Tim Worstall explains why politicians love the notion of an FTT, and why all the benefits claimed for imposing an FTT are not going to happen:
Large numbers of people have convinced themselves that a Financial Transactions Tax (FTT) would be a really very good idea indeed. It would make the banks pay for the problems they’ve caused, it would lower speculation and thus lower volatility, it would raise a lovely large amount of money that can be spent on good causes and anyway, there are a number of FTTs around and they’ve not caused any problems, have they?
Politically this is of course quite wonderful. Lots of money to pay for things and it’s the banks that have to cough up? We’ll get tens, no hundreds of billions and none of us will really have to pay any of it? Let’s tax the other guy usually does gain public support after all.
The thing is, all of the stated joys of this tax are in fact untrue. I’m rather involved in this as I prepared evidence for the House of Lords on the point (evidence which I’m glad to say heavily influenced their final report). Other submissions also pointed to posts on this very blog here at Forbes in support of various points. Finally, this formed the basis of my one and only peer reviewed paper to date. You might say that I’m more involved in this story than I am in most.
The thing is, those four things which campaigners for the FTT say are the good things about it all turn out to be untrue. Firstly and most obviously, banks are companies and companies never pay tax. It’s always some combination of customers, workers and shareholders who do: for only a real human being can bear the burden of a tax. As to speculation, more speculation lowers price volatility so reducing speculation will increase volatility, not reduce it. An FTT would crimp economic growth and thus would reduce total tax revenue, not increase it and finally, we do indeed have several FTTs currently and also know that they crimp economic growth and thus reduce total tax revenue.
All of these things have been explained by all of the serious people (plus me, who you can regard as serious or not as you wish) who have looked at the question. And yet governments continue to sign up for what they keep being told is a seriously bad idea. They’ve even been told this in terms simple enough for a politician to understand.
