Over the weekend, the G-20 held a summit on the financial crisis, and several nations put forward the idea of a “Tobin tax,” a fractional tax on international financial transactions, to help pay for economic recovery and future bank failures. Germany, France and now Britain have all endorsed the idea. Timothy Geithner, speaking for the United States, rejected it.
Gordon Brown suffered a rebuff from Washington yesterday after he signalled Britain’s backing for plans for an international transactions tax on banks to help the world recover from the financial crisis.
At the G20 summit in St Andrews, Fife, the Prime Minister dropped Britain’s longstanding opposition to the scheme, which could raise billions a year for poor nations.
But within hours of the significant shift in UK policy on the so-called “Tobin tax”, the US Treasury Secretary Tim Geithner dismissed the move, saying Washington was “not prepared” to support it.
This would be a .05% tax on currency, stock and derivative transactions that could yield as much as $600 billion dollars annually, in addition to discouraging the kind of speculation and flash trading that can destabilize the financial economy. The purpose of this financial transaction tax, whether going to poor nations or financing potential future bank bailouts, can be debated. What is harder to debate is the utility of a financial transaction tax generally. It would raise significant revenue from the most speculative banks, like Goldman Sachs, and it would at least claw back a tiny fraction of their massive profits (31% of all domestic corporate profits this year, even in the midst of a crisis) while reducing the volume of trading and making the financial sector more efficient and productive, as capital could flow to investment in people and businesses instead of speculation.
And what is truly puzzling is how Timothy Geithner feels emboldened to reject policy that would have to be set by the legislative branch and not him. The executive and the Treasury Department have a role to play in that, but unlike Parliamentary democracies in Europe, it is not Geithner’s decision to make on the Tobin tax. Despite this, world powers all agree that implementation of the transaction tax “would be impossible without the backing of Barack Obama.”
This deference to the executive has played itself out throughout the debate over regulatory reform. Rahm Emanuel has been immersing himself in regulatory reform, concerned yet again with getting a “w.” (“The president needs a scalp, a pelt on the wall,” said one source in the above-linked article) Rahm has also been seen counseling Congress to weaken Sarbanes-Oxley protections for investors, seeking to exempt firms for certain reporting requirements under the law. Put all this together and you get a picture of the White House far more interested in protecting Wall Street than anything else.
It is certainly not unusual for the executive branch to take an interest in legislation. But Geithner is in little position to reject something like a tax out of hand. Expansion of executive power does not only manifest itself in the area of civil liberties.