Message-ID: <19991127033831.AAC8027@jubilee.ns.sympatico.ca@LOCALNAME> Date: Fri, 26 Nov 1999 21:56:54 -04 From: Kerry Miller <mailto:kerryo@ns.sympatico.ca> Subject: CEED: Tobin Tax Update To: mailto:DEVEL-L@LISTSERV.AMERICAN.EDU
Centre for Environmental Economic Development 11/1999 NEWSLETTER[...]
HEADLINE 3 -- ACADEMIC UPDATE: More on studies by Schmidt and Spahn
Basically, there are three newer topics to be aware of: the Spahn version; the Schmidt solution; and the derivatives question.
1) the Spahn version of the Tobin Tax addresses the problem of taming volatility. This has been a recurring criticism: that the tax would either be too small to tame volatility, or too large which would dry up revenue. Paul Bernd Spahn did a study for the IMF in 1996 in which he critiqued Tobin's original proposal, and counter-proposed a two-tiered tax. One tier would be a miniscule tax on transactions within an acceptable band of rise and fall (similar to the snake of EMS fame), which would raise considerable revenue but not distort trades. The other tier would be a punitive tax on any spikes of volatility outside the band (major deviations), designed as a macroeconomic tool to prevent the destructive spikes. This would be at such a high percentage as to prevent transactions outside the band. Both tiers could be used as macro tools: the first tier percentage could be ratcheted up to shrink undesirable market volume (the $1.5 trillion daily), or down if too much shrinking occurs. The Spahn design is elegant, but it might raise only $40 to $50 billion, instead of the $200 to $300 billion projected for the straight Tobin model. We met with Spahn in Koln during June of this year. He doesn't want it called the Spahn tax.... says nobody should want a tax named after them...he's happy with the Spahn version of the Tobin Tax....
2) The Schmidt solution to the enforcement problem. Typically, someone will raise the issue of enforceability, and criticize the tax as unenforceable without universal adoption and cooperation. The economist Rodney Schmidt, formerly with the Canadian Finance Ministry, suggests a mechanism of using the settlement sites of trading rather than the dealing sites. A new international settlement mechanism called the Continuous Linking Service (CLS) will begin next year, put together by the major players to make sure there is instantaneous recordation of all transactions. The CLS provides the ideal location for a tax that could be automatically recorded, deducted, and not avoided. His paper goes into all the technical mechanisms of how settlements currently work, how they will work under the CLS, and how the Tobin Tax could be enforced utilizing them.
3) The derivatives question. Tobin's original proposal was written up in 1978, and he proposed a tax on spot transactions. The derivatives market was not the problem then that it is now. Most new versions of Tobin Tax proposals recommend including the various derivative instruments in the tax base. The problem up to now has been enforcement. Schmidt sees most derivative types as going through the CLS settlement process, thus tackling the enforcement problem. Also, the common-sense argument still holds: loopholes have always existed, but taxes need to be passed anyway....and do the best we can to close the loopholes.
(Summary of issues, by Ruthanne Cecil, Tobin Tax Initiative USA)
-------------------------------------------------------- HEADLINE 4 -- NEW RESOURCES-- the Arcata Proclamation!: Since so many of you asked, here is a copy of the Arcata Proclamation, so you can download it and modify for your town councils. If you send a request, we will mail you a color copy of the now- famous Arcata Proclamation, a model proclamation on the Tobin Tax suitable for framing, and suitable for your city council to pass as well... For those of you who have requested it, packets will be on the way in early December....
