Tobin Tax Initiative
by Ruthanne Cecil
The current global financial crisis has caused widespread human suffering in Asia, Russia and Brazil. When currency is devalued, the purchasing power of citizens plummets, food and other basic items become too expensive, national spending on environmental protection and on social safety nets is threatened, and jobs are lost. One of the principal causes of the financial crisis is the large volume of currency speculation occurring on a global basis. Foreign currency exchange has grown recently to over $1.5 trillion daily, much larger than the combined volume of all the world's stock exchanges. This market is so large and volatile that central banks can no longer protect their nation's currencies.
The institutions that regulate national and international monetary systems have inadequate and sometimes destructive policies to deal with the crisis. For example, the austerity programs of the International Monetary Fund increase the suffering of those dependent on increasingly tattered safety-nets, while accelerating destructive volatility. Reform of these institutions is an essential part of any effective solution to the crisis. Reforms should include mechanisms to reduce the volume of destabilizing capital flows through a transaction tax on currency speculation. Commonly called the "Tobin Tax," after James Tobin, the Nobel laureate economist who originated the concept, this tax would deter short-term or overnight trades, and thus shrink the volume of daily currency trading from its present $1.5 trillion daily level. Such a shrinkage would restore each nation's ability to control its own currency, as well as generate revenue.
To effectively reduce market volume, the tax percentage must be large enough to reduce incentives for overnight speculation, yet small enough to leave longer-term currency trades intact. Proposals range from 0.1% to 0.5% per transaction. Longer-term investments would not be adversely affected by this small tax. Adoption of the Tobin Tax by the major currency nations would accomplish the volume-shrinking goal, so the adoption need not be universal to be effective. Collection and enforcement of the Tobin Tax are considered to be economically and institutionally feasible.
Since the tax revenue could be quite large-over $100 billion per year by some estimates-baseline criteria for allocation to meet primary needs should be established. Basic human and environmental needs must be met first, through existing international agreements such as those addressing environmentally sustainable development, climate change, and hunger. The international portion of the revenue should be set aside in a series of earmarked trust funds for basic needs that are cooperatively administered in an open and democratic fashion. Administering agencies should cooperate with local civil society to provide actual servicessuch as disaster aid and food distribution, small-scale agriculture and reforestation, health clinics and disease prevention, local water systems and pollution control mechanisms. Political will is the key to successful adoption, and grassroots support is essential to educate decision-makers to this opportunity. Ask your member of Congress if they have heard of the Tobin Tax, and encourage them to take a stand for its adoption.
For more information contact Ruthanne Cecil at: cecilr@humboldt1.com or call 707-822-7144.
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A conclusive list of educational and informative materials regarding
the Tobin Tax, the dangers of currency speculation, and other
alternative measures. Fact sheets and FAQ's. Analysis on different
approaches to implementation. A domestic list of active
organizations. Country-by country list of endorsers.
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The home of the British movement for universal Tobin Tax. Various reports
and urgent actions.
ATTAC (Association for the Taxation of Financial Transactions for the Aid of Citizens)
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An in-depth country-by-country account of the initiative including
nation-specific justification of the Tobin Tax. Media archives.
Multiple languages.
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The Canadian movement for a Tobin Tax. Summaries of the Canadian stance.
Urgent Actions.
Center for Economic and Policy Research
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Two good reports by co-director Dean Baker on speculation taxation.