From the February 01, 2012 issue of Futures Magazine • Subscribe!

Is transaction tax coming?


French President Nicolas Sarkozy and German Chancellor Angela Merkel have been leading calls for a financial transaction tax (FTT) amounting to a few basis points on sales of stocks, bonds, currencies and derivatives. It’s a call that’s beginning to resonate with other leaders, both in Europe, where Italian Prime Minister Mario Monti says he’ll support it if it covers the whole European Union, and in the United States, where Iowa Senator Tom Harkin and Oregon Representative Peter DeFazio have been the biggest legislative champions. UK Prime Minister David Cameron stands opposed — but his country already has one (the “stamp tax” on shares that makes the entire spread-betting industry viable).

The Congressional Budget Office says that if the United States imposed such a tax, it “could diminish the importance of the United States as a major global financial market.” Advocates of the tax say that may be so — but believe such concerns focus too narrowly on liquidity at the expense of the financial system’s overall resiliency, or its ability to withstand sudden shocks.

“The value of any efficiency loss is far smaller to the real economy than the quite obviously needed resiliency gain, and is a necessary trade-off,” says John Fullerton, a former JP Morgan Managing Director who now runs the Capital Institute. The Capital Institute is a think tank that aims to “explore and effect economic transition to a more just, resilient and sustainable way of living on this earth through the transformation of finance.”

He likens the financial system to an ecosystem — one that becomes weakened and susceptible to floods, droughts and fires if it gets out of balance. A transaction tax, he says, may widen spreads a bit, but it also creates a reserve that makes the whole system more sustainable over the long haul. It’s an argument we examine in-depth on-line. Visit us at

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