The Benefits of Financial Transactions Taxes
May 17, 2010, Dean Baker's Statement to the Bundestag
I appreciate the opportunity to express my views to the members of the Bundestag on financial transaction taxes (FTT). I apologize for not being able to attend in person. A long-planned vacation made it impossible to make this meeting date, so I am especially thankful for your willingness to accept a written statement from me instead.
I will make three main points in my statement.
There are very strong economic arguments for FTTs. They can raise substantial revenue while at same time improve the operation of financial markets.
There is a great deal of support for FTTs among economists who have examined the issue. Many of the world’s most prominent economists have endorsed FTTs; and
There is a great deal of interest in and political support for financial transactions taxes among political figures and civil society organizations around the world.
I will address these points in more detail below.
The Economic Argument for FTTs
There are several reasons why an FTT is desirable from an economic standpoint. First and foremost it is an effective way to raise a large amount of revenue. Since the tax is being imposed on a relatively small number of actors, it is relatively easy to administer. This best shown by the example of the United Kingdom, which has imposed a tax on stock trades for decades. It requires that the broker who conducts the trade collect the tax. The UK’s Inland Revenue Service reports that the tax on stock trades is administratively the most efficient tax to collect. Its costs are less than 0.05 percent of the revenue collected. By comparison, the administrative costs of collecting the income tax are more than ten times as high, being equal to 0.7 percent of the revenue collected. more