The financial transactions tax folly

Bill Gates has announced that he backs the Robin Hood Tax - a financial transactions tax - to raise money to spend in the Third World. Indeed, he told the G-20 this, in a great big report. The Archbishop of Canterbury took to the pages of the Financial Times to give us the same good news: by stinging Mammon we could do such good things.

The European Commission is in favour, as long as the EU Commission gets the cash; alphabet soups of NGOs are in favour as long as it gets spent on their pet projects, and all in all, there seems to be a real head of steam being built up over the idea.

There are several problems with the tax itself: it won't reduce volatility, a desired aim, it will increase it. Banks won't be paying the charge because corporations don't pay taxes, only people do. The pain and grief it causes to those who will pay it will be more than the revenue raised. But more than all of these, there's one really large problem that no one seems to have noticed yet - there just won't be any extra money to spend.

That's right, we've all these people licking their lips at being able to spend more of our money and there just won't be any more of our money for them to spend: there will be less.

The secret to this comes from the EU Commission's own attempt to persuade us that tens of billions can be taken out of the system without anyone noticing. They report that such a tax would raise 0.1% of GDP in revenues but would lower GDP by 1.76% while it did so. It's a reasonable rule of thumb that 40-50% of the marginal changes in GDP consist of tax revenues. So, if we reduce GDP by 1.76%, we reduce tax revenues by 0.7-0.9% of GDP. In return we get tax revenues of 0.1% of GDP.

These are, recall, the EU's own numbers, not those made up by some neo-liberal (I prefer realist) like me.

This is rather a serious problem for the argument in favour of a new tax. Not only won't it raise any revenue, nor solve any of the perceived problems that it's aimed at, but it will actually blow a hole in current tax revenues - leaving us with decidedly less money, not more, to do good things for poor people.

The full report, The case against a financial transactions tax, can be read here: it's quite short but it does lead you to all of the longer reports from official sources that explain why the Robin Hood Tax is simply a very bad idea indeed.

And these vested interests dare to delude themselves that they "care"?
The Archbishop is either completely incompetent or being deliberately misleading. This is what he says in his article calling for the tax: "The Vatican statement strongly backs the proposal of a Financial Transaction Tax – a “Tobin Tax” or, popularly, a “Robin Hood Tax” in the form in which it has been talked about most recently." This is what the Vatican statement actually says: "it seems advisable to reflect, for example, on: a) taxation measures on financial transactions". I do not consider the suggesting that somebody reflects on something as strongly backing something. In any case, I have reflected on it, and I reject it...!
So the EU gets money but member states lose it? No wonder Euro federalists like it.
Comment to Phillip: Somehow, in the case of that Archbishop, I suspect both suggestions apply... As for the Vatican statement, unfortunately there are not a few people there who have been infected with the anti-market sentimentalism of the no-brain-left...

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