The Robin Hood Tax Debate

By Maggie Winslow The EU and UK are currently contemplating instating a financial transaction tax, sometimes called a “Robin Hood” or Tobin Tax.  The Tobin Tax was first proposed by Nobel Prize-winning economist James Tobin in 1974 (I like his work so much, I named my son Tobin).  The original proposed tax was on international financial transactions to help curtail exchange rate speculation, which could lead to tremendous volatility in the international exchange market.  One tenth of one percent of the value of the transaction would be the taxed amount.  The proceeds from the tax would be used to pay down the growing debt of developing countries. In some incarnations, the Tobin Tax, or what the Brits call the Robin Hood Tax when the revenues are used for aid projects, would be on a much broader array of financial transactions, not just international currency transactions, to help limit speculation and high volume, small margin bets. The revenue raised could be used for a variety of aid projects, both international and within the country where the tax is collected.  You can read a bit about the pros and cons of a Tobin Tax here and here. The European Commission has proposed that a financial transaction tax be adopted and it has received broad support.  Wolfgang Schauble, the German minister of finance, Angela Merkel, the German Chancellor, French President Nicolas Sarkozy, and former UK prime Minister Gordon Brown all support the tax and have suggested that a financial transaction tax is needed to reduce speculative trading and that the Eurozone should go ahead with the tax even if the UK rejects the tax. The tax also has serious detractors including UK Chancellor George Osborne who has argued that the tax will cost jobs and not affect banks but will fall on pensioners. He also argues that if it is imposed, it needs to be global. Last month, the EU seemed to be on the verge of passing the tax but one important concern, that became a stumbling block, was that an EU tax will benefit banking centers where there is no tax, such as Wall Street.  The proposal appears to be stalled in Europe right now. It probably will be for a while given all the other issues that European finance ministers need to focus on. And in the U.S.?  In the first week of November, Representative Peter DeFazio (D - Oregon) and Senator Tom Harken (D - Iowa) introduced similar bills in the House and  Senate calling for a 0.03 percent tax on financial transactions involving stocks, bonds, and derivatives, to take effect in 2013. However, it seems somewhat unlikely that this Congress will pass any sort of financial transaction tax in the near future. In addition, President Obama said that he does not support a financial transaction tax.   Unfortunately, the lack of support for a Tobin Tax in the U.S. makes the tax less palatable in Europe. Although the idea of a financial transaction tax is yet to gain much traction in the U.S., it is not going away, either. A slew of both U.S. and global groups support financial transaction taxes of one form or another. With increased awareness of the power of financial institutions, thanks to the Take Back Wall Street movement as well as the Move Your Money movement, the Tobin tax might find ever-greater support. Who knows what the future may hold. Maggie Winslow is a professor of economics at Presidio Graduate School.  You can follow her on Twitter @logicalecon.