Comments on: The wrong tax for Europe Thu, 21 Jul 2016 07:57:19 +0000 hourly 1 By: TommyAD Tue, 11 Oct 2011 21:03:07 +0000 The European Commission’s own “Impact Assessment Report” for the financial transaction tax (FTT) concludes that there will be an annual GDP loss of 0.5 percent. That’s the equivalent of €61 billion or 500,000 lost jobs. Under their own best case scenario, the FTT will only raise €57 billion. The Czech Republic’s Finance Minister said that it was “irrational” to support a tax that decreases GDP, loses more revenues than it raises, and is likely to cost over 500,000 jobs.

Here’s the most important question: Who bears the burden of the FTT? The banks? Or the 500,000 people who don’t have jobs as a result of the tax?

By: jfullerton Thu, 06 Oct 2011 21:21:44 +0000 Response not from a “liberal economic commentator”, but from a former Managing Director of JPMorgan, and Member of Long Term Capital Oversight Committee:

Dr. Rogoff is right that FTT will not impose justice on banks.

Dr. Rogoff is right that the revenue potential is probably overstated, although the academic studies i’ve seen attempt to adjust for the volume impact of the tax.

Dr. Rogoff confuses transactions costs of secondary trading with cost of capital. At the very most, this has a remote second order affect, swamped in my judgment by the affect of lost market resiliency and reduced trust which hurts all companies via much higher cost of capital. Ask any small business about their cost of capital today as a result of the financial collapse. Lost market resiliency trumps market efficiency in a non-linear way. Market resiliency has a cost of efficiency – a tradeoff well understood in natural systems science.

Dr. Rogoff falls into the trap of “liquidity must be better” argument. Not all liquidity is created equal (Buffett liquidity for Goldman in the crash far different than liquidity of 4000 trades per second with leveraged capital), and even if it were, if greater liquidity comes at the expense of resiliency, at some point it harms economic efficiency (as apposed to market efficiency).

Excerpts from casino

“A FTT will not provide justice, nor will it address the unchecked power of mega-banks.”
“A FTT should rather be understood as a laser-sharp policy intervention that will combat (not fix) one of the most corrosive realities undermining capitalism itself: short-term speculation has displaced real investment, transforming our economy into a bankrupt financial system that lacks morals and purpose.”
“Confusion about the impact of a FTT on economic growth…rests on two misunderstandings:
1. First, because the economic system has effectively become a (misguided) financial system, opinion leaders get lulled into confusing financial market efficiency with economic efficiency.
2. Second, systems scientists understand (but economists often don’t) that any system must balance efficiency with resiliency in order to be sustainable.

By: SCSCSCSC Wed, 05 Oct 2011 17:31:55 +0000 Just imposing new taxes to cover over the holes left by the EU for poor judgement and economic and political mismanagement won’t do.

The EU simply cannot blame the financial sector for the problems experienced this year. They allowed Greece et al into the single currency despite the fact that allowing them entry broke all of the ‘golden’ rules. This is sovereign debt crisis brought about by the EU.

If the EU continues the way that they are going, there will be little or no commerce left within the EU zone. And why on earth the UK should pay for this with a GFT is beyond me.

Many of our pension plans use OTC inflation and interest rate (and credit default) swaps as part of their asset/liability (LDI) matching solutions. These swaps are used to HEDGE exposure and risk not to profit by taking massive risks.

The EU clearly has little or no understanding of finance. Just when exactly are they going to get the last 16 years of accounts for the EU budget audited?

People who live in glass houses should not throw stones.

By: txgadfly Wed, 05 Oct 2011 07:12:28 +0000 Yes, a financial transactions tax is a great idea in both Europe and the USA.

In addition, a possession tax for derivatives of 3% per year would be healthy. Derivatives are as dangerous as sawed off shotguns and machine guns. Tax them out of existence.

Most of the ills of the modern world are caused by deceptive, complex financial devices. Obliterate them.

