also a good way to reduce the power of parliament and government).

Otherwise, it’s a tax. It will hurt some people (not necessarily those it is intended to hurt – we do not understand the economy well enough to know that without trying) and will probably raise money (unless the damage exceeds the gain). But where you stand on it is probably broadly related to where you stand on taxes as a whole.

It is a pretty useless idea already covered on the other thread. However, the campaigners are not looking to raise revenue for the NHS, schools, transport infrastructure etc. They want to raise revenue to spend on their pet projects overseas. So not only would you be taxed without you noticing there would be less tax revenue available to the government to spend on the NHS, schools and transport infrastructure. If the FTT was spent where it is raised then there is some degree of validity. However, why should the likes of the UK contribute disproportionately to pet projects compared to the likes of Germany or France?

“It’s been shown this week that the richest are now richer than before the credit crunch. (“We all in this together” yeah, right) Up from £333.5 billion to £395.8 billion.

The combined wealth of these overvalued individuals is now over 40% of our country’s total sovereign debt.”

Yea all those overvalued individuals who dare create products and services, providing jobs…. socially useless parasites they are…do you pay your mortgage with money provided by one?

13. Lee Griffin

And also have more than their share of disposable income after the fact too.

No they do not. They create that wealth. They have exactly their share. It is the people on the bottom of the pile who get more than their share. The State gives them a lot more money than they contribute.

16. chip butty

But I am sick of chauvanistic, bordering on racist, depictions of oridnary Greeks as a lazy bunch of spongers living off other countries money. The formation of the Euro was never properly thought through and you have to start somewhere with where Greece’s problems originated and tax evasion by the rich played a major role.

Except it is true. It may be chauvinistic, but it is also true. Greek has been, by and large, sponging off other countries while not doing much productive work themselves. This is simply the reality. The formation was never properly thought through I agree. Tax evasion by all Greeks is a problem, but it would not be such a big problem if Greece wasn’t living so far above its means.

It’s been shown this week that the richest are now richer than before the credit crunch. (“We all in this together” yeah, right) Up from £333.5 billion to £395.8 billion.

So what?

The combined wealth of these overvalued individuals is now over 40% of our country’s total sovereign debt. Room enough there for a substantial wealth tax before we start expropriating the rights and earnings of people who actually need what money they possess.

Sorry but how is there room there? If you took their wealth, the economy would collapse and we would not be paying anything off. You could try to take a small enough share of their wealth that people would still invest, and not move off shore or simply retire. But that would not go anywhere near paying off our debt. Not that it matters as our debt is not Greece’s debt. We don’t have their problems. The only people whose rights and earnings we expropriate are the wealthy. Virtually everyone in Britain gets something from the State and a large percentage gets more than they give. Perhaps over half.

“FTT would provide incentive to invest in assets rather than in sophisticated products with a high trading turnover.”

You say that like it’s a good thing.

Yet high trading turnover products make investing in assets cheaper.

For example, the overnight interbank market makes loans from banks cheaper. Rather than being restricted to lending out only their own depositors funds banks can tap into the deposits of other banks. For as we know, a bank must balance its books at 4.30 pm each day. Having to balance those books purely internally will mean that loans are restricted by how many deposits they have attracted that day as an individual bank. Rather than the banking system as a whole.

And yes, it is the banking system as a whole that generates credit, not one bank alone.

An FTT would kill stone dead that overnight interbank market.

Similarly, an FTT would decimate the futures markets and possibly kill the options ones. That’s what happened in Sweden afrer all, 85% fall in futures, options market died altogether. But futures and options markets allow risk to be shifted. The markets in interest rates, or swaps, for example, move interest rate and currency risk away from lenders and borrowers and onto the speculators in the middle. Yes, there’s a cost associated with doing so: but that cost is lower than leaving the risk with borrowers/lenders. Which is why people use them of course.

So, getting rid of the options and futures would raise the cost of investing in assets. Because it would leave the risk where it is more expensive.

“financial market regulations have to make sure that financial markets serve real economy and not support speculation and financial engineering.”

