Currency transactions taxes such as the Tobin-type tax are often dismissed by critics before all the arguments have been heard. They view the tax as too difficult to adopt and too easy to avoid. Much criticism is ill-informed or designed to stifle debate. Here are the most common myths and our response to them:

A TOBIN-TYPE TAX WILL HIT THE POOR
The tax is a progressive one, designed to target only those profiting from destabilising currency speculation.** The poor don’t flip millions of dollars a day on currency and bond markets, the world’s biggest banks urrency and bond markets, the world’s biggest banks and investment firms do. This tax will hit them.

The tax could lift the poor out of poverty. A Tobin-type tax is expected to generate between US$ 150 and 300 BILLION ANNUALLY.. Wiping out the worst forms of poverty and providing basic environmental protection globally will cost US$ 225 billion per year for ten years, according to the United Nations and the World Bank. Individual countries could receive hundreds of millions from the tax to spend on poverty alleviation and environmental protection. The poor would be the primary beneficiaries of a Tobin-type tax.

SPECULATORS WILL FIND WAYS TO EVADE THE TAX
This is most common myth. Detractors assume that any potential challenge is grounds for dismissing the very idea of taxing financial transactions. According to this flawed logic, we shouldn’t make any laws because they might be broken.

The fact is, a Tobin-type tax could be quite difficult to evade. A tax collected through the wholesale market between banks, as proposed by economist Rodney Schmidt, improves on Tobin’s original concept by making evasion near impossible and collection relatively easy. Banks conduct thousands of transactions with each other daily, which are totaled or “netted” at centralized sites so that a net payment c centralized sites so that a net payment can be calculated and transferred or “settled”. Settlement systems around the world are becoming increasingly centralized, formalized and regulated as central and commercial banks work together to reduce and eliminate the risk of payment default. Banks have collapsed because of this risk, known as “settlement risk”.

By 2001, there will be one centralized global settlement system linked to the domestic payments systems in most countries. All transactions are electronically recorded at the settlement sites and on the books of the central bank where payments between banks are actually made. Tracking and taxing will be relatively easy.

Implementing a tax in the domestic payments system would allow a participating country’s central bank to refuse to settle payments between non-cooperating systems (ie. offshore payments centres or tax havens). Thus, the Cayman Islands would no longer be able to buy or sell Canadian dollars, for example, if Canada adopted a Tobin-type tax. Several countries refusing to settle with rogue centres would effectively shut them down.

Critics argue that speculators could evade the tax by shifting into other financial instruments. Because a foreign exchange payments tax, as described above, is a tax on net payments between two institutions, the type of financial instrument being bought or sold is of little relevance. Derivatives, a variety of financial instruments whose value is “derived” from that of an underlying asset such as a commodity or currency, were once viewed as a means to escape Tobin’s originally proposed tax on cash exchanges. This is because the currency is never actually purchased when a derivative is purchased, only the right to purchase is bought and sold. Schmidt’s variation on Tobin’s original proposal ensures that if a derivative instrument is paid for, the tax takes effect.

POLITICAL CONSENSUS COULD NEVER BE FOUND TO ADOPT A TOBIN-TYPE TAX
Political consensus can ALWAYS be found when the need for policy coordination outweighs the risk of continued inaction. The world can ill-afford the economic and social devastation witnessed in SouthEast Asia, Russia and Brazil between 1997-99. In the wake of speculative attack, prices for goods skyrocketed, wages fell, companies unable to pay debts denominated in foreign currencies went bankrupt and joblessness soared. Three decades of poverty reduction was wiped out in SouthEast Asia during the financial crisis. There is widespread political consensus that future financial crises are inevitable unless changes are made.

Additionally, the enormous revenue stream that would be generated by a tax has a powerful appeal to cash-strapped governments world-wide. In the face of increasing income disparity and social inequity, a tax represents a rare opportunity to capture the enormous wealth of an untaxed sector and redirect it towards the public good.

Political consensus is the most serious barrier to the adoption of Tobin-type taxes, yet it is not insurmountable, particularly as public support grows and myths dissolve. Many larger, more complex issues, requiring greater degrees of international co-operation, have been addressed in recent years. Nations around the world have negotiated hundreds of trade agreements and adopted and implemented many complex international environmental treaties. European nations launched a common currency on January 1, 1999. Critics said many of these agreements could never be reached.

THE TOBIN-TYPE TAX IS GLOBAL TAXATION
The tax would be collected by national governments under the terms of national legislation. No new supra-national tax authority threatening national sovereignty would be created. A portion of the revenue would be kept by nations for internal uses. A portion would be redistributed through an agreed process by a multilateral organization with representation from all participating governments.

Multilateral cooperation on tax revenue collection and redistribution is not new and unproven. The European Union has been individually collecting, and jointly administering and redistributing the Value Added Tax among its 15 members for years. The European Union funds its infrastructure from the collection of the tax, with each member state retaining ten percent of the revenue it collects and all agreeing on the allocation of the remainder.

THE TOBIN-TYPE TAX WOULD BE IMPOSSIBLE TO ADMINISTER
Existing multilateral institutions could be put to use once an international agreement between participating nations was negotiated. An international body, such as the United Nations could administer the tax in co-operation with other multilateral institutions. National governments could then act as collection agencies through their central banks. Implementation of the tax in the broader global community could be assured by making collection a condition of membership in the administering institution. Participation would be encouraged by the prospect of revenue sharing.

Other factors make tax administration less cumbersome than critic’s claim. While the amounttitution. Participation would be encouraged by the prospect of revenue sharing.

Other factors make tax administration less cumbersome than critic’s claim. While the amount of money moving around the globe in speculative activities is enormous, the number of centers in which trading occurs and the number of traders is not. 80% of global foreign exchange trading takes place in only 7 financial centers ( London, New York, Tokyo, Singapore, Hong Kong, Frankfurt, Bern) between less than one hundred large international banks and investment houses. Agreement by London, New York and Tokyo alone would capture 68% of the speculative trading. The relatively few locations, limited number of players and a clear electronic “paper trail” would help reduce the administrative burden and cost of tax collection.

SUMMARY
The Tobin-type tax is a tax on certain activities of the most powerful banks and investment institutions in the world. It is therefore viewed as a threat to financial community privilege and has been met with resistance by a sector with massive political clout. The very idea of putting people ahead of markets challenges the dominant economic paradigm of the early 21st century. There are powerful forces who do not want their world-view disturbed.

We must not let the Tobin-type tax “myth-makers” stifle, manipulate and ultimately undermine an essential public debate on controlling global financial markets. The Tobin-type tax deserves a fair hearing. Only widespread popular support and public pressure can ensure it.

WHAT YOU CAN DO

• Sign our Citizen’s Declaration on the Tobin Tax and return it to the Halifax Initiative (or sign it electronically on our homepage). We will forward the declarations to critical decision-makers and will report back on progress made;
• Contact your elected representative and the Finance Minister and ask them how they plan to control currency speculation globally.
• Ask your bank manager to sign the declaration on behalf of their institution. If they refuse to sign, move your investments elsewhere.
• Investigate your mutual/pension funds if you have them. Are these funds speculating with your money?
• Ask groups and individuals in your community to sign the declaration and distribute these materials.

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** See our Factsheet “ Controlling Casino Capital” for a detailed explanation of Tobin-type taxes and their benefits.