Wednesday, October 03, 2012

IFA travels

I am currently at the International Fiscal Association's annual meeting, which is being held this year in Boston.  These days I tend not to go to conferences unless I am one of the speakers, but as it happens I am one at the IFA.  I am appearing on a panel tomorrow to discuss financial transactions taxes, as well as alternatives such as the financial activities tax.  Our seven-person panel had a 5 (!) hour meeting today to plan our 2-hour panel tomorrow - the IFA norm for panels emphasizes rigorous advance preparation, verging on scripting.  But it was actually reasonably enjoyable and interesting, especially considering how long we all were there.

Turning to the panel's subject, I am not a huge fan of the financial transactions tax compared to the alternative tax instruments of my choice, but if it is the FTT or nothing, I would certainly consider saying yes to it, either for the EU (the issue in tomorrow's panel discussion) or the U.S.  Given our political system's severe dysfunctionality and our revenue needs, along with the fact that (as Keynes argued back in 1935) there seems to be too much effort invested in seeking stock profits at the expense of rival investors, and finally given that the FTT is fairly progressive (albeit as an oddly designed tax on saving and investment), there is something to be said for it if we rule out all the alternatives (progressive consumption tax, VAT, carbon tax, financial activities tax, etc.).  And I do respect the very serious effort that the European Commission folks put in trying to design it appropriately.  That said, there certainly are lots of problems, such as in how to treat derivative transactions, as well as the prospect of cascading inter-business taxes that could prompt financial market disintermediation.  But tomorrow I will be more analytical than bottom line.

The IFA's annual meeting is an interesting sociological event that I have never attended before.  A few thousand people attend, mostly European and Third World, mostly practitioners but with a few academics and NGO or government types.  I know a lot of people here in numerical terms, not that many in percentage terms, and it is obviously a huge networking event for tax professionals who want to meet their peers in other countries.  I gather that it used to be mostly OECD, but now countries such as South Korea and India are huge players as well.  Probably lots of interesting dynamics that I cannot myself directly observe.


Wells_10022 said...

I would seriously urge you to reconsider your support for the financial transaction tax. As a professional independent trader - this is an issue that I follow pretty closely.

Under every proposal that I have seen ( and I concede that I probably haven't seen them all ) it simply would not be worthwhile to engage in the transactions anymore.

I am not putting this out as "over the top" rhetoric because I "don't like taxes" or whatever. I actually have no problem with the rate for top federal tax bracket ( which I am part of ) going up 2 or 3%. I paid it during the Clinton years and I can pay it again.

If you submit your favorite proposal - I can probably show you how the transactions are no longer worthwhile. Which means that you don't get to collect the taxes you think you'd collect because the number of transactions will be much lower than you anticipated.

It also means that you don't get to tax my higher than average income because there is no way that I can switch careers and make the income that I am making now.

Just to show you that I am not a "Tea Party" type anti-tax guy - I would offer that I'd be willing to see a discussion on an "after the fact" tax plan. One that perhaps places a surcharge on profits made via speculation or short-term investing or whatever you wish to call it ... AFTER the profits have been made. Maybe the number of transactions per year or quarter or whatever can be a part of the calculation.

But under every financial transaction tax proposal that I have seen thus far - the transaction tax removes the incentive for many types of trading. So, as I said earlier, the projected revenues are probably very overstated because the dramatic drop in transactions have not been factored in.

Daniel Shaviro said...

Wells, I have a lot of sympathy with what you say, although in fact these taxes do tend to raise some revenue. But they may discourage a lot of transactions and have high efficiency costs generally.

I wouldn't say I support the FTT; rather, I think it has one good feature (reducing the too-strong incentive to pursue trading gains) and a bunch of bad features (cascading, discouraging transactions that the parties like and that don't hurt anyone else, etc.

So I don't have at the moment a bottom line, except that in the US I might say that if we magically could enact this, that would be a point in its favor if we need new revenues and all the superior instruments are ruled out politically.

My declining to take a firm bottom line stance would be evasive if I were, say, a politician running for office. But as an academic, the rationale for it is that one shouldn't profess certainty about things that one believes are genuinely uncertain at the current stage of knowledge. That risks degenerating into spitballing rather than, dare I say it, an enterprise with elements of "science" (albeit based on underlying empirical assumptions).

All that said, please watch for a follow-up post on FTTs and the IFA session that I am planning, as soon as I have the time.