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Tobin tax has been called utopian, easy to evade, impractical, and
impossible to enact. And, that's from those who support the idea.
Recently, this tax on foreign exchange transactions has enjoyed a
revival thanks to anti-globalization activists, and France's National
Assembly. On November 21, France became the first industrialized nation
to vote for the tax.
An election-year
gesture by Socialist Prime Minister, Lionel Jospin, the Tobin tax
has little chance of being levied. It needs the approval of all
EU countries. And Britain, one assumes, is unlikely to endorse it,
given that London is home to the biggest foreign-exchange market
in the world.
So, it's surprising
that fiscally reasonable Chancellor of the Exchequer, Gordon Brown,
has floated the notion. In remarks given to the New York Federal
Reserve this November, Brown said, "We in Britain approach
further evaluation of the Tobin tax with an open mind."
Yet, Brown
is not so much interested in taming speculation, as he is in proposing
a "New Deal for the global economy." Brown wants to raise
$50 billion for development aid in order to close the fund-raising
shortfall facing the U.N. Increasing aid to Third World countries
is even more urgent since September 11th, said French Foreign Minister
Hubert Vedrine in a TV interview, stating that "to fight against
terrorism is also to settle or solve the problems which the terrorists
use as pretext." But there is little to suggest in al Qaeda's
rhetoric that insufficient U.N. aid and IMF loans are what drive
the fundamentalist jihad against the infidel. Certainly, their terrorism
is also directed at the impoverished
southern Philippines, Indonesia, Nigeria, and the Sudan.
Gordon Brown's
development fund is most likely inspired by a preliminary report
issued by the U.N. in June. Meeting in Monterrey, Mexico, this March,
the U.N.'s Panel for Financing and
Development is to discuss ways to address the shortage of aid donations.
Ideas in the first draft report included the Tobin tax, a tax on
carbon emissions, global commons taxes (including the High Seas,
outer space, and seabed mining), a tax on emigration to curb brain
drain, and the creation of an International Tax Agency to administer
these taxes globally.
The mere mention
of a global tax authority was enough for the U.S. to strike down
the report, which is now in its second draft. But the spirit of
international taxation is kept alive with a few EU financial
ministers, and anti-capitalist activists, such as The War on Want,
a UK-based anti-poverty organization, and the leftist Paris-based
ATTAC, which has promoted the Tobin tax for years.
Ironically,
the man for whom the tax is named is not happy that his brainchild
is being promoted on the placards of radicals. Dr. James Tobin,
1981 Nobel Laureate in economics, told the German paper Der Speigel,
"Most of the applause is coming from the wrong side. I'm an
economist and like most economists, a backer of free trade . . .
they're abusing my name."
And they are
abusing the original intention of the tax, which was not proposed
in an ideological spirit, nor as a revenue-raising tool. Tobin originally
suggested that a small tax of 0.1% to 0.5% be levied on
foreign exchange transactions in order to curb short-term speculation
in currency markets and to reduce exchange-rate volatility. In 1971,
when he introduced the idea, the financial world was adjusting to
the collapse of the fixed exchange rates of Bretton Woods.
But the tax
never got too far with economists or politicians. To begin with,
unless levied globally, it could trigger massive capital flight.
Tobin himself suggested that no fewer than 15 to 20 countries had
to agree to enact it, lest it cause a hemorrhaging of capital to
tax havens.
And even if
most of the world's nations could agree on implementation, how would
such a tax be administered? If only levied on spot transactions,
traders would move to derivatives or hedge funds. The tax would
have to be placed on an ever-widening range of financial instruments.
The tax, Tobin concluded, was unlikely to reduce speculation. As
the U.N. notes in its first draft report, the Tobin tax
has an "ambiguous effect on financial markets."
However, its
most vocal champions aren't too concerned with its potential to
damage financial markets. They are eyeing the theoretical pile of
revenue such a tax would raise. In 1971, foreign exchange transactions
totaled $18 billion a day. Today they run about $2 trillion. A Tobin
tax of 0.1% could raise $150 billion a year, more than enough to
meet the U.N.'s fundraising goal.
The real hazard
of the Tobin tax is not the tax itself. There is little chance of
it ever being enacted. Even Belgian Finance Minister Didier Reynders,
who endorses a pan-EU tax, scoffs at the notion. Rather, it is trial
balloon for global tax advocates. Putting Tobin on the table is
a prelude of things to be discussed at the Panel on Financing for
Development in Mexico.
Will the $150
billion raised via global taxes alleviate poverty, or will it weaken
Western financial markets, expand bureaucracy, and redistribute
poverty while overriding tax law and national sovereignty? While
French Foreign Minister Vedirine is concerned that terrorists are
using poverty as a pretext to engage in jihads against freedom in
the West, perhaps Gordon Brown should re-consider the U.N.'s own
use of poverty (and global warming) for its assault on the stability
and health of U.S. and British markets.
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