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This House would introduce a Tobin tax.
This House would introduce a Tobin tax.
James Tobin, a Nobel Prize-winning economist, first presented his plan for a tax on currency transactions in 1978. His plan was to increase slightly the cost of trading in currencies, by introducing a currency transactions tax. Proposals ranged from 0.003% to 0.5%. The tax was intended to discourage speculations which can lead to large exchange rate fluctuations and prevent serious damage to economies. The idea was not met with enthusiasm at that time. In the 1990s, two additional factors triggered interest in Tobin’s proposal. Firstly, the 1970s and 1980s’ confidence in floating exchange rates diminished, as currency instability led to several crises including in Mexico, East Asia, Brazil and Russia. Secondly, as the tax could generate considerable amounts of money, the idea attracted the attention of those concerned with the public financing of development. The Tobin tax, if successfully in place, would generate enough income to support many of the international relief efforts around the world. Given that an international institution is needed in order to oversee the Tax’s enforcement as well as manage the revenue, the United Nations has been named a likely potential manager. The UN has been very receptive to this proposal and sees in it the potential to fund a UN army as well as many of its humanitarian and relief efforts in the developing world. The tax is supported by two groups: less radical liberal economists like Tobin, who believe that the tax would create a sense of stability in currency and financial markets; and development and human rights activists who look at the tax mainly in terms of the revenue it promises to raise and how that revenue could be used in different aid efforts. Proponents argue that a Tobin tax is feasible and would help reduce financial instability. Opponents counter that it is infeasible, and could even worsen economic instability. The opposition to this tax comes from national governments, and international institutions such as the World Bank and the International Monetary Fund, who see any additional regulation to the liberal global market as a possible threat to further economic development. The US government is among those opposed to the idea of such a tax. However, several countries, such as Chile and Malaysia, have already introduced a tax on their currency transactions while others have expressed definite interest in doing so, including Belgium, Canada, Brazil and Venezuela. Recently, European heads of state such as Nikolas Sarkozy and Angela Merkel have stepped up calls to introduce a Tobin tax as a way to stabilise Eurozone economies.
|Points For||Points Against|
|A Tobin tax would stabilise markets.||Introducing the Tobin tax would cause too many administrative problems.|
|A Tobin tax protects the most vulnerable economies.||A Tobin Tax would give supra-national organisations too much power.|
|The Tobin tax generates enormous amounts of aid.||The tax cannot be introduced globally.|
Remember to choose a winning argument!
A Tobin tax would stabilise markets.
A Tobin tax would reduce speculative trading and facilitate real trade and investment. As of 2010, $3.98 trillion dollars changes hands every day on global foreign exchange markets. More than 80% of this trading is buying and selling money for profit’s sake. This speculation has played a crucial role in the current financial crises, as well as those in the 1990s. In a crisis situation, currency trade swiftly increases and dealers often act as a “herd” and cause a rapid economic breakdown. A minimal tax would not hold back productive business transactions for trade and investment, but speculative transactions would be hit harder because the greater the frequency of transactions, the higher the tax charge. In addition, speculation in the international currency markets has had a damaging effect, destabilising the economies of many countries over the years (e.g. Britain 1947-1992, Asia in the economic crisis of the late 1990s, Argentina since 2000). By damping down volatility in the currency markets while raising money for the UN, the Tax would be an ideal solution to problems like this.
 “What is Foreign Exchange?” International Business Times AU. 11/02/2011. http://au.ibtimes.com/articles/110821/20110210/what-is-foreign-exchange-currency-conversion-financial-markets-forex-foreign-exchange-markets.htm
There is little evidence that a global tax would reduce market instability and it would certainly not stop speculative attacks. However, even a small tax on each transaction could be sufficient to reduce liquidity in financial markets and do exactly the opposite - lead to an increase in instability. Because the tax can’t distinguish between speculative activities and dealings to finance trade, all market participants would be subject to the tax. As trade is welfare enhancing, public welfare would be reduced to the extent that trade is reduced. The motivations of different traders in financial markets are not well understood, and there is no way to target only destabilising traders. Currency crises are also a result of a series of factors, including lack of economic reform, levels of debt, inflation and more - not just currency speculation. Therefore, a Tobin tax could not correct structural problems, nor restore Europe’s ailing economies to health, nor prevent speculative trading triggered by political crises.
