Tobin taxes, the dollar and gold
Perhaps the real reason Gordon Brown suggested a securities transaction tax was to tamp down on currency speculation that driven down global currencies vs. gold. Willam Rees-Mogg explains:
At St Andrews, Gordon Brown unexpectedly advocated the adoption of a global Tobin tax. He was immediately repudiated by Timothy Geithner, the US Treasury Secretary, and by Dominique Strauss-Kahn, the head of the IMF. The proposed global Tobin tax has the support of Oxfam and of some left-wing economists, but without American support, it does not have the least chance of being adopted.
The Swedes experimented with a national transaction tax in the 1980s. It did not work because bankers avoided paying tax by transferring transactions to markets in which it was not imposed. The tax had to be abandoned in the early 1990s. This negative history must have been known to Mr Brown; perhaps the clumsiness of his diplomacy reflects the pressure he is feeling.
In Britain, there is an urgent need for a new tax base. One can take almost any very large figure as the sum needed to balance the budget. At some point, Britain will have to raise taxes and cut expenditure. It is hard to see where this additional revenue can be found.
No doubt it would be helpful to Mr Brown if the other governments of the world would join him in policing a worldwide transaction tax on the banks. Britain would be a major beneficiary. Like the US, Britain has a combination of very large bank debts with a very large budget deficit. As a response to the recession, large sums of money have been injected into these economies. That has eroded global confidence in the pound and dollar.
If there is no Tobin tax, it will be difficult to rebuild confidence in these currencies, and the Tobin tax is not going to happen, if only because it would not work. Two factors emerge. Gold will be a stronger reserve currency than paper, and the market will increasingly decide national policies. “You can’t buck the market”, whether in taxes, in dollars or in gold.