SUBSCRIBE TO OUR FREE NEWSLETTER
Daily news & progressive opinion—funded by the people, not the corporations—delivered straight to your inbox.
5
#000000
#FFFFFF
5
#000000
#FFFFFF
A National Nurses Union rally for taxing Wall Street and the Financial Transactions Tax. (Photo: Bridgette Blair via Public Citizen/flickr/cc)
Study: Financial Tax Would Pay Off Big
A serious tax on financial industry high-rollers, says a new German study, would raise far more billions than previous estimates have assumed.
Mar 09, 2015
Elected leaders in Washington are heading into another season of wrangling over the same old federal budget revenue shortfalls. But a number of European countries are looking forward to a revenue injection from a fresh and deserving source: high flyers in the financial markets.
Eleven EU governments are now working out the final details of a plan for a regional financial transactions tax, with a January 2016 deadline for implementation.
Applying a small tax to each trade of stocks and derivatives would discourage short-term, purely speculative trading while generating significant revenue. And according to a just-released study, those revenues are likely to run even higher than originally projected.
The German Social Democratic Party commissioned the study from the prestigious German Institute for Economic Research, more commonly known by its acronym, DIW. The results are eye-popping.
Germany alone can expect anywhere from 18 to nearly 45 billion euros per year from a serious regional financial transactions tax, depending on how the tax affects trading levels, according to DIW. That translates into a potential benefit of about $US48 billion in an economy one-fifth the size of the United States.
The Joint Committee on Taxation of the U.S. Congress has produced a revenue score for only one of several financial transactions tax bills pending before Congress, coming up with a far lower number: $350 billion over 10 years.
The major difference lies in the tax design. DIW estimates are based on the European Commission's proposed rates of 0.1 percent on stock and bond trades and 0.01 percent on derivatives. The Joint Committee on Taxation estimate is based on a tax of 0.03 percent on trades of those same instruments.
The DIW also assumed that the 11 governments would adopt the European Commission's double-barreled anti-avoidance mechanism. Traders would have to pay the tax if they or the other party to a transaction reside in one of the 11 participating EU member states and also if the instrument they're trading was issued in one of those countries, even if it is traded elsewhere.
DIW analyzed three of the other larger participating countries and came up with revenue estimates of 14 to 36 billion euros for France, 3 to 6 billion for Italy, and 700 million to 1.5 billion for Austria.
For these four European countries combined, the total potential revenue estimate comes to considerably more than a previous European Commission projection of up to 31 billion euros for all 11 participating governments.
These impressive revenue numbers could shrivel, of course, if the European governments cave in to pressure from the financial industry. After several years of trying to kill the initiative altogether, European financial institutions have had to accept the inevitability of a financial transaction tax. Their focus now: pushing for exemptions that would render a new financial transactions tax virtually meaningless.
In particular, the big banks would like to exclude from the tax all trades in derivatives, the potentially highly lucrative financial instruments that played a major role in the 2008 financial crisis.
The DIW study is powerful ammunition for those on the other side pushing for a broad-based tax. If derivatives are exempted, DIW notes, "most of the potential revenue from FTT is lost." Germany and France would lose about 90 percent of the expected revenues.
It's not just that derivatives make up a large share of financial market activity. Traders would respond to the exemption by shifting into derivatives to circumvent the tax.
The new DIW study also comes at a key moment in the U.S. debate. The House Democratic Leadership recently announced support for a financial transaction tax, and these House leaders are right now in the process of developing the details of their proposal.
It's a shame that the United States still stands so far behind Europe in embracing a financial transaction tax, a policy that would do so much to make our economy more equitable and stable. On the positive side, the Europeans have generated a valuable analysis that helps make the case for significantly taxing Wall Street speculation.