 Spahn, Paul Bernd. “The Tobin Tax and Exchange Rate Stability.” IMF Finance & Development. 06/1996. http://www.imf.org/external/pubs/ft/fandd/1996/06/pdf/spahn.pdf
A Tobin tax protects the most vulnerable economies.
Most people see financial speculators as an unfortunate part of globalisation; they make money by betting billions on future market changes without any concern for the ordinary people who may be affected by the resulting economic instability. Such speculators can easily afford such a small tax on their deals, and its presence may make them more efficient by forcing them to check that the positions they take are really justified by economic conditions.
A Tobin tax protects the most vulnerable economies. Recent crises have unevenly hit the poor, mainly affecting the most helpless in those societies. Due to the current global recession, for example, 21.9% of Britain’s youth are now unemployed. These economies are less flexible and adjust more slowly to huge shocks; moreover their thinner financial sectors absorb financial shocks with more difficulty. A Tobin tax does not prevent bad outcomes resulting from bad policy; instead it is intended to prevent groundless speculations.
 Jones, Alan. “Youth unemployment breaks 1m mark.” The Independent. 16/11/2011. http://www.independent.co.uk/news/uk/home-news/youth-unemployment-breaks-1m-mark-6262890.html
Ordinary people may lose out if such a tax gets in the way of the free working of global currency markets. Many currency deals are carried out by pension funds (on whose profits ordinary people rely for their retirement income), or by companies (in which people may work or own shares) who wish to hedge their future liabilities to safeguard their financial position against shocks. A Tobin tax is of little use in the worst case speculations which usually hit the poorest economies. In the emerging market world of extremely high currency risks, investors who expect a short-term devaluation of as little as 3% or 4% would not be deterred by a low Tobin tax. Indeed, given the scale of recent emerging market devaluations (50% in Thailand and Indonesia, 40% in Brazil), the tax would be totally irrelevant.Improve this
The Tobin tax generates enormous amounts of aid.
The Tobin Tax is an efficient and relatively painless way to raise billions of dollars per year that could easily be used to fund UN aid efforts. The revenue generating potential of the tax is tremendous. A recent study by the Institute for Development Studies at Sussex University has showed that a 0.0005% global tax on foreign exchange trades alone could raise up to $26bn per year in aid. Even if we take the smaller amount, this would match existing levels of official aid. The UN and World Bank estimated in 1997 that the cost of wiping out the worst forms of poverty and providing basic environmental protection would be about $225 billion per year. For comparison, the total annual UN budget is about $10 billion. Given the current levels of poverty in the world and the desperate situations that we have seen emerging over and over again in the developing world (e.g. the Asian tsunami, or Kashmiri earthquake), the need for increased funds for aid seems clear.
Elliott, Larry. “Robin Hood tax that could raise $26bn a year worldwide is viable, says report”. The Guardian. 09/11/2010. http://www.guardian.co.uk/business/2010/nov/09/robin-hood-tax-viable
While on paper, the tax sounds like the ideal solution, world poverty and currency crises are unlikely to be solved through such a simple idea. Although lack of funds is often given as the main problem in addressing world poverty and humanitarian crises, much writing on development now agrees that the North-South gap will not be narrowed through a mere transfer of funds. These funds often make the receiving countries dependent on outside funding, their economies centred on aid as opposed to industrialization and technological development. Furthermore, too much money set aside for development aid is already lost; Kenya’s finance ministry, for example, estimates that last November it lost $2bn, a third of its budget, to government corruption. In light of this, we cannot assume that rich countries (which would collect most of the tax) would be willing to allocate all this money to international institutions. Industrialised countries may want to keep it for themselves.
 Colvile, Robert. 06/07/2011. “Do you know where our aid spending goes? Not really, say the mandarins.” The Telegraph. http://blogs.telegraph.co.uk/news/robertcolvile/100095519/do-we-know-where-our-aid-spending-goes-not-really-say-the-mandarins/
Introducing the Tobin tax would cause too many administrative problems.
