The Return of the ‘Robin Hood’ Tax
Although it might seem harmless, the financial-transactions tax is anything but.


As the “Occupy” protests have spread across the world, their participants have proudly resisted producing any specific political demands. But at this week’s G20 conference, a Canadian magazine supportive of the Wall Street movement, Adbusters, plans to demand one particular reform — namely the introduction of a global financial-transaction levy, which the magazine has termed a “Robin Hood tax.” Two liberal congressmen have proposed the tax in the House. Adbusters presents the move as “a radical transformation of casino capitalism” and a way “to slow down fast money.” But in reality, it isn’t an effective way to steal from the rich and hardly prevents them from engaging in risky financial activity.

A financial-transaction tax would apply a percentage levy on the value of every financial trade. Adbusters’ call for applying such a tax across the entire G20 is utterly fanciful, but a tax across an area like the EU might be feasible — at least if the union’s main financial power, Britain, did not vehemently oppose it. Most likely, such a tax would have to be enacted in one country at a time.

A transaction tax might appear to tax only those who can afford it — i.e., Wall Street investors, especially hedge funds and aggressive traders. Unfortunately, this wouldn’t exactly be the case — the tax would raise costs significantly for all investors, even those invested in vanilla mutual funds or planning to collect retirement from public-pension funds.

Given a U.S. tax code that already disincentivizes saving, we can ill afford to tax investment even more. Increasing the price of trades would cost ordinary savers significant amounts of money — for example, managing a mutual fund requires making trades, and funds will pass the fees associated with those trades to their customers. If taxes on long-term capital gains are reduced concurrently, an argument can be made for the transaction tax as a de facto levy on short-term capital gains, discouraging risky and active investments without discouraging investment overall — but conservatives rarely win such bargains, and no revenue would be raised.

The argument for across-the-board transaction taxes is twofold: Supposedly, it would raise a significant amount of revenue, and it would reduce activities that have negative effects. These are worthy goals — the government is sorely in need of revenue, and even many conservative economists support the idea of taxing behavior that is harmful to others — but in fact, the proposed tax would probably not accomplish either.

The two notable examples of existing transaction taxes are in Sweden and Britain. Sweden attempted to implement a 50-basis-point tax on Swedish equities in 1984, and, as a marginal financial market, saw most of its trading activity move overseas as a result — the policy generated little revenue and was repealed in 1991.

Britain has had significantly more success with its tax, a stamp duty on all British equities regardless of where they are traded, and does not seem to have driven much capital from its shores. The City of London is a financial center that banks cannot afford to ignore, but trading has easily migrated to financial instruments, such as derivatives, that are not taxed.


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