What’s wrong with financial engineering? Building something “real” like a power plant, chemicals factory, car factory, takes huge amounts of financial engineering. Multi-year, multi-currency operations, the risk of all of which you’d much rather pass off to those speculators rather than carrying them on the books of the manufacturing company. Say, Nissan in Sunderland: we’ve got Yen being invested in £ to build products to be sold in €. Hundreds and hundreds of millions each year for mutliple decades.

Killing the markets that take that risk away, insure that risk, is going to be good for what reason?

“FTT would provide additional financial means without putting burden on real economy.”

Yeah, yeah….you’re going to suck 1% of the economy out and spend it in Africa. No effect on the “real economy” at all eh?

Have you never read any Keynes? Heard of the concept of aggregate demand? Fiscal contraction?

When this RHT nonsense started a couple of years back I did think that people like Owen were naive and misguided but only that.

Now I think they’re lying scumbags, politicians. 16 year -olds :”Look, there’s someone doing something with money in an office! Eeeevil! Let’s take it away from him!”.

Completely unwilling to consider what it is that finance actually does, where the incidence of this tax will fall, concentrating purely on the joy of having $ billions of other people’s money to play with and not at all on why people currently engage in the activities which generate it.

I wasn’t too sure about a Robin Hood Tax, but now I know Tim is against it……

“No they do not. They create that wealth. They have exactly their share. It is the people on the bottom of the pile who get more than their share. The State gives them a lot more money than they contribute.”

It’s nothing to do with contribution. The fact is that those on the top of the pile have much more as a share of their income to act with as they wish, while those “getting a lot more than they contribute” invariably are tied to spending a much higher proportion of that income on essentials and basic living costs. That the rich also pay higher taxes means nothing when they also have a significant amount more of their income to piss away if they wish.

Let’s set a few things straight here;

The EC are looking a any way they can levy direct taxes. FTT, green taxes, even taxes on international phone calls and emails have been mooted. It is all about expanding their power, and the power of their beaurocracy. It’s a purely political caluclation, not for the good of economies or the little people.

I’m not sure we should in general be listening to a trade union PR for our economic advice.

Any FTT will have real economic costs, and will certainly affect the real economy.

As a (fixed income derivates) trader, I’ll give two brief examples;

The pension funds that come to me to hedge their risk will end up having to pay more. Spreads are already so tight that simply put, if you add the tax in there is no gain for me to take their risk on board. So I won’t unless I either widen out the spreads (cost to pension fund) or they pay the tax. So in the end the cost will be bourne by the pension fund, and the people who invest in it. Over a year of hedging that cost will be significant.

More importantly, most mortgages are fundud by short term money market borrowing. A bank lends for 20 years, then every day goes and borrows the money in the interbank money markets. If they levy a tax on these short term transactions, it will add roughly 1.5% to the annual cost of a mortgage. That cost will definately be passed down to the consumer (as otherwise most banks in the world would be instantly underwater).

Essentially if the EC unilaterally propse an FTT most of the finance business will immediately move to avoid it, or they will pass the costs down and it will make a huge mess of the real economy. In a way, I hope they do it, as it will massively hasten the end of the EU.

Tyler

Didn’t I call you up on this already.

> More importantly, most mortgages are fundud by short term money market borrowing. > A bank lends for 20 years, then every day goes and borrows the money in the interbank money markets.

Are you suggesting that 100% of their mortgage book gets traded every day?
Clearly that is not happening.

> If they levy a tax on these short term transactions, it will add roughly 1.5% to the annual cost of a mortgage.

Yes – it does sound like you __are__ suggesting 100% of their mortgage book is traded every day.

Have you any sources for such an extreme view?

Are you intentionally trying to scare people about the issue?

Tim W

Why are you making such black-white statements?

> An FTT would kill stone dead that overnight interbank market.