The tax would be a bureaucratic nightmare to implement. It is unclear whether a Tobin Tax should be collected by central banks, the UN itself, the IMF or even quotation agencies. The proper use of the tax would require a level of co-operation between monetary and fiscal authorities that does not exist in reality. It is doubtful that monetary authorities would have the ability and independence to administer such a tax wisely. While the tax would originally be set at 0.01%, it could be raised at any time. Tobin proposed that the tax would be able to manage speculative attacks on a particular currency by increasing or decreasing the tax in response to global conditions. Enforceability, then, depends upon speculation about what level the tax will be at in any given time period. Raising the Tobin Tax to high levels would also be self-defeating, as the financial world could easily evade it through complex financial instruments that bet on currency movements without actually buying or selling currency itself. Such trading would be impossible to monitor or sanction.Improve this
There are several studies that address administrative problems and find adequate answers to administrative problems. A recent policy paper on the Tobin Tax, published with the support of the German Development Ministry concludes that the tax is technically feasible.
The Tax is also easily enforceable. There are two main enforcement mechanisms that could be adopted: firstly, taxation of currency trading desks in a particular jurisdiction; secondly, taxation of a particular currency. In the first case, the jurisdiction would collect the money, while in the second case, the national bank associated with a particular currency would collect the money. Given that most proposals suggest that the tax be set at a very low level (0.01% of transaction values) it would not be worth trying to evade the tax. Given that most transactions are now electronic transactions, tracking mechanisms, developed already to counter terrorist and criminal money laundering, are easily accessible and monitored.Improve this
A Tobin Tax would give supra-national organisations too much power.
Given that the Tax, if implemented, will most likely have to be enforced by each country individually, with funds later to be transferred to the UN, there is little chance that the process would be apolitical. The countries who would contribute most would be the countries with the strongest currencies (Japan, EU, USA, Canada) and so their political interests would factor. As the UN has been ridden with corruption charges in the past few years, countries may express reservations to donating the money to the UN. It would be too unpopular to create a new supra-national organisation to monitor the Tobin Tax, as national governments simply don’t want more independent international organisations. It would be a huge challenge to persuade rich economies to accept the loss of influence that would occur once these organisations gained a more independent income. The idea that revenues could fund the United Nations, for instance, has received an icy reception from the US. Sheer self-interest apart, there is an issue of democratic accountability at stake here, as independent international organisations are not subject to the same democratic control and scrutiny as most of the governments which would lose influence as a result of this proposal.Improve this
The Tobin Tax would be a way to ensure that there is a stable, yearly contribution to a global relief fund, most likely administered by the United Nations. It would overcome the current problem of countries making high-profile aid promises, such as about relief aid after the Asian Tsunami, or of development aid to Afghanistan, and then failing to deliver on these pledges when the issue fades from the headlines. It would also help take politics out of the current fundraising process, where funds and donations have for the most part come with political strings attached either to the UN, recipients or other donors. If international development organisations had their own source of money, they would be less dependent on the good will of industrialised nations and less influenced by the day-to-day politics of major powers and their selfish calculations.Improve this
The tax cannot be introduced globally.
The Tobin Tax would need to be introduced globally and at the same rate, or transactions would move offshore to tax-free or lower tax jurisdictions, as happened with the eurobond market in the 1980s. Unless a world-wide uniform tax is imposed on all instruments for transacting in foreign currency, the tax will be largely ineffective. A global tax could potentially be a solution to larger global concerns, such as the environment or humanitarian crises, but the Tobin tax would place the burden mainly on important currencies as opposed to all world countries. Countries which refuse to make their currencies fully convertible would be able to opt out of the tax. A fair global tax would need to be more neutral in purpose, have fewer strings attached, and include everyone’s participation based on each country’s GDP and potential for development. Tax on foreign exchange dealings could easily be evaded by shifting activity offshore or by using derivatives and other financial instruments to disguise trades in foreign exchange.Improve this
A global tax would move us in the right direction in terms of management of new global concerns, including environmental, economic and political. As an international mechanism for solving global financial problems, a Tobin tax would provide a precedent that could be followed to address other issues. Even if only a few important currencies raised most of the money, that is because countries and companies all over the world wish to trade in them, so a rough equity is ensured. Presently 84% of all foreign exchange transactions occur in just nine countries. A tax introduced in these nine would initially provide a workable regime that could be gradually expanded further. Evasion should not be decisive in determining whether a tax is warranted. Every tax system is subject to some evasion and avoidance, and the extent of such behaviours is an appropriate concern. In any case, the very low level at which individual transactions would be taxed would be lower than the cost (or risk) of using other instruments instead. The argument that offshore financial centres are autonomous states and thus cannot be forced to cooperate is nonsense – their very existence depends on the protection of a G7 member.
