The German finance minister’s @OlafScholz proposal for a European financial transaction tax (FTT) is garbage. Why? Thread
He proposes a 0.2% tax when buying shares of a company with market value above 1 billion (145 firms in Germany).
#Finanztransaktionssteuer #FTT
He proposes a 0.2% tax when buying shares of a company with market value above 1 billion (145 firms in Germany).
#Finanztransaktionssteuer #FTT
In Germany, it's introduction is linked to financing better pensions. So: tax the people who invest in stocks to make sure they have better pensions so that the people who didn’t or couldn’t save enough for retirement get more? Strange message the government is sending here.
Who will pay that tax? People/banks/insurance companies who buy/sell shares will have to pay. Banks might lower their fees to take over some of the burden. Firms might have a harder time to raise money from the stock market.
There is a planned exemption for IPOs, but investors will be willing to pay less for a stock when they will have to pay the tax when selling that stock later.
Why only tax large firms with market cap under 1 billion? I don’t know. Seems like successful lobbying by medium-sized firms (Mittelstand).
The goal of an FTT is to limit speculation and raise revenue. This tax won’t do anything to limit speculation: Hedge funds and “speculators” can use derivatives to mimic the payoffs of these stocks while avoiding the FTT. Private, small-scale investors don’t have such options.
Studies on the existing FTTs in France and Italy didn’t find evidence that it lowers volatility. They do show that trading volumes decline, esp. in high-frequency trading. Market making activities will be exempt from the proposed FTT, and that includes likely...
...some of the high-frequency trades. If that is the case, the goal of making the financial sector pay its “fair share” won’t be realized, either.
If we want to make sure that the financial sector pays more tax, I’d look at profit taxes. I have a paper (hopefully soon published) on profit tax avoidance by banks. Spoiler: They are quite active tax avoiders. How about addressing that first?
I’m not a big fan of FTT. If you want to make it work, you need a broad tax on all fin. instruments. Getting the tax base right is a mess (derivatives...). But this proposal is terrible. It taxes an arbitrary group of firms, won’t raise much revenue, and sends the wrong messages.
*over
Where is this edit button??
Where is this edit button??
