Editor's note: This contribution by the late journalist I.F. Stone first appeared in our January 1975 magazine.
British Prime Minister Gordon Brown unveiled an eminently sensible proposal this week: to place a 50 percent tax on all bankers’ bonuses in his country. But another, even more sensible idea of his last month was shot down by other nations, notably the United States.
This is a global tax on speculative financial transactions, also often called the “Tobin Tax” after the Nobel-winning economist James Tobin, who first came up with the idea. The notion has been around since the 1970s in one form or the other (I have a decade-old poster for the tax up in my office), but Brown deserves credit for attempting to resuscitate it. “Calculations by the Austrian government, which is keen on a transaction tax, showed that even if the number of deals fell by up to 65 percent as the fee dissuaded people from unnecessary trades, it could still raise $700 billion a year,” writes Heather Stewart in the London Observer.
But even Brown’s modest proposal was enough to invite a very public rebuke from across the Atlantic. “That's not something that we're prepared to support,” said Treasury Secretary Tim Geithner. With assistance from the IMF, the stalking horse of the United States, and Canada’s conservative government, the Obama Administration succeeded in strangling the idea in its crib, in spite of the fact that President Obama had earlier suggested that he was open to the notion. Germany and France have also voiced interest in such a proposal, but even their backing wasn’t even enough to prevent Brown from being humiliated on the international stage.
The Tobin Tax is an idea whose time is past due, however. As Brown pointed out, the social contract between the bankers and the rest of society has broken down over the past year. With their completely irresponsible actions in the mindless pursuit of profit, the denizens of the financial sector have led the entire world to the brink of the abyss. And the social costs have been much more staggering than most people can even imagine. The Harper’s Index from the June issue of the magazine quotes a World Bank estimate that 1,400,000 infants will die in the next seven years due to a global economic crisis caused essentially by the insatiable greed of financial wheeler-dealers.
And why shouldn’t we demand something back in return when we have spent so much in bailing out these fat cats’ behinds? Again, the public perception of the cost is far from the actual truth. In a superb piece for The Nation, Nomi Prins and Christopher Hayes calculate that if you factor in the entire range of handouts and subsidies the government’s various entities have doled out to the financial sector, the total bailout is $17.5 trillion, not the $700 billion TARP figure that is commonly quoted.
Apart from helping set up a fund for future bailouts and improving the balance sheets of governments, a Tobin Tax could also ameliorate the plight of the global poor and disadvantaged. In fact, this was what the tax was originally envisioned for.
Critics of a Tobin-type global tax say that it is too complicated to impose and too easy to evade. But Nobel-winning economist Joseph Stiglitz (whom I had the privilege of interviewing earlier this year) has said that this isn’t true due to the advent of modern technology. “The financial sector polluted the global economy with toxic assets and now they ought to clean” up, Stiglitz said.
House Speaker Nancy Pelosi has indicated her approval of such a global tax, and Representative Peter DeFazio and Senator Tom Harkin have recently co-introduced a bill that will impose a 0.25 percent transaction tax on the U.S. financial sector with the aim of raising $150 billion for deficit reduction and social programs.
“We need a shift in priorities in this country to ask not what America can do for Wall Street, but ask what Wall Street can do for America,” said Harkin.
We need to make this bill a reality in the United States—and then take it worldwide. It’s high time that the global financial sector contributed its fair share to society.