The Politics of Poverty

Ideas and analysis from Oxfam America's policy experts

C’est raisonnable: a tax on financial transactions

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It has the potential to provide more than $100 billion annually for critical development and humanitarian programs around the world. And the idea is starting to catch on.

Robin Hood is striking all over the world.  Campaigners are pushing for a new levy, called a financial transactions tax, to provide funding for critical development and humanitarian programs.  The campaign likens this levy to Robin Hood’s career, taking from the rich and giving to the poor.  The revenues could help donor countries avoid cutting aid programs, which seems like an inevitability given the hard economy and yawning public budget deficits.  New revenue could also help countries keep their promise to provide $100b in new funding for climate change prevention and response programs in poor countries.

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Issuf Sangare, 26, loads organic fertilizer into a cart he received from his growers' cooperative in Faragouran, Mali. The Robin Hood Tax would provide new funding for development programs worldwide.  Photo by Chris Hufstader/Oxfam America
Issuf Sangare, 26, loads organic fertilizer into a cart he received from his growers' cooperative in Faragouran, Mali. The Robin Hood Tax would provide new funding for development programs worldwide. Photo by Chris Hufstader/Oxfam America

French President Nicolas Sarkozy has announced his support and, as host of the G8 and the G20 this year, is pushing other countries to embrace the idea: 

« In the case of France, we believe that a very small tax on financial transactions would be fair, useful and effective…. Is it not fair, is it not understandable, is it not reasonable, reasonable to consider that those who contributed so much to a crisis of such scale should contribute a little to the development of the poor countries that were the hardest hit by the crisis? Is it totally unreasonable to say that? Personally, I believe it is reasonable. »

The FTT seems to be making some headway in Germany.  But, in the US, conventional wisdom says it’s dead-on-arrival, not least because US Treasury Secretary Tim Geithner keeps mumbling that the US won’t support it.  Of course, Sec. Geithner and President Obama did support a different levy on banks as part of the financial overhaul.  So they are not categorically opposed to taxing the financial sector more.

The bigger problem for enacting an FTT is getting it through the US Congress.   A bill has been introduced, but the votes aren’t there.  At least, not yet.

But it’s hard to see why imposing a very small tax on financial transactions should be objectionable.  Gross malfeasance in the US financial sector led the world into a deep economic crisis, obliterated as much as $50 trillion in wealth across the globe – as much as the global GDP for a year.  American households lost $14 trillion, more than a year’s worth of total income.  Yet, at the end of all of this, while we face a decade and digging out and rebuilding, the financial sector will contribute nothing more and nothing new to the recovery. The levy that Geithner and Obama proposed was stripped from the financial reform bill that passed Congress last summer.

But finding new revenue may be a necessity given the stark alternatives political leaders are facing, including cutting core government services and critical functions.  A tax set at $0.005 on financial transactions, like buying or selling stocks or options, would have a tiny impact on most citizens, unless they manage hedge funds or are high-velocity market traders.   At the same time, an FTT could raise significant new funds – perhaps more than $100b annually to offset disastrous cuts to both domestic and international programs.

As the grim reality of budget cuts begins to set in across the developed world, Sarkozy may have more luck convincing other leaders that the FTT, “c’est raisonnable.”  

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  1. gawain kripke

    Thanks Edward, that’s the kind of thinking we need policy-makers to adopt. Unfortunately, there’s a LOT of short-termism that limits their ability to look at even modest investments for relatively short-time horizons. This is true in public policy, but even more so in private sector where quarterly reports drive decision making.

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