Wednesday, November 2, 2011

UN's Under-Secretary General Jeffrey D. Sachs pressures US President Obama to accept and impose the "Financial Transaction Tax"

Obama, the G20, and the 99 Percent

Jeffrey Sachs
Under-secretary General of the United Nations
Director, the Earth Institute, Columbia University

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On Thursday, President Obama will meet with leaders of the other G20 countries. On the table will be a proposal to introduce a Financial Transactions Tax (FTT). French President Sarkozy and German Chancellor Merkel will support the proposal. If President Obama is true to his recent words sympathizing with Occupy Wall Street, he will join Sarkozy and Merkel in supporting the FTT. More likely, though, he will oppose the proposal in order to protect Wall Street, thereby continuing his pattern of progressive rhetoric that masks conservative policies.

The Financial Transactions Tax is a solid idea that has been resisted by Wall Street for years. Each trade of a financial security like a stock, bond, or derivative would be taxed a tiny proportion of its value. Since the volume of trading is so high, even a tiny tax (say 5 cents per hundred-dollar transaction) would collect tens or hundreds of billions of dollars each year.

There are three goals of the FTT proposal that will be considered at the G20 meeting. The first is to dampen high-speed automated trading and other short-term financial trades that contribute to excessive financial volatility. The second is to raise government revenues, especially in view of the fact that the financial sector is under-taxed in the G20 countries (including the US). The third is to harmonize such a tax across the G20 countries to avoid the obvious problem that a tax in one country but not others would push at least some transactions to other countries.

While this problem should not be exaggerated, it is real nonetheless. It has led individual countries to support the FTT, but only if others will also adopt it. The UK, for example, has said that it favors the tax, but only if the US joins.

The European Commission has already adopted the idea of the FTT for Europe, and is indeed requesting the US to join the EC in introducing the tax. The Commission has called on the European member states to introduce the tax on January 1, 2014. According to the Commission's calculations, a tax of 10 Eurocents per 100 Euros of securities will raise 73 billion Euros (around $100 billion dollars) or even more each year within the European Union. The Commission has rightly emphasized that the tax burden will fall mainly on wealthy taxpayers, including the owners of the securities being traded as well as the shareholders of the financial institutions doing the trades.

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