Could the ‘Robin Hood’ tax pass in Europe?
Strapped for revenue and hoping to make its markets less volatile, the European Union is once again deliberating a financial transactions tax. The proposal — which activists have dubbed the “Robin Hood” tax — would put a levy on all trades of stocks, bonds and derivatives, at a rate as low as 0.05 percent. But with little political consensus behind a full-fledged version of the tax, EU finance ministers are considering an alternative modeled on Britain’s centuries-old “stamp duty,” the Financial Times notes, which would limit the transaction tax to trades of stocks.
That certainly might be an easier political sell among the EU countries and could potentially lead the UK to support it as well. Originally passed as a tax on paper documents in the 17th century, the stamp duty was eventually expanded to other products — and to English colonies as well, catalyzing the protests that led to the American Revolution. The modern version taxing stocks and securities was passed in 1986, and it currently stands at 0.5 percent — 10 times the rate that some are proposing for the Robin Hood tax.
But the stamp duty hasn’t been without its detractors in Britain as well. A widely cited 1997 study by Bank of England economists found that the stamp duty “has no effect on volatility” — one of the primary justifications for supporters of such a tax. More recently, the Conservative Party’s Forsyth Commission argued in 2006 that the tax depressed share prices and actually increases volatility. In fact, the European Central Bank itself had made a similar argument in 2004, arguing that volatility could rise as a result of “reduced depth and liquidity of the foreign exchange markets.”
Supporters of financial transactions taxes have lined up their own legions of economists to support them. And compared to the comprehensive version of the tax, a stamp duty might seem like a reasonable compromise, the FT concludes.
Though some liberal American activists have taken up the cause, the U.S. isn’t too thrilled about the “Robin Hood” tax either: the Obama administration says that it prefers to levy a fee directly on big banks instead of taxing transactions. But if Europe does pass some version of a financial transactions tax — whether the stamp duty or otherwise — the pressure to do so here will probably grow as well.