- By Jordana TimermanJordana Timerman is a researcher at Foreign Policy.
A “scurrilous idea” — better known as the Tobin tax, a levy on foreign-exchange transactions — seems to be taking on a life of its own.
This week U.S. Rep. Peter DeFazio is expected to propose a tax on all financial transactions (like stock purchases — excluding those connected to health, education, and pensions). The idea of funding job creation in this way has the backing of a variety of groups, including the NAACP, AFL-CIO, and the National Council of La Raza.
Although the idea of a financial transactions tax has been floating around since Nobel economics prize winner James Tobin proposed it in the 1970s (to stabilize currencies), it has gained recent traction since Britain’s Prime Minister Gordon Brown brought it up at a meeting of G20 finance ministers meeting earlier this month. He discussed using some form of a tax on all financial transactions, to stabilize whole markets.
Much of the debate focuses on justice, the idea seems to be to tax the bad guys and use the money for any number of just causes. It’s hard to argue with that sort of logic. As Brown pointed out, the banks should have to bear some of the costs of the massive bailouts they received.
It cannot be acceptable that the benefits of success in this sector are reaped by the few but the costs of its failure are borne by all of us.”
At the request of the G-20, the IMF is preparing a report on the tax — despite opposition by IMF Managing Director Dominique Strauss-Kahn. Opponents avoid philosophy and stick to economics, arguing that countries instituting such levies might risk pushing financial operations into friendlier markets and that it would be technically difficult to implement.
In the meantime, Brazil has unilaterally implemented a tax on currency transactions, intended to stabilize the real by reducing speculation.
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Daniel W. Drezner is professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and a senior editor at The National Interest. Prior to Fletcher, he taught at the University of Chicago and the University of Colorado at Boulder. Drezner has received fellowships from the German Marshall Fund of the United States, the Council on Foreign Relations, and Harvard University. He has previously held positions with Civic Education Project, the RAND Corporation, and the Treasury Department.| Daniel W. Drezner |