The proposal would levy a 0.03% tax on US financial transactions, starting on January 1 2013. Harkin believes the tax, which Congress's Joint Committee on Taxation says would raise $352 billion between 2013 and 2021, would have a minor impact on the industry.
“Given the extraordinary profitability of Wall Street banks while the rest of the economy is suffering, there is no question that Wall Street can easily bear this modest tax,” he said.
The European discussions have hit a major stumbling block not only over fears of migration of investment away from financial centres, but also because, as with most European-wide proposals, unanimous agreement is unattainable. But with high profile figures such as Bill Gates wading in on the EU debate after being invited by French and German ministers, thereby raising awareness of the issue globally, the proposal could have a speedier resolution in the US.
Lower rate
One important distinction between the proposals from either side of the Atlantic is that the rate suggested for the US is lower. This is something Harkin has latched onto to try and boost support for the tax and highlight the modest impact it would have on financial institutions.
“While Wall Street lobbyists will express great concern with our proposal, they will not tell you that the EU is considering a similar proposal, but with a tax rate that is more than three times higher,” he said.
Just like in Europe, US motivations for an FTT are centred on a feeling that speculative transactions by banks and other financial institutions led to the global financial crisis, and that it is time they started making a bigger contribution to rectifying this and providing economic stability.
“The first step on the long path to recovery happens when we rein in the excessive speculative activity that has destabilised our financial system,” said DeFazio. “This legislation will curb unnecessary speculation and generate needed revenue.”
The notion is also gathering support from a number of leading economic bodies. Dean Baker, co-director of the Center for Economic and Policy Research, an economic policy think tank, said: “This tax would raise tens of billions of dollars a year while reining in dangerous speculative trading.”
“This tax would have no effect on ATM withdrawals, short-term revolving loans, or other everyday financial transactions,” said Baker. “However, it would impose substantial costs on those who are engaged in short-term trading strategies that can lead to disruptions in markets, such as last spring’s flash crash.”
Hard to gauge
As to whether the US or the European version of an FTT is more likely to be successful – in terms of probability of introduction, impact on curbing harmful transactions and revenue-raising ability – it is hard to gauge, though we do know predicted revenue figures.
European Commission president José Manuel Barroso expects an FTT in Europe would raise €57 billion ($78 billion) a year, while the US proposal would bring in around $40 billion each year.
There is staunch opposition to the European FTT, particularly from the UK, but also from others including Sweden and the Netherlands. George Osborne, the UK Chancellor of the Exchequer, told the other 26 finance ministers at Tuesday’s meetingof EU finance ministers in Brussels. “I suggest we just put this idea to bed. There is nothing close to unanimity about it.”
Some of the concerns raised over the European tax are applicable to the US too.
“The reality remains that from an economic perspective, the tax would have to apply to all financial instruments in all jurisdictions to be effective,” said Shiv Mahalingham, managing director at Alvarez & Marsal Taxand UK.
The banking industry in the US has openly opposed the idea of an FTT since the issue was first tabled.
Francisca Mordi, vice president and senior tax counsel at the American Bankers Association (ABA) – the voice of the nation’s banking industry – said: “ABA’s position on the issue is that we have always opposed a financial transactions tax in any form and continue to do so.”
The body’s UK counterpart, the British Bankers Association (BBA), told International Tax Review that the tax would negatively affect customers, rather than banks and financial institutions.
“It’s worth pointing out it is a tax on transactions and, although it would be collected by banks, the impact would be on customers,” said a spokesman.
Other bankers associations have also been vocal in their opposition to the proposals.
“The Swiss Bankers Association rejects clearly the adoption of a financial transaction tax,” said spokeswoman Sindy Schmiegel Werner. “An FTT is fiscally without effects and with regard to the economy counterproductive. It reduces the liquidity of the markets and might even have the negative effect of increasing market volatility.”
