The conservative presidential candidate has decided he can't win unless he raises taxes on the financial sector. No, I'm not talking about Mitt Romney, but this isn't a belated April fool's joke either.
French President Nicolas Sarkozy has rushed through Parliament a new tax on securities trades, hoping it will give him a boost in what is expected to be a close election against Socialist Party candidate François Hollande on April 22. The French government will start collecting revenue from the 0.1 percent tax on stock trades in August.
This is the first clear win in a two-year campaign by labor unions, environmentalists, global health and other groups for taxes on financial speculation. The ultimate goal is to have broad-based taxes on trades of all financial instruments, including stocks, derivatives, and currency, in all of the world's major financial markets. Sarkozy described his new French tax, which applies only to stock trades, as a first step towards a more comprehensive levy at the European level.
Such taxes have garnered widespread popular support because they could generate massive revenue while discouraging short-term speculation that has no real social value and can undermine market stability. Hardest hit would be the computer-driven high frequency trading that makes up about 55 percent of all trading on U.S. stock markets. Such warp speed robot trading played a role in the May 2010 "flash crash" and there are growing concerns that it could cause the next "Big One." Since these guys make money through razor-thin profit margins on zillions of trades, a transaction tax of even a small fraction of a percent could throw a major wrench in their business model. For ordinary investors, the costs would be negligible.
European State of Play
Beyond France, the European debate on financial transactions taxes has moved forward in fits and starts. In a major reversal of their earlier opposition, the European Commission introduced draft legislation last fall for a tax of 0.1 percent on shares and 0.01 percent on derivatives. But momentum behind the proposal has slowed as Germany, a key supporter, has had its hands full with another not so small matter -- the euro debt crisis. As it has sought to win over other key economies to its position on that front, Germany has tried to lower the tension level with opponents of the transaction tax by floating various compromise ideas. But the most vocal opponent, Prime Minister David Cameron, whose party receives more than half of its donations from the financial sector, has shot them all down. John Major, a previous prime minister from Cameron's party, went so far as to conjure up painful World War II memories by comparing the proposed tax to a "heat-seeking missile" aimed at the City of London (the UK's Wall Street).
Nevertheless, Max Lawson of Oxfam GB says that "despite fierce opposition and lobbying by the financial sector, there is a good chance that a coalition of European countries could push ahead and implement a financial transaction tax in 2012." He points out that nine countries representing 90 percent of Eurozone GDP recently wrote to the Danish EU Presidency to ask them to fast-track the debate on the European Commission draft legislation. A minimum of nine countries is needed for an "enhanced cooperation" agreement -- EU-speak for a pact that involves less than the full 27 member countries.
This week Germany's main opposition party, the Social Democrats, increased the odds of a breakthrough by announcing they would block a new EU "fiscal pact" to contain the debt crisis unless the ruling party moved forward on a coordinated European financial transactions tax. They have the votes to back up the threat.
U.S. State of Play
The Obama administration shifted to a neutral stance on the European proposal last fall but they have not yet expressed support for taxing speculation here in the land of Wall Street. There is, however, growing support for the general concept in the halls of Congress, thanks in part to a big educational push coordinated by Americans for Financial Reform. Last week, the 76-member Congressional Progressive Caucus released a budget proposal that includes a tax on trades of stocks, derivatives, credit default swaps, foreign exchange, and other exotic financial products that could generate an estimated $378 billion over the period 2013-2017. A summary of the bill explains that "this is a tax levied directly against the types of opaque, complex trades that Wall Street manipulators used to inflate their profits and were a direct cause of the financial crisis."
On May 18, National Nurses United will spearhead a major demonstration in Chicago to call on President Obama to tax Wall Street. Scheduled to coincide with a G8 summit hosted by Obama, the event will kick off campaigning events and activity around the world as part of a global week of action for financial transactions taxes. The AFL-CIO and other labor, environmental, and health groups have endorsed the Chicago rally.
The G8 summit offers an opportunity to shine a global spotlight on President Obama during a key moment of the election campaign. Perhaps he will be inspired by the conservative European leaders who have shown more nerve in taking on the mighty financial sector.