Dark Veil Around Financial Tax Trade

Some legislative proposals just won’t be approved no matter how beneficial they are. One of them is the financial transaction tax proposal, which allows an extremely small levy on every sale of stocks or bonds. James Tobin, a Nobel economist, proposed this in 1972 to impose minimal taxes on currency transactions.

The so-called Tobin tax has been brought up again as a response to bank speculation. Proponents maintain that such move on taxes would keep speculation at bay. This could be beneficial to the stock market, which has been seemingly superseded by high frequency program trading. Financial transaction taxes can provide revenue amounting to 40 billion dollars a year.

Senator Thomas Harkin and Representative Peter DeFazio reintroduced the bill, which would require 3 cents of tax per $100 of stock and bond trades. Rep. Keith Ellison has somewhat similar bill, which proposes a tax of 0.5% on stock trades—this is significantly bigger than Harkin’s and DeFazio’s proposed bill. Neither seems to be getting favors in the congress.

Things are different in Europe, as Germany, France, and nine other EU members have agreed to impose taxes on stock, bond trades, and derivatives. Cynics weren’t able to thwart the passing of the bill, and this is what the European commissioner Algirdas Semeta bragged during the February meeting in Washington. However, Europe’s financial industry is seriously against imposing taxes on financial trade and is working to impale the proposal.

In May, Reuters reported that clandestine talks have reduced taxes from 10 basis points to 1 basis point for stocks and delayed the effective implementation date—in fact, implementation shall come in phases.

Raise in Taxes, Unannounced?

“It’s not a tax increase,” says the spokesman of Pennsylvania’s Republican governor whose plans involves wholesale tax increase on gasoline. This project shall raise funds amounting to $1.8 billion, which will be used for transportation improvements.

Meanwhile, things aren’t necessarily better in New York, with Governor Cuomo bragging they are able to have good budgets without laying the burden on the taxpayers. Nevertheless, it must be noted that a key element of this budget balancing act entails raised taxes on people earning high incomes, a move that didn’t receive wide acceptance in 2010.

Increase on taxes has become a necessity during the post-recession, when tax collections were inadequate to suffice government services and projects. However, as the public would quickly frown on overt tax increases, such policies would have to be labeled cunningly. State governors and lawmakers have to come up with clever names and explanations for extensions on taxes.

The exercise in terminology begins with any phrase that doesn’t have the word “tax” in it. You might have heard of impact fees or revenue enhancements, all of which only mean one thing—more money from taxpayers.

Politicians usually have to think this decision through, because it could have bad repercussions on their 2014 campaigns. Any candidate vying for reelection has to be careful in coming up with bills that demand citizens higher taxes. So, there’s this conflict between the need for bigger revenues through bloated taxes and the need to gain public approval.

Gov. Tom Corbett of Pennsylvania had to wait for his third term to support a tax increase plan to fund infrastructure projects. Talks were done in private before the legislators’ summer break. Such plan would affect fuel distributors. Corbett proposes a five-year increase on wholesale gas taxes. What is unclear is whether the increase on taxes shall be shouldered by consumers.