 Seely, Antony. “The Tobin Tax.” UK Parliament Business and Transport.03/11/2011. www.parliament.uk/business/publications/research SN01346.pdf
“What is Foreign Exchange?” International Business Times AU. 11/02/2011. http://au.ibtimes.com/articles/110821/20110210/what-is-foreign-exchange-currency-conversion-financial-markets-forex-foreign-exchange-markets.htm
Spahn, Paul Bernd. “The Tobin Tax and Exchange Rate Stability.” IMF Finance & Development. 06/1996. http://www.imf.org/external/pubs/ft/fandd/1996/06/pdf/spahn.pdf
Jones, Alan. “Youth unemployment breaks 1m mark.” The Independent. 16/11/2011.http://www.independent.co.uk/news/uk/home-news/youth-unemployment-breaks-1m-mark-6262890.html
Elliott, Larry. “Robin Hood tax that could raise $26bn a year worldwide is viable, says report”. The Guardian. 09/11/2010.http://www.guardian.co.uk/business/2010/nov/09/robin-hood-tax-viable
Colvile, Robert. 06/07/2011. “Do you know where our aid spending goes? Not really, say the mandarins.” The Telegraph.http://blogs.telegraph.co.uk/news/robertcolvile/100095519/do-we-know-where-our-aid-spending-goes-not-really-say-the-mandarins/
Seely, Antony. “The Tobin Tax.” UK Parliament Business and Transport.03/11/2011. www.parliament.uk/business/publications/research SN01346.pdf
Tucker, Dave. “Economic justice must be done – and it must be seen to be done.” Tribune Magazine. 29/08/2011. http://www.tribunemagazine.co.uk/2011/10/economic-justice-must-be-done-%E2%80%93-and-it-must-be-seen-to-be-done/
Mestrum, Francine. “Universal Social Protection and Innovative Financing.” Global Policy Forum. 26/08/2011. http://www.globalpolicy.org/component/content/article/213-financing-for-development/50921-universal-social-protection-and-innovative-financing.html
Patomäk, Heikki. “The Movement for the Currency Transaction Tax.” United Nations Research Institute for Social Development. 01/2007. http://www.unrisd.org/80256B3C005BCCF9/(httpAuxPages)/5F5FC3415E8C94B0C125726B005725E0/$file/patomak2.pdf
Edwards, Chris. “Catching Up to Global Tax Reforms.” CATO Institute. 11/2005. http://www.cato.org/pubs/tbb/tbb-0511-28.pdf
Pieler, George A. “Global Tax; or Global Tax Reform.” Competitive Enterprise Institute. 27/02/2005. http://cei.org/op-eds-and-articles/global-tax-or-global-tax-reform
Corbett, James. “The WHO Global Tax Proposals: Why We Must Oppose It.” Global Research. 20/01/2010. http://www.globalresearch.ca/index.php?context=va&aid=17102
Schmidt, Rodney. “The Currency Transaction Tax: Rate and Revenue Estimates.” United Nations. 16/01/2009. http://www.amazon.com/exec/obidos/ASIN/9280811592/interntionaldeba/104-5333130-0270319
Palley, Thomas. “Debating the Tobin Tax.” New Rules for Global Finance Coalition. 2003. http://www.amazon.com/exec/obidos/ASIN/0976844419/interntionaldeba/104-5333130-0270319
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