France is stepping up again on an issue that is unlikely to be accepted by the United States or Britain. French President Nicolas Sarkozy is pressing for leaders at the upcoming G20 summit to consider a worldwide tax on every financial transaction, the proceeds from which would be used to fund global public goods.
While the idea is nice in theory, it’s highly unlikely that the United States would be willing to follow such a plan. Not only is it ideologically unsettling for the majority of Americans (we don’t like our markets to be regulated too closely by our own government, nevermind some shadowy “global” leadership), but we are also the ones who would be taking the greatest hit from such a tax. As the country with the largest financial centers in the world, the United States would be feeling the brunt of these taxes more than any other. And if there’s one thing Americans don’t like, it’s raising taxes.
Thus there’s no small irony in the fact that the so-called “Tobin tax” was originally introduced by an American economist. In the 1970s, James Tobin came up with the idea of a universal financial tax as a way to cut excessively speculative trades and encourage long-term decision-making. The idea is that people will spend more time deciding whether or not a risky financial investment is worth it if they know that they’ll have to foot the bill through a strictly regulated taxation system.
Tobin suggested that the revenues generated by such a tax could be used to aid developing countries. But his idea proved unfavorable in the eyes of the majority, so the International Monetary Fund and Bretton Woods system won out — leaving a legacy of massive debt and devaluation for developing countries around the world.
But developing countries aren’t really in the game plan for today’s Tobin tax. Rather, Sarkozy suggests that leaders could use revenues to fund some of the bailouts in the financial industry, or the multibillion-dollar stimulus packages being used to jumpstart economies around the world. This could provide a buffer against any economic slowdowns in the future. Perhaps leading countries in the global economy will be more willing to consider the Tobin tax this time around, since the global tax could benefit them directly — but then again, the United States and Britain won’t buy it, so other countries’ opinions really aren’t that important.
Former British Prime Minister Tony Blair put it well when he said, “If one or two countries refuse to adopt a common levy or action or taxation, then it makes it very difficult to implement.” If one country is trying to supervise cash flows while another allows these flows to continue to move unregulated, of course most people will try to avoid paying up by making their transactions happen overseas. And if the biggest financial centers in the world — the United States and Great Britain — refuse to regulate, then chances are no one else will want to pay, either.
It’s a shame, really, because in theory the Tobin tax could solve many issues. There would be a general framework and a workable set of rules for the flow of money on a global scale; there would be a massive sum of money on hand for any country to use if the markets were to sour again in the future; and bankers would finally have to be held accountable for every single transaction they make — not just when the Security and Exchange Commission decides it’s time for a checkup. But thus far, France hasn’t even gotten its closest trading partners, the European Union and Germany, to agree to the Tobin tax. Sarkozy has succeeded in making headlines, but there’s no reason to believe his ideas will ever move beyond paper.
Another consideration is the cost of such a plan. How high would these taxes need to be in order to fund all of the new bureaucracy, nevermind also attempting to pay off worldwide bailouts? To what new lengths of corruption would financiers go in order to avoid paying these taxes? These and other important questions will surely be raised by a host of skeptics before any reforms might take place.
President Barack Obama berated financiers last week for not learning the lesson of the Lehman Brothers. The strict warning was met with approval from most constituencies, for we all know something must be changed. But, as in the case of health care reform, there’s a general understanding that any truly revolutionary ideas are unacceptable. There are many things we don’t like about our system here in the United States, but that doesn’t mean we’re willing to change it. And while the financial system does need regulation, there’s no way we’re going to let someone else do it for us.
Rosaleen O’Sullivan is a junior majoring in English and international relations. Her column, “Global Grind,” runs Mondays.