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PROCLAMATION OF THE ARCATA CITY COUNCIL ON THE TOBIN TAX
WHEREAS over $1.5 trillion moves daily through currency exchange markets around the world, and over 85% of those transactions are of a speculative nature, where traders bet on whether currency values and interest rates will move up or down; and
WHEREAS such volume and volatility disrupts the ability of nations to establish equitable and just economic policies; to intervene to protect their own currencies; and to provide support for needed social and environmental programs; and
WHEREAS recent financial crises and currency devaluations tend to exacerbate existing problems such as price increases, higher unemployment, plant closures, social unrest and human rights violations; and to burden indigenous, poor and middle-income populations most heavily; and
WHEREAS excessive speculation could be curbed by a very small tax of between 0.1% and 0.25% on each cross-border currency transaction (as proposed by Nobel prize-winning economist James Tobin -- "Tobin Tax"); and such a tax would reduce incentives for overnight speculation while remaining small enough to leave longer-term investments intact; and
WHEREAS the revenues from a Tobin Tax, projected at between $150 and $300 billion a year, would provide the resources urgently needed to wipe out extreme poverty, provide basic social services and mitigate environmental destruction globally; and collection, enforcement and allocation aspects are considered to be economically feasible:
THEREFORE BE IT PROCLAIMED THAT, The City Council of the City of Arcata urges governments around the world to immediately cooperate to establish Tobin-style taxes on foreign currency exchange market transactions, collected and distributed in a fully transparent and accountable manner, with the revenue dedicated to basic and urgent human and environmental needs and to ecologically sustainable jobs within less-developed countries.
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HEADLINE 5 - TEXT OF FRENCH AMENDMENT ON THE TOBIN TAX
Here is the French amendment, which was hotly debated and defeated in late October. This English translation comes to us, thanks to Yann Galut, Member of Parliament, France:
Proposition for the Financial law for the year 2000
AMENDMENT presented by Mr. Yves Cochet, Yann Galut, Jean-Claude Lefort, Ms. Chantal Robin-Rodrigo, Mr. Georges Sarre
Proceding article 18, insertion of the following article: Proceding article 985 of the General Tax Code insertion of an article 985bis:
« Art.985bis - this article establishes a fixed tax on monetary exchanges, be it cash or credit, amounting to 0.05 %. The following operations should be exempted from this tax: - purchases and sales within the European Union; - exportations and importations of goods and services; - direct investment as described by the decree n°89-938 of 12/29/89 which regulates foreign financial relations; - exchange operations which carried out by individuals and are less than 500,000.00 F.
This Tax applies to loan establishments, institutions, and services which are discussed in article 8 of the law n°84-46 of 01/24/84 relative to the activity and the control of loan establishments and investment enterprises encompassed by article 7 of the law n°96-597 of 7/2/96 pertaining to modernization of financial activities performed by individuals or enterprise as discussed by article 25 of the law n°90-614 of 7/12/90 relative to the participation of financial institutions in battle against money laundering of capital from drug trafficing. This tax is based in the same guarantees and limits as the deductions mentioned in article 125A. This tax is to be effective as of 7/1/00. A decree fixes modes of application of this article.
SUMMARY
An objectif of this amendment is to establish a tax on speculative movements of capital (the Tobin tax). Creation of such a tax, amounting to 0.05 %, is intended to counter speculative movements of capital which largely contributes to periodic apparitions of serious economic crisis. This law, evidently, does not intend to penalize movements of capital related to legal trade (exportations and importations of goods and services, direct investment). Lowering this tax to the level defined by this amendment allows to limit its impact to speculative operations. This tax targets loan establishments and investment enterprises as well as their form of establishment liquidation, and government collection would be similar to that of article 125 A of the General Tax Code for deductions on investment: generating fixed returns.
--------------------------------------------------------- HEADLINE 6 - ANNOUNCEMENTS See you in Seattle!!! Go to the WTO! --------------------------------------------------------- The Tobin Tax Update is a monthly newsletter of the Tobin Tax Initiative USA. The Tobin Tax is a proposal to tax cross-border currency transactions, for the purpose of reining in market volume and volatility; restoring national sovereignty over monetary policy; and raising substantial revenue for urgent global environmental and human needs. -------------------------------
Tobin Tax Initiative USA ... Ruthanne Cecil, Project Director and Newsletter Editor see our website at <http://www.tobintax.org> email <mailto:cecilr@humboldt1.com> Tobin Tax Initiative USA, International Innovative Revenue Project, Center for Environmental Economic Development, P.O. Box 4167, Arcata, CA 95518-4167 USA TEL (707) 822-8347 FAX (707) 822-4457 Building Local Support for Global Solutions... ------------------------------------------------------
Ruthanne Cecil