U.S. Accused of “Discouraging” Financial Transaction Tax

WASHINGTON, Sep 28 2012 (IPS) - On Friday, 62 civil-society organisations charged the U.S. State Department with spreading “misinformation” regarding the feasibility of levying a small tax on stock sales and other financial transactions, revenues from which could be used for national and international public goods.

Referring to a July meeting of the United Nations that discussed long-term financing options to help countries deal with the effects of climate change, a letter sent Friday to U.S. Secretary of State Hillary Clinton accuses a member of the U.S. negotiating team of “misstatements”. The letter requests that the U.S. government “not discourage other countries from supporting this tax”.

Calls for such a levy, known as a financial transaction tax (FTT, also called a Robin Hood tax), have been gaining strength in the United States and abroad in recent months. Proponents suggest that such an approach could not only raise hundreds of billions of dollars for use in mass-scale efforts towards health, education or climate change, but could also cut down on the type of computerised high-speed trading that facilitates damaging commodities speculation.

The letter comes just ahead of a follow-up to the July meeting, which next week will again discuss potential ways to fund the estimated hundred-billion-dollar-a-year effort to mitigate and prepare for the effects of climate change. The talks are meant to lead to a report that will guide the U.N.’s thinking on the issue of climate finance.

“We firmly believe it is past time for the financial sector to pay its fair share of taxes, and for the government of the United States to support (a) modest imposition on financiers and multinational corporations in order to meet the needs of ordinary people,” the letter, signed by dozens of environment, aid, development and social-justice organisations, stated.

“At a time when public funds are deemed scarce, a (FTT) would create a new source of revenue to pay for desperately needed public goods.”

Despite earlier hopes that President Barack Obama (rumoured to support the issue) would eventually come out as a proponent of an FTT, the president has not yet spoken publicly on the issue. In August, his communications director was described in media reports as being unenthusiastic about the issue.

Growing consensus

At the July U.N. meeting, U.S. State Department official Paul Bodnar, a member of the U.S. climate negotiations team, stated, “International revenue-generation mechanisms can seem attractive because of the large sums they appear to provide, but many of them are problematic conceptually or difficult to implement in practice.”

Bodnar highlighted FTT as a specific example.

“Actually, FTT has lots of support, especially among a number of developing countries as well as some developed countries,” Karen Orenstein, with Friends of the Earth, an environment watchdog and one of the signatories of the new letter, told IPS. “So having the United States disparage this approach in an international context is not helpful, especially when it is doing so to try to discourage other countries.”

Friday’s letter accuses Bodnar of three specific misstatements: calling into question the feasibility of imposing an FTT globally; suggesting that traders would figure out how to circumvent the FTT, thus limiting its ability to raise significant revenue and even encouraging lucrative finance centres to move to other countries; and offering that the source of climate financing should be linked directly to emissions.

(By deadline, the State Department had not responded to requests for comment.)

While the third point is open to debate – the letter notes that tax revenues are not often linked directly to the source of taxation – the first two could indeed call into question the overall feasibility of an FTT.

Yet the letter, first, points out that FTTs have already been implemented in more than 30 countries, suggesting that they “do not have to be global to work”; and, second, highlights a finding by the International Monetary Fund (IMF) that FTTs “do not automatically drive out financial activity to an unacceptable extent”.

Indeed, IMF Managing Director Christine Lagarde has publicly stated, “I persist in thinking we should explore this idea and examine how realistic and how feasible it is and do this on an international basis.”

Lagarde is joined by a rising chorus of economists, activists, development experts and even high-finance luminaries in support of the idea.

In mid-September, a new bill was introduced in the U.S. House of Representatives that would place miniscule taxes on transactions involving stocks, bonds and derivatives, revenues from which would be put in part towards deficit reduction, global health, climate change and social safety nets. The bill’s author estimates that the tax would raise around 350 billion dollars a year.

On Thursday, the United States’ widest-circulation and most mainstream newspaper, USA Today, even threw its support behind an FTT, noting that “Slap(ping) a small transaction tax on rapid trades … would be a big win for small investors, and the only people harmed would be those now putting everyone else at risk.”

E.U. lead

With Washington today overwhelmed by the final weeks of a tight presidential election, pro-FTT momentum is currently coming from within the European Union. On Friday, the finance ministers of France and Germany formally requested approval to allow nine EU countries to move forward with imposing an FTT.

An earlier attempt to push through an EU-wide FTT failed amidst strong pushback from certain members, but could now proceed in this smaller arrangement.

On Wednesday, French President Francois Hollande told the U.N. General Assembly in New York, “Today we need to … introduce a tax on financial transactions – that has already been agreed to by several European states – so that the capital movements that profit from globalisation can contribute to international development and the fight against pandemics.”

In Washington, meanwhile, current U.S. policy is traced to Treasury Secretary Timothy Geithner, the former president of the Federal Reserve Bank of New York, who has forcefully come out against the idea of an FTT. If Barack Obama wins another term in the November elections, however, Geithner has stated that he would step down from his current position.

“There’s a good chance there will be fresh thinking on FTT in the next administration,” Sarah Anderson, with the Institute for Policy Studies, a think tank here in Washington, told IPS. “Not only will there be new economic policy leaders coming in, but the international debate has changed dramatically since President Obama first took office.”