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December 12, 2012
EU Nations Preparing a Financial Transaction Tax
    by Robert Kropp

A similar measure before the US Senate appears to be going nowhere, despite the fact that such a tax would discourage high frequency trading and encourage a long-term approach to investing.

In the US, it's not at all clear yet that policymakers possess the resolve to make the wealthiest pay their fair share of taxes, and the likelihood of a Financial Transaction Tax (FTT) being levied stands about as much chance as closing all coal-fired power plants by the end of this year.

As introduced in the US Senate last year, an FTT would impose a tax amounting to .03% on securities transactions. According to the Joint Committee on Taxation, the tax could raise $350 billion in revenue in ten years. But more importantly, such a tax would be especially onerous for high frequency trading, and encourage a more sustainable and long-term approach to investment.

In 2009, the Economic Policy Institute (EPI) unveiled a jobs plan for the US that would raise revenue via an FTT of 0.5%; because, according to EPI, "the mean holdings of financial assets by the wealthiest 10% of households is 45 times greater than the mean holdings of the bottom 75% of households," the tax would be extremely progressive.

In June of this year, a number of sustainable investors and others called on governments to enact an FTT, stating, "These taxes will rebalance financial markets away from a short-term trading mentality that has contributed to instability in our financial markets." But a group of financial industry trade groups and the US Chamber of Commerce have warned that introducing the FTT would "encourage uneconomic tax-motivated decision making."

Regardless of the entrenched resistance to an FTT in the US, it appears that 11 European Union (EU) nations, accounting for 90% of Eurozone Gross Domestic Product (GDP), are prepared to enact a levy of 0.1% on equities and bonds and 0.01% on derivatives. The tax is expected to be implemented next year, and one of the few remaining questions is whether pension funds should be exempt from it.

A recent report from the Netwo rk for Sustainable Financial Markets (NSFM) states its position plainly: "Pension funds must not be exempted."

The reason, according to the report's authors, is that "the FTT will help secure pensioners' investments through reducing short-term speculative activity and encouraging their funds to invest over longer horizons. It will benefit both European pensioners and the pension fund industry."

"Far from being a 'tax on pensioners' it will help secure pensions by encouraging longer term investments and reducing costly management fees," said Jack Gray, a co-author of the report.

And co-author Stephany Griffith-Jones said, "The FTT will help create a fairer market that is fulfilling its economic purpose and working in the interests of pensioners and long-term investors while raising vital funds to kick-start national economies and help the poorest counties cope with crises they did nothing to cause."


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