An Urgent Message From Our Co-Founder
Dear Common Dreams reader, The U.S. is on a fast track to authoritarianism like nothing I've ever seen. Meanwhile, corporate news outlets are utterly capitulating to Trump, twisting their coverage to avoid drawing his ire while lining up to stuff cash in his pockets. That's why I believe that Common Dreams is doing the best and most consequential reporting that we've ever done. Our small but mighty team is a progressive reporting powerhouse, covering the news every day that the corporate media never will. Our mission has always been simple: To inform. To inspire. And to ignite change for the common good. Now here's the key piece that I want all our readers to understand: None of this would be possible without your financial support. That's not just some fundraising cliche. It's the absolute and literal truth. We don't accept corporate advertising and never will. We don't have a paywall because we don't think people should be blocked from critical news based on their ability to pay. Everything we do is funded by the donations of readers like you. Will you donate now to help power the nonprofit, independent reporting of Common Dreams? Thank you for being a vital member of our community. Together, we can keep independent journalism alive when it’s needed most. - Craig Brown, Co-founder |
This work is licensed under a Creative Commons Attribution-Share Alike 3.0 License.
Sarah Anderson
Sarah Anderson directs the Global Economy Project of the Institute for Policy Studies, and is a co-editor of Inequality.org.
Elected leaders in Washington are heading into another season of wrangling over the same old federal budget revenue shortfalls. But a number of European countries are looking forward to a revenue injection from a fresh and deserving source: high flyers in the financial markets.
Eleven EU governments are now working out the final details of a plan for a regional financial transactions tax, with a January 2016 deadline for implementation.
Applying a small tax to each trade of stocks and derivatives would discourage short-term, purely speculative trading while generating significant revenue. And according to a just-released study, those revenues are likely to run even higher than originally projected.
The German Social Democratic Party commissioned the study from the prestigious German Institute for Economic Research, more commonly known by its acronym, DIW. The results are eye-popping.
Germany alone can expect anywhere from 18 to nearly 45 billion euros per year from a serious regional financial transactions tax, depending on how the tax affects trading levels, according to DIW. That translates into a potential benefit of about $US48 billion in an economy one-fifth the size of the United States.
The Joint Committee on Taxation of the U.S. Congress has produced a revenue score for only one of several financial transactions tax bills pending before Congress, coming up with a far lower number: $350 billion over 10 years.
The major difference lies in the tax design. DIW estimates are based on the European Commission's proposed rates of 0.1 percent on stock and bond trades and 0.01 percent on derivatives. The Joint Committee on Taxation estimate is based on a tax of 0.03 percent on trades of those same instruments.
The DIW also assumed that the 11 governments would adopt the European Commission's double-barreled anti-avoidance mechanism. Traders would have to pay the tax if they or the other party to a transaction reside in one of the 11 participating EU member states and also if the instrument they're trading was issued in one of those countries, even if it is traded elsewhere.
DIW analyzed three of the other larger participating countries and came up with revenue estimates of 14 to 36 billion euros for France, 3 to 6 billion for Italy, and 700 million to 1.5 billion for Austria.
For these four European countries combined, the total potential revenue estimate comes to considerably more than a previous European Commission projection of up to 31 billion euros for all 11 participating governments.
These impressive revenue numbers could shrivel, of course, if the European governments cave in to pressure from the financial industry. After several years of trying to kill the initiative altogether, European financial institutions have had to accept the inevitability of a financial transaction tax. Their focus now: pushing for exemptions that would render a new financial transactions tax virtually meaningless.
In particular, the big banks would like to exclude from the tax all trades in derivatives, the potentially highly lucrative financial instruments that played a major role in the 2008 financial crisis.
The DIW study is powerful ammunition for those on the other side pushing for a broad-based tax. If derivatives are exempted, DIW notes, "most of the potential revenue from FTT is lost." Germany and France would lose about 90 percent of the expected revenues.
It's not just that derivatives make up a large share of financial market activity. Traders would respond to the exemption by shifting into derivatives to circumvent the tax.
The new DIW study also comes at a key moment in the U.S. debate. The House Democratic Leadership recently announced support for a financial transaction tax, and these House leaders are right now in the process of developing the details of their proposal.
