Saturday, December 12, 2009

Fight Climate Change with Tax on Financial Transactions

This week French President Nicolas Sarkozy and British Prime Minister Gordon Brown with support from German Chancellor Angela Merkel announced they were in favour of the implementation of a Tobin tax on all global financial transactions.

It is refreshing to see an idea that has been around since the 1970s make its way back into the public discourse. After all, we have just recently invested untold trillions of dollars of public money to save the global financial system from collapse. It’s time for those who draw revenue from this sector to pay up. Indeed, those who toil in the real economy and pay tax on goods and services should not be left with the responsibility of bailing out the speculators. There are vast sums that can be gathered and utilized to finance the emergence of a low carbon economy.

Moreover, a financial transaction tax can be implemented in such a way as to also create significant disincentives for speculative financial transactions that suck capital out of the real economy. Tax rates should reflect the period of time that a security is held: the longer the time period, the lower the tax rate. That way, return on investment reflects the creation of real added value and not the speculative decision of the direction in which the value of an asset will move.

Objections that such a tax would limit economic growth are merely the shrieks of zombie economists who steadfastly believe that the volume of transactions in the monetized portion of the economy is the only indicator of the well-being of the population.

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