FINANCIAL TRANSACTION TAX TYPES

FTT can be raised on the sale of many specific assets including bonds, futures, stocks, currencies and a general mix of differing financial transactions including:

Currency Transaction Tax

The most commonly discussed versions of this tax are the Tobin tax and Spahn tax. Economist Tobin suggested in the 1970’s that a tax be placed on all spot conversions of currency into another. It was named the Tobin tax! Its intended purpose was to place a penalty on short term transactions into another currency. Tobin believed this would be beneficial due to his idea that many investors invest in foreign exchange (FX) on a very short term basis and if that money is quickly withdrawn, countries must increase interest rates to keep domestic currency attractive to foreign investment. Tobin saw high interest rates as catastrophic to national economies such as those for Russia, Mexico and South East Asia in the 1990’s.

Alternatively, Paul B Spahn opposed the Tobin tax as he did not see it as viable due to the difficulties in identifying the difference between normal liquidity and speculative trading noise in the currency market. Spahn believed that if the tax is applied at higher rates it would limit financial operations and create global liquidity issues. What Spahn saw wrong with the Tobin Tax he believed could be resolved by a two-tier rate structure including a low rate financial transaction tax and then a surcharge at prohibitive rates.

Securities Transaction Tax

Yet another concept of John Maynard Keynes who argued that a small tax should be applied on Wall Street dealings because he believed that speculators equalled market volatility. His main issue was the amount of speculators in the market and if left unchecked could or would take over as the dominant traders in the market. Therefore, to avoid such concerns he suggested the introduction of a government transfer tax on all transactions as a way of reform to mitigate the potential predominance of speculators in the US.

Special Drawing Rights

In 2001, George Soros, the famous market speculator proposed issuing special drawing rights (SDR) that rich countries pledge in order to provide international assistance to tackle poverty and various other approved objectives. Th international Monetary Fund (IMF) in 1997 agreed to a one-time special allocation of SDR’s totalling $27.5 billion.

Bank Transaction Tax

This is a tax levied on credit/debit entries on bank accounts and can be collected automatically by a central counterparty in the clearing or settlement process. The scheme has proved to be evasion proof and more efficient than traditional tax models.

Automated Payment Transaction Tax

Proposed by Edgar Feige in 1989, it is a proposal of a small uniformed tax on all economic transactions to simplify collections by elimination of the need for tax returns and its associated information, as the tax is collected automatically at source of any financial transaction.

It is worth noting that whilst many FTT proposals have collected billions in tax some have not taken effect, the US congress for example has spent years floating ideas for taxes on financials but for the most part it has not had much success materialising. What is true is that on every trading day millions of futures contracts, billions of shares and hundreds of billions of bonds/currencies are traded and whilst this global daily volume provides streams of revenue to exchanges and trading platforms by comparison minimal is being diverted to governments.