The Robinhood Tax Part 2

As I mentioned in Part 1, the proposed Robin Hood Tax would be a tax on financial transactions.  There are several proposed versions of the Robin Hood tax, so what financial transactions would be included depends upon which proposal we look at.

One version would tax all securities trades.  Another, sponsored by Representative Maxine Waters (D-California), would include all bank transactions, including checks deposits and ATM withdrawals.  Initially, the Waters bill proposes a tax of 0.5% of each transaction. 

That’s OK, you say.  The banks and Wall Street can afford that!  Besides think of all the social programs we can fund with that additional revenue!

There are a few problems, however.  First, those 0.5% taxes will add up each time you make a deposit, cash a check, pay a bill, use your ATM card to make a withdrawal or use your credit or debit card to make a purchase.  They will add  up even more as the manager of your mutual fund or the trustee of your 401(k) or pension plan makes a trade in the portfolio.

Second, how long do you think that tax will stay at 0.5%?  At what point will it rise to the point where you see your account balance decline as a result?  Remember this will take the form of a hidden tax—one that you will not readily see.  The experience with the Value-Added Taxes in Europe should be instructive.  Those started in the 4-5% range and most are now above 15%!

Third, it is important to remember that any tax on a business entity is a cost of doing business, just like the payroll, the building rent, the utility bills and license fees.  Confronted with a higher cost, the business will seek to pass that cost onto someone else.

That could come in the form of higher fees or account minimum balances.  It could appear in lower wage and benefit increases for employees or lower returns to stock holders.  All those options are not open to all businesses.  In some cases, none of them are available.  What then?  The business owner can choose between shutting sown or moving off shore.  When either of those events happen, the jobs and payrolls go away as well.  Sweden enacted its own version of the Robin Hood Tax several years ago.  Traders packed up and moved to London. 

At least one Robin Hood Tax proposal would deal with offshore businesses by having the tax assessed and collected by the United Nations.  Would we really benefit from giving the unaccountable, inept and corrupt bureaucracy that the U.N has become its own independent source or tax money?  Before you doubt me on this point, think back to what happened with the Oil for Food program. Or the open flouting or our laws as U.N. officials based in New York abuse their diplomatic immunity.