Financial-transaction tax maybe dead on arrival globally, which is good news locally
November 9, 2009
Many thanks are owed to U.S. Treasury Secretary Tim Geithner. At the G20's summit in Scotland over the weekend, he personally fought off the left-leaning powers that be – UK Prime Minister Gordon Brown and French Finance Minister Christine Lagarde – who support this dreaded tax. The Brits got caught up in local politics. The left in the UK is on its way out and used this tax as a populist rant on banks and to demonize Tories and their constituents. (Click here for more.)
The G20 is embarking on cooperation and coordination, thanks to the election of President Obama promising global consensus. None of the major G20 money-center powers (New York/Chicago, London, Paris, Germany, Russia, Nordic region, India, Singapore, Hong Kong, Shanghai, and Tokyo) will enact a transaction-tax if the other countries aren't following suit. Most leaders from these areas are against this tax; no one can afford to lose financial business during this precarious recovery.
However, some leaders do support a tax of this nature. Last month, Brazil’s government passed a 2-percent tax on foreign purchases of equities and fixed-income securities. Perhaps Brazil’s strong industrial and commodity economy will support experimentation with this tax, but the Brazilian government may change its mind after the effects of the tax set in.
The G20 is trying to make progress in the area of financial reform so it can move on to climate change before the end of 2009. There is little time to make agreements and then back track. It decided to wait for final word from the IMF, and the IMF confirmed it doesn't support a financial transaction tax. Hence, it’s dead on arrival in my book. As I discussed in earlier articles, Europe's left-wing politicians are losing to the right; recent statements regarding this tax were part of their last gasp efforts.
U.S. Treasury Secretary Geithner played his cards very well. He deferred to his old employer, the IMF — the global financial overseer — and he knew the IMF shared his views on using a more narrow approach, such as a bank bailout fund insurance plan. Secretary Geithner didn’t have to say no to this tax in order to defend U.S. financial markets, and he didn't have to subside his own party's (and the President’s) populist rants against Wall Street. As I have predicted, the Democrats will rail against Wall Street, but they will not kill the U.S. golden goose — our financial markets and industries. Hopefully, this may be a turning point from populist campaign rants toward productive policies that are fair and balanced. In my opinion, President Obama is looking smarter for selecting Tim Geithner as his Treasury Secretary, based on Geithner's good experience with the IMF - the brains of the G20 going forward.
Yes, left-wing fringe elements and progressives in the U.S. Democratic party will still try to raise transaction-tax revenue proposals to "pay go" for new spending plans such as transportation, health care, and more. But, I continue to believe that leadership will keep shooting down this shotgun "kill-many-traders" tax, as they have been doing to Rep. Peter DeFazio, D-Ore., and other similar plans. The left-wing progressives just don’t get it. They want to spend their way to recovery and fund the efforts by taxing small-business job creators. That shows their poor economic training.
I am writing an opinion piece on this tax for Active Trader magazine. I'd like to start my piece as follows: “Congratulations, you just hired yourself by becoming a trader. Too bad left-wing Democrats want to fire you.” It’s about small business jobs, jobs, and jobs! Traders hire themselves, and spend their days productively making a living for their families. A transaction tax will surely put close to a million traders out of business overnight. Most of these home-based and smaller hedge-fund traders lost their jobs before pursuing trading as a last resort business opportunity. Many have exhausted unemployment benefits. What safety net remains for out-of-work traders? Firing them in this populist rant against Wall Street is stupid and unfair. If you want to tax Wall Street, ask for a higher FDIC fee or a windfall profits tax if you have the guts to do so.
Much more to come soon in my opinion piece and this week’s conference call.
Posted 4 years, 8 months ago on November 9, 2009
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