I want to support the new campaign for a “Robin Hood Tax” – really I do. I understand the logic behind the Tobin Tax and have a lot of sympathy for the idea. But there’s something about this campaign… Actually, there are four problems I have with it:
Firstly, the name “Robin Hood Tax”. On LabourList, Sarah Hayward has already suggested that inviting comparisons with your tax and thievery may not exactly be a great idea. But more to the point, it just isn’t accurate. This isn’t a case of robbing from the rich to give to the poor; it is a case of robbing from the banking system – which we, the companies we work for and the pensions we hope will look after us in old age all participate in – and giving to the government. I don’t wish to sound like a swivel-eyed libertarian, but I need to hear a stronger argument for how that would be genuinely redistributive before I sign up. There is certainly an issue surrounding bankers awarding themselves unjustified bonuses, and you might call that a reverse Robin Hood effect, but it is by no means clear how this tax will tackle that.
Secondly, my old sparring partner Andy Mayer makes an interesting point on his Facebook page:
The figure for global banking profits comes from the campaign website itself $788bn and refers to the year 2006, at the height of the boom. Using the same source as the campaign more recently, the 2008/09 profit figure is just near $120… hence this Tobin tax, if implemented, would be akin to a special corporation tax of between 50-350%.
In the last 8 years I there would only be 3 years where the industry could have afforded to pay it from profits. In the last year it would have had to have been taken direct from bail-out funds, a somewhat circular exercise for government.
Now the Robin Hood Tax is not a tax on profits so there is a danger of comparing apples with oranges here, but the simple fact is that a charge has to go somewhere. It either cuts into profits or it gets passed on to the customer. I’m not, I have to confess, entirely clear what would happen precisely – there are lots of variables – but the Robin Hood Tax website doesn’t seem to want to enlighten me. Perhaps the 0.05% level is too high? Perhaps there should be other restrictions? I have an open mind and would like to hear a debate; instead I’m just being asked to add a mask onto my twitter profile pic.
Thirdly, and this is where I really start to get nervous, the Robin Hood Tax is not the same thing as a Tobin Tax. James Tobin’s proposal was intended specifically to attack currency speculation – not to raise revenue. The Robin Hood Tax, according to their own blog is intended to do the exact opposite.
Why does that make me nervous? Well because when it comes to taxes, I’m highly dubious about taxes on economic activity. Economic activity is a good thing: it gives people jobs (and meaning). Markets aren’t perfect and can create all sorts of anti-social problems but it isn’t the economic activity itself which is the problem but, generally, monopolisation and speculation. Taxing all financial transactions equally won’t tackle bad economic activity any more than the good – it’s just another way of screwing money out of the rest of us. What’s worse is that unlike the Tobin Tax, this idea isn’t about discouraging what is arguably a bad economic activity but profiting from it. Speculation just ruined your economy? Dont worry, here’s a sticking plaster courtesy of the Robin Hood Tax.
Let’s introduce taxes that don’t create perverse economic incentives (such as land value taxation) before creating new ones that do.
Fourthly, there is the Richard Curtis factor. Okay, maybe it is a bit harsh to pick on Curtis, who does seem to mean well, but there’s something about his “love, actually” world view that makes my skin crawl. To promote the campaign, he’s made this video starring Bill Nighy:
Like most of Curtis’ films, on a basic level it is harmless enough but as soon as you start thinking about it the more pernicious you realise it is. Ooh, what a nasty greedy banker! Boo to him! This from the man who gave us the all white Notting Hill (which has now become a self-fulfilling prophecy courtesy of David Cameron and his pals).
Okay, maybe that last point isn’t a particularly strong one, but it is this sort of superficial, anti-intellectual marketing that has got the world in the mess it is today. Is the Robin Hood Tax a brilliant idea? Feel free to try convincing me, but spare me your celebrities, your claims that you can get money for nothing and your *gag* guerilla marketing exercises (a protest at 4am? Edgy!).
Further reading:
- Freethinking Economist: The curse of nef: Tobin Taxes
- Jane Watkinson: Tobin or not Tobin…
This isn’t a case of robbing from the rich to give to the poor; it is a case of robbing from the banking system – which we, the companies we work for and the pensions we hope will look after us in old age all participate in – and giving to the government.
Exactly. And as for your question as to whether the tax would come out of profits or be passed on to consumers, I would say it would definitely be passed on – after all, if it is global and compulsory there is no way consumers can find any institution not subject to the tax – it would be even harder to avoid than VAT (which is passed on to consumers, as we know).
There is another reason the tax is bonkers: it will actually encourage speculation. A lot of basic financial markets activity carried out by investment banks (such as market making and underwriting) have very low profit margins (a fraction of 1% for market making) and are only a significant money-maker because they have enormous volumes. In contrast, proprietary trading uses leverage or risky bets to magnify profit margins (as well as firm-specific and systemic risk, which is what got us into this mess in the first place). A 0.05% transaction tax would disproportionately reduce profit margins where they are already thin: in the boring but (socially) useful business of providing liquidity for other investors (such as pension funds) or helping companies raise capital for investment.
The result would be simple: banks would do less of the useful business and become more like taxpayer-backed hedge funds. I can’t think of a worse outcome. I completely fail to understand why this deeply flawed idea has become so popular, even with our Great Leaders who ought to know better.
Thanks for the linking.
Interesting blog, definitely food for thought. However, hopefully you may be persuaded to see the benefits of a Tobin Tax…
I’m not against a Tobin Tax per se – that’s a different debate as the Robin Hood Tax campaign is keen to make clear.
