Why the ‘Tobin tax’ will be a disaster

Tim Bennett looks at the proposed European financial transaction tax – AKA the ‘Tobin tax’ – and explains why it is a very bad idea.

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  • Andreas

    Another argument is that this would be the first time that EU can start to tax it citizens and companies. A right that today is reserved to the individual countries. It would be a step toward making EU a federation, similar to the US. One could argue that that is the right way to go, but I don’t think that the people who cheer for a Tobin tax are the ones that want EU to become a federation.

  • Simon Robins

    The volatility argument is overstated – the IDS reports mentioned here says “However, it would be unlikely to reduce market volatility and could even increase it.” This is a far weaker statement than that made in the video. Reducing the size of the derivatives market in Europe may impact on short-term growth, but given the hugely negative affects such products have had on the global economy in recent years that may well be an additional benefit of a Tobin tax and not a negative. The best argument against the EU tax is its restriction to a single jurisdiction. The entire exercise would be far more worthwhile if a global effort could be made, but given the control of policy in the US by corporate and banking interests that is not likely to happen. But for an honest discussion about a Tobin tax it might be appropriate for your readers to go somewhere other than to a magazine that sells to people who trade directly in financial products, rather than the vast majority of us who do not.

  • Tim

    Simon – thanks for your post. The main problem I have with this tax is it is being presented by the EC as a simple wayto raise money from the banks. It is anything but. People should know the underying reality even if it requires a bit of digging to get to it!

  • Kalle kr

    The Swedish attempt “valpskatt” is a very good example that this would not work if it does not apply on a global scale (which will never happen). If it only applies to EU then we are screwing ourselves. The Swedish example was estimated to bring in 150 mil EUR as it was passed but only brought in 1/20th of that as all transaction and basically all trading moved abroad. The same will happen here, obv US/Asia will be happy to handle our finance industry.

  • John A

    I had always thought that high frequency trading was done principally by the banks on their own account. It would be interesting to know what UK pension fund managers think about high frequency trading. Not much I would guess. A TV documentary a few months ago implied that US fund managers hate high frequency trading as it was being used to siphon off money as fund managers are putting money into or taking money out of the market by forcing small price changes. Given everything that’s going on in the US at the moment, I am not sure why we’d think that the US public would not favour a Tobin Tax.

  • Impromptu

    Competitiveness. Hmm. I’ve been put off investing in attractive German companies because of the miasma of withholding taxes, church taxes etc, on dividends, before we even get to currency risk.

    From a legal point of view, stamp duty is to do with transfer of ownership of an asset. There are some differences in property ownership law in the EU context.

    However, I don’t really understand why Cameron’s argument against EU Tobin didn’t include the simple point – we already tax on a per-transaction basis upfront, why doesn’t the rest of Europe catch up?

    Great series Tim.