By: matthewslyman Wed, 05 Oct 2011 00:36:30 +0000 HOWEVER: Here’s an article from BBC’s Robert Peston, explaining how this FTT might actually be beneficial if carefully designed and implemented (just discovered this): 590

By: matthewslyman Tue, 04 Oct 2011 22:30:07 +0000 One more possible effect of such a tax (if actually implemented, which is politically impossible) might be flight of capital and taxable business out of Europe (which would be particularly unhelpful at this juncture). This would be caused by the departure of financial services companies, and would surely precipitate the current recession into a full-blown depression.

Warren Buffett is right to suggest that good businessmen don’t ignore a sound business investment because of taxes; however, as one successful chief executive once said to me:
“I don’t want to have to think about how much I’ll need to pay in fees, every time I go to the toilet.”

I can’t think of a single good thing that can possibly come of this crazy idea.

By: matthewslyman Tue, 04 Oct 2011 21:24:40 +0000 I just mentioned in my last post: President José Manuel Barroso (of the European Commission) was a Communist in his early years, and appears to remain so in his heart. anuel_Dur%C3%A3o_Barroso

The thing that’s totally wrong and characteristically Communist about this new FTT (financial transactions tax) plan is that it’s designed to confiscate money from anybody who has it, no matter what they’re doing with it; as though anybody who has money (especially if they’re “trading” it as working capital within a productive and useful business) is somehow morally obliged to “share” it with the “rest of us”, who are of course entitled to a cut of that money.

The hoarding of liquid assets by the wealthy is a major component of the current crisis, and one of the biggest current sources of instability. The lack of meaningful investment by the rich, who are all simultaneously attempting to stash all their assets in “safe” commodities and currencies, is probably the biggest source of imbalance in the system right now; apart from the Western structural deficits and the lack of adequate regulation within certain politically well-connected industries. A tax on financial trading can only worsen and prolong this crisis; encouraging the wealthy to shift almost all of their remaining working capital into “safe” commodities before the tax takes effect, and then keep their assets (e.g. gold) under lock and key until the market starts visibly coming back to life.

Flawed and selfish logic from all sides, and surely a recipe for financial disaster.

By: matthewslyman Tue, 04 Oct 2011 21:04:56 +0000 City of London officials pointed out as soon as this was mentioned that 80% of the revenues from such a tax would come from the City of London. This is what Manuel Barroso means when he says,
“We have to understand we are in a situation where we have to do things together”. “Together” means the southern Europe bands together to ambush northern Europe with plans for what amounts to a heist, and hope they don’t notice until it’s too late… 761

If implemented, the poor might decide that banking is too expensive and start trading in cash again instead, shifting a large part of the economy back off the radar. Still, one might well expect impractical populist “anti-bourgeois” legislation to be promoted by a Commission President who spent his youth in the Portuguese Workers’ Communist Party.

“…perhaps the Commission realizes that the FTT will be dead on arrival, owing to disputes within Europe, and simply wants to gain political capital from an enormous[ly] popular proposal.”
– Perhaps so. The Commission is either allowing sheer greed to get the better of their senses, or actually anticipates that British officials won’t stand for this and will attempt to use this idea to:
1. Earn popularity with illiterate, frustrated workers;
2. Push Britain into a corner politically;
3. Table the motion knowing it will be vetoed, only to use it as a political bargaining chip, using the withdrawal of the hopeless motion to extract other financial or political concessions from the United Kingdom.

Only, this plan will not work. In Britain, almost all consumer banking is currently free. If the European Commission forces a situation where banks must start charging us fees for everything, this will not be taken kindly by the average British consumer. Even those who make almost no bank transactions will still hate the European Commission for stealing some of their meagre funds.

The suggestion is completely idiotic and self-defeating – if Barroso continues pushing this policy, he’ll only popularise anti-EU political parties in the UK. But who can tell the European Commission?

By: GreenTraderTax Tue, 04 Oct 2011 01:40:05 +0000 Rogoff is right. See my blog from earlier today. tions/2011/10/03/financial-transaction-t ax-wont-help-europe-get-back-on-track/

By: TommyAD Mon, 03 Oct 2011 23:40:46 +0000 It’s not going to happen in the EU. The UK, Sweden, the Netherlands, Ireland, the Czech Republic, and Malta are all against the tax. The EU’s own “Impact Assessment Report” showed that the EU FTT would cost more in lost GDP than it would generate in taxes. That pretty much sealed the deal.