The European Union‘s proposed $78 billion a year financial transaction tax will take a bite out of the portfolios of American investors, according to the Financial Services Roundtable, a leading U.S. lobbying organization.
Exactly how much the 0.1 percent levy on trading of stocks and bonds and the 0.01 percent rate for derivatives contracts will affect American investors is difficult to say The tax will not apply to U.S. investors buying American shares of European companies. Many U.S.-based mutual funds, however, do invest in Europe on behalf of American clients.
“Unless it’s applied globally, it will end up harming those countries that implement it,” said Scott Talbott, the chief lobbyist of the Financial Services Roundtable, which opposes the policy. “It gives countries that don’t implement it the ability to attract business.”
It will also be difficult to police. Money is fungible and can be transferred across national boundaries with a click of a mouse. The EU, though, is well aware of the issue.
“A financial transaction tax is needed not only at EU level but at global level because financial markets are increasingly interconnected and have a global dimension,” the EU said in a statement. “By proposing a financial transaction tax at EU level first, the Commission intends to be in a position to promote such a tax at global level in the framework of the G20. ”
However, U.S. Treasury Secretary Timothy Geithner told EU finance ministers last month that the U.S. was against such a tax, according to the New York Times. A spokeswoman for the Treasury didn’t respond to a request for comment. U.S. financial services firms are encouraging Geithner to maintain his opposition, Talbott said.
The U.K., home to the EU’s largest financial services industry, is also against the tax, as is Sweden. A study ordered by the European Commission found that the proposal would shave as much as 1.76% from the region’s gross domestic product.
“This transaction tax is a job loser and the costs will be borne by the wider economy,” according to a statement from the British Bankers Association. “Right now the attention of the EU should be on policies for growth, and more taxation will not do that.”
Proponents of the tax argue that it’s the only equitable way for government to recoup the tens of billions of euros used to keep European banks solvent. They also argue that it will deter speculation that serves no benefit to the economy.
“It is a question of fairness,” European Commission President José Manuel Barroso has been quoted saying.
Taxing financial services transactions is not a new idea in the U.S. The AFL-CIO proposed such an idea in 2009, when big Wall Street firms were making billions in profit as the economy sputtered. An AFL-CIO official told The Hill that such a tax would net between $50 billion and $100 billion. Talbott of the Financial Services roundtable pointed out that the proposal went nowhere.
Indeed, with U.S. financial services firms seeing their profits squeezed as they slash thousands of workers in some cases, the odds of a financial services tax ever seeing the light of day in the U.S. would appear to be nil.