Guest Op-Ed
Tobin Tax revisited
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We care a great deal about how government obtains revenue. Would a "Tobin Tax" be just or unjust? Here is a guest article, appearing with permission from the Share International Media Service. |
by Carmen Font
After American Nobel Prize-winning economist James Tobin died in March 2002 at the age of 84, newspapers around the globe began reassessing his most famous contribution to economic thought: the so-called ‘Tobin Tax’.James Tobin was Sterling Professor Emeritus of Economics at Yale University, and served as an economic adviser to President John F.Kennedy from 1961 to 1962. He was awarded the Nobel Prize for Economics in 1981. He wrote innumerable papers and books, both academic and popular, among them: Macroeconomics (1971), Consumption and Econometrics (1975), Theory and Policy (1982), Essays in Economics (1982), and Money, Credit and Capital (1997). His last book, Great Projects —The Epic Story of the Building of America, from the Taming of the Mississippi to the Invention of the Internet, was published in 2001.
Tobin’s idea of a tax on currency exchange was considered innovative in the pre-euro period in which it was launched. The tax is essentially a small levy of 0.1-0.5 per cent on all international currency transactions. Tobin came up with this proposal in 1978, although it was not until the 1990s that the idea gained ground in social, economic and political circles — before the huge growth in foreign-exchange trading to its current level of about $1.8 trillion per day, and the corresponding increase in currency instability and related financial crises. Since the tax could generate substantial sums, the idea drew the attention of those concerned with financing development — a concern accentuated by the fiscal challenges faced by the state as well as by the growing need for international co-operation on problems of poverty, the environment and security.
So far, few countries have made any significant moves towards the application of the Tobin Tax, although individual European countries, including Britain, have discussed it, to greater or lesser effect. Prime Minister of France Lionel Jospin declared recently that he “supported a reduced tax on currency transactions” in order to discourage speculative flows. Belgium, which recently presided over the European Union, promoted a debate on the tax in the European Parliament. Germany has recently issued a proposal by Professor Paul Bernd Spahn, from Frankfurt University, calling for a partial application of the Tobin Tax by distinguishing currency transactions of a short- and long-term nature. The idea, however, has not been taken up by the German Parliament, and while Canada has shown an interest in the tax, the United States has shown little or none, despite initiatives such as the resolution to Congress presented by Democrat Peter de Fazio in April 2000. The International Monetary Fund does not support the tax either, although it has discouraged the immediate opening of capital accounts by speculators.
For years the cause of a welter of debate among economists of all schools, the Tobin Tax has also been a subject of intense discussion among NGOs, in a series of round-table talks organized by a myriad European grass-roots groups. They gathered in Barcelona in March 2002 in response to the European Council Summit held in the city at that time; 300,000 people demonstrated along Barcelona’s streets, demanding a more “socially concerned” Europe, one “which really cares for the people, not numbers”, as one demonstrator put it.
The Attac association (Action for the Taxation of Transactions for the Benefit of Citizens) is the main defender of the Tobin Tax. Its president, director general of Le Monde Diplomatique, Frenchman Bernard Cassen, 67, said he was “in favour of an economy ‘with’ the market, but against an economy ‘of’ the market”, adding: “I have co-founded the Attac movement to globalize the claims of all citizens who are victims of speculative capitalism and ultraliberal markets ... I would ask European political leaders to consider the United States as a foreign country, not as a boss.”
Susan George, well-known activist and author of seminal development books such as The Boomerang of Debt, recently rebutted the view that the complexity of world speculative financial markets would make such a tax unworkable in practice. In a debate with former World Bank economist Martin Wolf, she said: “We have to know whether we want to collect substantial amounts in order to transfer them from the rich to the poor, or if we want to fight against speculation; and in view of this, adjust the kind of tax. I am inclined, as is the international group Attac, towards transferring money from the rich to the poor through a tax with a very low rate, probably around 1 per cent. The transactions in the currency market which are connected to true commercial operations amount to hardly 2 per cent of the total, so the tax would represent only a small penalty to those working in the real economy. Moreover, Europe gains from half of all currency transactions. And it is not true that all governments would have to agree, since technically it is not so complex: after a day’s work, central banks will easily know who has operated with whom, since the number of actors in the market is reduced (the 20 major banks on the planet amount to 80 per cent of the transactions).
“What to do with the money? That money is necessary because the public aid to development decreases with every year that passes. Only the smallest countries of the OECD [Organization for Economic Co-operation and Development] have reached the goal of 0.7 per cent of the GDP set by the UN (in 1969).”
She concluded: “As a famous thief said, when responding to the question of why he robbed banks: because the money is there. If we want an international tax it is because there is money to pay for it.” (Sources: La Vanguardia; El País, Spain)
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Carmen Font is a Share International correspondent from Barcelona, Spain.
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Be sure to see Fred Foldvary's editorial on this subject and some Further Discussions on the Tobin Tax
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