(Image source: Encyclopædia Britannica)

BY: MIKKEL NOEL LANZKY


The European Commission is putting forward plans for a financial transactions tax in an effort to recoup some of the bailouts the EU has given out to fend off the financial crisis and to curb future speculative trading that contributed to the creation of the crisis.

Bloomberg gives us the lowdown.

“The proposal would apply a tax of 0.1 percent on trading of stocks and bonds, with a 0.01 percent rate for derivatives contracts [...] The proposed tax is aimed at banks, investment firms, insurance companies, pension funds, stockbrokers and hedge funds, among other types of financial firms.”

The tax, laid out by Commission President José Manuel Barroso in a speech to the European Parliament could bring in about €55 billion in revenue. According to the Financial Times, Barroso argues EU countries have guaranteed more than 4 trillion Euro to support the banking sector.

“It’s a question of fairness… it is time for the financial sector to make a contribution back to society.”

The plan has gotten a mixed reception. CNBC Contributor Rich Ripetto thinks the tax could become an impediment to doing business in the EU:

“You’ve seen other areas where they’ve put in financial transaction, taxes on transactions. You see trading volume fall off. You see the revenues that they think they’re going to get impacted. And you see people, and they even cite this concern, but you see people flee to avoid the tax as well.”

Left-leaning British newspaper Morning Star quotes former investment banker Sony Kapoor supporting the tax.

"Financial transaction taxes, appropriately designed, can not only raise substantial revenue but also enhance stability by discouraging destabilising trading that serves little economic purpose."

But not everybody is thrilled about the idea of taxing financial transactions. The blog 24/7 Wall St. calls it a “Stupid Idea From Stupid Leadership.”

“If you can count on the Europeans to invent one thing, it is the invention of taxation.  The latest effort by the European Commission is one that is just baffling if you have been watching the action in the European banking sector of late.”

The European Commission wants the tax to come into effect in 2014, but there are political hurdles. The UK is firmly against taxing financial activity, London’s banking center is the focal point of the global financial markets.

Blogging for The Guardian, economic consultant Michael Burke writes:

“[The British government] argues instead that any [financial transactions tax] must be imposed multilaterally, with at least all the current major trading centres signing up simultaneously. Otherwise, it argues, total transactions will not decline but simply move to overseas centres, with the consequent loss of jobs and taxes from the British economy.”

Transcript by Newsy.