Robin Hood Tax Takes from the Banks and Gives to the Poor
The idea of a tiny levy on trades in the financial markets is swiftly gaining popularity around the world.
A tax on trades of stocks, bonds, and other financial instruments — being called the Robin Hood tax, as it takes money from the banks to help the world’s poor — has attracted an array of influential champions, from the leaders of France and Germany to billionaire philanthropists Bill Gates and George Soros.
“We all agree that a financial transaction tax would be the right signal to show that we have understood that financial markets have to contribute their share to the recovery of economies,” German Chancellor Angela Merkel her Parliament recently.
Italian Prime Minister Mario Monti announced plans on Sunday to impose a tax on select financial transactions as part of a far-reaching plan to fix his country’s budgetary problems. Monti also endorsed the idea of a Europe-wide transactions tax.
The broader debt crisis, caused by profligate sovereigns rather than financial titans, has forced discussions of the Robin hood tax into the background. But if European leaders agree on a plan to calm financial markets when they meet in Brussels on Friday, they would be in a stronger position to enact a levy, analysts said.
“There is some momentum behind this,” said Simon Tilford, chief economist at the Center for European Reform in London. “If they keep the show on the road, they probably will attempt to run with this.”
The Robin Hood tax is also being championed by labor unions, nongovernmental organizations, and the Occupy Wall Street Movement, which views it as a way to claw back money from the 1 percent to help the other 99 percent.
Thousands of demonstrators, including hundreds dressed in Robin Hood outfits, flooded southern France last month to urge leaders of the Group of 20 nations holding a summit in Cannes to do more to help the poor, including passing a financial transactions tax.
The day after the protest, Bill Gates presented a report to a closed-door meeting of the G-20 leaders that laid out his ideas on how rich countries could aid poor ones. He proposed a modest tax on trades of financial instruments that could generate upwards of $48 billion annually, just from G-20 countries.
While Merkel and French President Nicolas Sarkozy were quick to endorse the tax, British Prime Minister David Cameron expressed serious reservations, saying Britain would only adopt the tax if it were to be adopted globally. Unless the tax is worldwide, British officials fear that trading will flee to countries with no tax.
U.S. President Barack Obama’s administration has also said it would be hard to execute the tax, which could drive trading overseas and hurt pension funds and individual investors in addition to banks. Administration officials would prefer a tax on the assets of the largest banks as a way to discourage them from risky activities.
“The president is sympathetic to the goals that a financial transactions tax is trying to achieve and he is pushing for a financial crisis responsibility fee and closing other Wall Street loopholes as the best and most feasible way to achieve those goals,” an administration official said.
Still, support is growing for the idea, which was first proposed by Nobel Prize-winning economist James Tobin in the 1970s.
“The tax is a good idea because banks are where the money is. It’s the same reason Jesse James robbed banks,” said Rose Ann DeMoro, executive director of National Nurses United, which recently held demonstrations at the offices of 60 members of Congress in support of the levy. “The thing about the financial transactions tax is it’s stunning how quickly people get it and how fast they embrace it.”
Labor groups like the nurses’ union and the A.F.L.-C.I.O. think the tax should finance job creation programs to fight high unemployment in the United States and Europe. Other advocates hope it will slow the sort of speculation that many blame for undermining the euro and causing wild swings in financial markets.
Gates and Sarkozy think the money should be used to finance development in the world’s poorest nations, while Merkel and some members of the U.S. Congress would have the money used to reduce government deficits.
The French Senate passed a bill supporting a financial transactions tax on November 16. The European Commission in Brussels has said it would like to put a tax of $10 for every $10,000 of transactions in place throughout the European Union by 2014, predicting it would raise 57 billion euros a year in the EU alone.
Representative Peter DeFazio (D-Ore.) and Senator Tom Harkin (D-Iowa) proposed an American version of the tax last month, saying it could raise $350 billion over 10 years by imposing $3 in taxes for each $10,000 in transactions. Other proposals, including that of the nurses’ union, call for a tax of $50 for every $10,000 in transactions.
Opponents of the DeFazio-Harkin bill say the tax would add significantly to the cost of trading, exceeding what institutional investors pay in commission, and would therefore “impede the efficiency of markets and impair depth and liquidity as well as raise costs to the issuers, pensions and investors who help drive economic growth,” according Kenneth E. Bentsen Jr., executive vice president for public policy at the Securities Industry and Financial Markets Association.
Glenn Hubbard, who was chairman of the Council of Economic Advisers under President George W. Bush, called the tax a “monstrously bad idea” that isn’t going to get at the banks, but rather “hit the people who own the assets that are traded,” like investors.
Still, proponents of the tax note that Britain already imposes a levy of $50 per $10,000 of stocks trading, Hong Kong and Singapore impose fees of $10 to $20 per $10,000 of the value of certain transactions, and even the U.S. imposed a tiny tax on stock trades from 1914 to 1966.