…I should really give an example of how that may be so. In terms of your reservation around bankers bonuses not being tackled around the tax I think that shows the need to make sure that the retail and the investment banking sectors are split up. There would also need to be other safeguards to stop ‘unexplained’ increased charges on individuals if the tax got introduced. However, it would be idealistic to assume that this would be the only way to help reduce bankers’ bonuses, instead we need to assure proper reform of the bonus culture so that we have a more fairer banking system. However, the key argument for the tax is that it can help provide another source of income to help social, economical and environmental deprivation – surely that could persuade you?
Good point actually. I have been using the words inter-changeably and it slipped my mind when i wrote that comment that you had commented on the difference. That is rather interesting, as it seems as though they are the same thing in the way they are being reported. Could you explain the difference a bit more please?
I refer you to the Robin Hood Campaign’s own blog:
As for the argument that the problems could be solved by applying it only to speculative banks rather than high street banks: it will be the speculative banks that our pensions, etc. will continue to be invested.
I don’t find the argument that the revenue could be spent on “good things” persuasive either. That’s an argument for raising the general level of taxation, not for a specific tax.
Even though the concept of what the tax sets out to achieve differs, the actual way of achieving it does not differ. So the means are the same, the ends are just defined differently, and to be honest I prefer the Robin Hood Tax’s to the Tobin Tax’s end values. Furthermore, the fact that the Robin Hood Tax goes further is even more impressive, as they cover a range of financial transactions.
I didn’t say the tax should only be applied to one part of the banking sector, I just think breaking the banks up into two would help.
Yes, but surely to raise the general level there needs to be specific taxes that you focus upon?
[...] February 11, 2010 — janewatkinson Update: It has come to my attention (via the Social Liberal Forum’s signposting towards a blog by the Robin Hood Tax campaigners) that a Tobin Tax and a Robin Hood Tax [...]
Jane Watkinson:
I don’t. The Tobin Tax is designed to reduce a bad thing; the Robin Hood Tax is designed to profit from it. Niklas Smith’s comments above are worth bearing in mind: one of the effects of the Tobin Tax would be to push investors into other areas of investment. The Robin Hood Tax would mean that they couldn’t make that distinction and might take even more risks in the pursuit of profits.
I guess we will have to agree to disagree here
. I personally see it as a good opportunity to turn a bad into a good, but i know you are against that. Obviously, there needs to be more work into it and proper safeguards etc etc, but at the moment it looks rather promising.
“Why does that make me nervous? Well because when it comes to taxes, I’m highly dubious about taxes on economic activity. Economic activity is a good thing: it gives people jobs (and meaning). Markets aren’t perfect and can create all sorts of anti-social problems but it isn’t the economic activity itself which is the problem but, generally, monopolisation and speculation.”
This expresses my thoughts exactly. Tobin taxes and banker-bashing may have a part in a wider economic solution, but unfortunately they seem to be sidelining what, for me, should be our main focus – getting the market to work, and to work long-term in the interests of everyone. Instead, we seem to have been taken off down the road of attacking banking and bankers per se. I’m no libertarian (when I say that I want to make the market work, that probably means a major restructuring). But impeding trade does nothing except impede trade – it doesn’t address root causes. I suppose that’s what’s what makes me a liberal at the end of the day.
very pleased to see you back in business here. very good post. What is critical is that 0.05% is a much bigger % of profit, and therefore has to be passed on, by definition.
If this is global (and that means Cayman Islands as well) much of the tax received in Britain will be passed onto foreign consumers, because we export finance. So we can get the French and the Germans and the Kuwaitis (and those in less developed countries) to pay our taxes for us. That has a narrow appeal to me as a Brit!
[...] variation on the Tory Tombstone poster, and the best punning title and startoff on Robin Hood tax (here). But for the best dingdong battle on this last topic read LibCon starting here between Luis Tim [...]
[...] Robin Hood Tax? Beware the men in tights by James Graham on the Social Liberal Forum blog. “The Social Liberal Forum blog is back, [...]
[...] with the advert. It seems to imply: “this is infinitessimally small, this tax. 0.05%! Compare that to [...]
I’m all for a tobin tax but I think the claims of the amounts that would be generated by this tax are greatly exagerated, it appears that they have said X traded and if we took 0.05% of X we would make Y however they dont take into account the fact that the tax would change X, its kinda like a buisness expecting to double their prices and double their profits
That said I’m still all for it, it would still make a reasonable amount of tax and the only area that it would really hurt is automated high frequency trading which arguably serves no socialy usefull purpose a all, probably the greatest waste in the banking sector is that many of the greatest minds are trying to work out algorithm’s to work out what a stock will be worth in a few seconds rather than what is a good genuine investment, a tobin tax would definately change that
Joe,
It isn’t clear from your comment if you’re in favour of a Tobin Tax or the Robin Hood Tax, something which its own website states would have the exact opposite aim of the former (ie raise a lot of money and not change behaviour as opposed to raise a small amount of money and change behaviour).
The original purpose of the Tobin Tax was to stop speculative financial transactions, like when George Soros sold sterling short leading to Black Wednesday. Normally such speculators are working on very small margins so they have to buy and sell vast quantities of currency. The movements in the market caused by such speculation can lead to panic selling and the speculation that a currency is going to collapse becomes self fulfilling. With a Tobin tax that initial speculative selling becomes uneconomical meaning the currency has far more chance of remaining stable.
As a method of preventing markets from overheating through speculation the Tobin tax seems a good solution.