Taxing Financial Transactions

"Money sets the world in motion", wrote the Roman statesman Publius Syrus. Regrettably, most recently the motion of money has begun to undermine and destabilize communities.

In 1970 more than 95 percent of currency trades were for activities linked to what many call the "real economy"---investment, tourism, foreign aid, trade. Today only two percent are. The volume of currency trading is now some 50 times greater than the volume of trade in goods and services. We trade more than $100 worth of stock and bonds for every dollar raised for investment in new plant and equipent, a ratio almost four times greater than 30 years ago.

This delinking of money from place and productive investment is not the inevitable result of technological advances or economic evolution. Money is a human invention and rules that control its dynamic are also a human invention. To slow down the speculative and destabilizing flow of money, John Maynard Keynes proposed a small financial transactions tax in 1930. In the 1970s, Nobel Prize winning economist James Tobin proposed a tax on international financial transactions. The modest tax could dampen volatility and encourage longer term investment. Today traders hold assets for a few hours, or even a few minutes. They are happy with a very small return on each trade.

Financial transactions taxes are in place in more than 15 countries. The U.S. had a financial transactions tax from 1914 to 1966 but then reduced it to a trivial .004 percent tax only on stock transfers to generate revenue to support the operations of the Securities and Exchange Commission. Recently there has been renewed interest in such a tax, either on domestic or international financial transactions, or on both.

Rules:

• Tobin Tax
  Financial transactions taxes are in place in more than 15 countries. The U.S. had a financial transactions tax from 1914 to 1966 but then reduced it to a trivial .004 percent tax only on stock transfers to generate revenue to support the operations of the Securities and Exchange Commission. Recently there has been renewed interest in such a tax on international financial transactions. In March of 1999, a Canadian resolution calling for a Tobin tax passed in the Canadian Parliament. A similar resolution was narrowly defeated in the European Unions Parliament. More...