You need to support your claim – and start to discuss the nuances,
Eg
How much as a % is traded in that overnight market, compared to other markets.
Would it matter if the increased cost per trade reduced that overnight market by say 20%?
Would banks’ behaviour not change if the tax were present – they would plan to reduce the level they depend on the overnight markets.
Is there a case to be made within the details of the tax, that some transaction types, that are in some way crucial to the healthy running of the markets, should be taxed differently or not at all?

Without such discussion of nuances, it does feel like you are over-stating reality and trying bamboozle readers with the shock value of your sound-bites…

Just my tuppence.

So Much for subtlety 24

> They have exactly their share

The word ‘exactly’ you probably can’t support.
There are CEOs and Chairmen of FT100 companies who’s salaries vary by wide margins. Do you think each individual one is getting paid an exact match to what they contribute?

You need to support your claim – and start to discuss the nuances,

OK…..currently LIBOR, which is the interest rate at which banks lend to each other overnight (yes, this is the definition of LIBOR, this is how we actually calculate what it is, by asking banks “what rate would you lend to another bank overnight?”) is 0.5% per annum. If there are 250 trading days in a year (about right) this is 0.002% per day.

So, if we add a tax of 0.05% (if it’s only once, or 0.1% if it’s on both movements of money, the lending and the paying back) then of course no one is going to lend money over night at such interest rates are they? They will lose money on the transaction.

So, overnight market stone dead.

Which is a pity, because one of the worries in the financial crisis was that the overnight market would die: that’s why we spent those hundreds of billions in support, to make sure that it didn’t die.

Now, there is a cure for this. That overnight interest rates rise to at least cover the cost of the tax. Then people are lending money overnight again. So one day interest rates need to rise to 0.052% (or 0.102%).

Oh, mevellouos, we’ve just made short term interest rates 13% a year.

That’ll do the economy a lot of good, won’t it?

@ 29 Just Visiting

Speaking to the balance sheet management guys at my bank (which is a retail bank with an investment bank arm) about 90% of the outstanding nominal of the mortgage, credit and vehicle loans books are funded on a daily to weekly basis.

This isn’t that surprising given Basel 3 only forces banks to have about a 10% capital adequacy ratio. So they have lent out roughly 10x the amount of cash and other liquid assets sitting on their books. Short term borrowing is the cheapest thanks to credit (money markets loans are not collateralized, so long term loans are very risky) so most banks cover their daily cash shortfall in the short term money markets. Nornally in the overnight lending.

Tax that even a tiny amount every day for a year and you put a massive extra cost on mortgages and all other forms of long term lending. Not rocket science.

The overnight money/FX markets trades trillions per day. It is used to balance the books of all banks on a daily basis. Taxing it or cutting the volumes traded in the market would cause a severe crisis – just look at what happened when there wasn’t enough money mkt liquidity after Lehmans.

Banks can easily reduce their dependence on the money markets, but that simply means less and more expensive lending – and you don’t want that either do you?

Clearly you don’t understand half of what actually goes on inside banks – most of it unseen. You’ve taken the line spoon-fed by so many on the left that it’s mostly “casino” banking. In reality though, casino banking requires very little capital, and an FTT will barely affect it. Retail banking – all that normal borrowing and lending a bank is supposed to do – will be devastated by an FTT.

“Is there a case to be made within the details of the tax, that some transaction types, that are in some way crucial to the healthy running of the markets, should be taxed differently or not at all?”

Yes there’s a huge case that no transaction tax should be implemented at all but you wont listen – I am no where near expert when it comes to economics how ever I am yet to come across A SINGLE person pushing for this who is even economically literate – they cherry pick a thing or two and just apply it to the market with zero, naught, no single idea of the consequence what so ever and then in there world of wisdom turn around and inform you the only reason your against such a tax is because “you would earn less” I would earn more, I could no longer function in this country there for would no longer pay tax here – i am more interested in the economic health of the country my family have supporting them and the future for all than some dam yearly pay check from the markets.

The most greedy of all are those who don’t have and there for don’t want others to have – willing to pull the frame work down that allows those above to achieve.

“This tax wont touch us!”

“Yes it will it for a start this is what it will do to your mortgage”

” Oh can we change that part?”

All in this together….eh?