Tuesday, December 06, 2011

If it's Friday, this must be the Netherlands

Okay, I admit to having overextended myself a bit these past couple of months. But I am hoping my body will accept the last few insults (such as time zone changes and overnight flights) without getting too angry at me.

Although I returned from Brazil only yesterday (Monday, December 5), an evening flight on Wednesday, December 7, will take me to Amsterdam early on Thursday, thus giving me a day to time zone-adjust before I present a talk on Friday at the Amsterdam Centre for Tax Law's Conference on Taxing the Financial Sector. This time, I am just one voice in the crowd, rather than the headliner.

Why did I accept, notwithstanding the events' close proximity? Well, for a few reasons, even apart from my being generally more temperamentally inclined towards yes than no. One is that the conference looks interesting and has a good group of people that is different from those I have been seeing lately at other conferences. Another is that the topic is quite interesting, and different from international tax, which has been my main focus in recent months. Plus, I haven't been in Amsterdam since 1983, and wouldn't mind seeing the Van Gogh Museum and Rijskmuseum again, as well as the Anne Frank House for the first time, not to mention having some rijstaffel and strolling around the canals and all that, even in what is likely to be fairly dismal weather.

The background for the conference is that people in Europe are debating various tax instruments for the financial sector. Unlike in the U.S., such taxes can actually be enacted, at least here and there. The International Monetary Fund Staff advocated a financial activities tax (FAT), which is essentially an excess profits tax on banks (reaching high-end employee compensation as well as profits that remain after paying all that swag). But the European Commission has endorsed a financial transactions tax (FTT) in lieu of the FAT. An FTT is a tax on securities transactions (other than initial stock issuance).

It's unclear to me, even after reading the European Commission's work on the subject, exactly why they prefer the FTT to the FAT. There is probably a political backstory, at which I can guess, but as an American (and thus an outsider to the European debates) I certainly don't know anything about this firsthand.

My own prior work, as well as blog posts, explain why I consider the FAT a better choice than the FTT. But, as my slides will show when I post them here in the next couple of days, I actually do see a decent rationale for enacting a modest FTT in addition to (not instead of) an FAT - or more precisely, independently of whether or not an FAT is enacted. Only, this rationale for an FTT has nothing to do with those offered by the European Commission, or with addressing past or expected future financial sector defalcations, or indeed with responding in any way to the threat of future bank failures reflecting undue risk-taking incentives that are likely to lead in the future either to costly bailouts or to further macroeconomic catastrophes (or perhaps, like last time, to both).

More on this shortly.


Werner Haslehner said...

On the political debate from the point of view of the UK, there is parliamentary hearing and discussion at the UK House of Lords, available here: http://www.parliamentlive.tv/Main/Player.aspx?meetingId=9537

It seems that the committee as well as the people testifying are equally unclear why the Commission actually endorses a FTT rather than an FAT, though. There is the indication that it is easier to get through politically as it may be sold more aptly as a tax on the transactions perceived most harmful. Also, there have been a number of measures introduced to specifically tax Banks and their super-profits in one way or another in Europe already, e.g. the UK Bank Levy and the German Bankenabgabe (which is not actually a tax, but a obligatory contribution to a kind of German bank rescue fund).

Daniel Shaviro said...

Thanks. I had suspected that political feasibility was playing a role. I'll address in my slides some aspects of the question whether the FTT succeeds in targeting the most harmful transactions.