It's a shame that the United States still stands so far behind Europe in embracing a financial transaction tax, a policy that would do so much to make our economy more equitable and stable. On the positive side, the Europeans have generated a valuable analysis that helps make the case for significantly taxing Wall Street speculation.
Sarah Anderson
Sarah Anderson directs the Global Economy Project of the Institute for Policy Studies, and is a co-editor of Inequality.org.
Elected leaders in Washington are heading into another season of wrangling over the same old federal budget revenue shortfalls. But a number of European countries are looking forward to a revenue injection from a fresh and deserving source: high flyers in the financial markets.
Eleven EU governments are now working out the final details of a plan for a regional financial transactions tax, with a January 2016 deadline for implementation.
Applying a small tax to each trade of stocks and derivatives would discourage short-term, purely speculative trading while generating significant revenue. And according to a just-released study, those revenues are likely to run even higher than originally projected.
The German Social Democratic Party commissioned the study from the prestigious German Institute for Economic Research, more commonly known by its acronym, DIW. The results are eye-popping.
Germany alone can expect anywhere from 18 to nearly 45 billion euros per year from a serious regional financial transactions tax, depending on how the tax affects trading levels, according to DIW. That translates into a potential benefit of about $US48 billion in an economy one-fifth the size of the United States.
The Joint Committee on Taxation of the U.S. Congress has produced a revenue score for only one of several financial transactions tax bills pending before Congress, coming up with a far lower number: $350 billion over 10 years.
The major difference lies in the tax design. DIW estimates are based on the European Commission's proposed rates of 0.1 percent on stock and bond trades and 0.01 percent on derivatives. The Joint Committee on Taxation estimate is based on a tax of 0.03 percent on trades of those same instruments.
The DIW also assumed that the 11 governments would adopt the European Commission's double-barreled anti-avoidance mechanism. Traders would have to pay the tax if they or the other party to a transaction reside in one of the 11 participating EU member states and also if the instrument they're trading was issued in one of those countries, even if it is traded elsewhere.
DIW analyzed three of the other larger participating countries and came up with revenue estimates of 14 to 36 billion euros for France, 3 to 6 billion for Italy, and 700 million to 1.5 billion for Austria.
For these four European countries combined, the total potential revenue estimate comes to considerably more than a previous European Commission projection of up to 31 billion euros for all 11 participating governments.
These impressive revenue numbers could shrivel, of course, if the European governments cave in to pressure from the financial industry. After several years of trying to kill the initiative altogether, European financial institutions have had to accept the inevitability of a financial transaction tax. Their focus now: pushing for exemptions that would render a new financial transactions tax virtually meaningless.
In particular, the big banks would like to exclude from the tax all trades in derivatives, the potentially highly lucrative financial instruments that played a major role in the 2008 financial crisis.
The DIW study is powerful ammunition for those on the other side pushing for a broad-based tax. If derivatives are exempted, DIW notes, "most of the potential revenue from FTT is lost." Germany and France would lose about 90 percent of the expected revenues.
It's not just that derivatives make up a large share of financial market activity. Traders would respond to the exemption by shifting into derivatives to circumvent the tax.
The new DIW study also comes at a key moment in the U.S. debate. The House Democratic Leadership recently announced support for a financial transaction tax, and these House leaders are right now in the process of developing the details of their proposal.
It's a shame that the United States still stands so far behind Europe in embracing a financial transaction tax, a policy that would do so much to make our economy more equitable and stable. On the positive side, the Europeans have generated a valuable analysis that helps make the case for significantly taxing Wall Street speculation.
We've had enough. The 1% own and operate the corporate media. They are doing everything they can to defend the status quo, squash dissent and protect the wealthy and the powerful. The Common Dreams media model is different. We cover the news that matters to the 99%. Our mission? To inform. To inspire. To ignite change for the common good. How? Nonprofit. Independent. Reader-supported. Free to read. Free to republish. Free to share. With no advertising. No paywalls. No selling of your data. Thousands of small donations fund our newsroom and allow us to continue publishing. Can you chip in? We can't do it without you. Thank you.