There is already an unknown and hidden, odiously regressive, hugely distorting, levy on financial transactions

Sir, Gregory Meyer reports on levies on financial transactions that have been proposed in the US by Democratic politicians “US markets braced for trading tax grab” October 11.

One can easily understand the political appeal of such taxes, but also that all these could have unexpected consequences, many quite contrarian to the initial objectives.

That said, let me remind you of the financial sector’s “risk-weighted capital requirements for banks” tax; essentially based on assigning to the Sovereign a 0% risk weight and to We the People one of 100%.

That tax allows governments to collect revenues through the not so transparent channel of having more and cheaper access to bank credit. Unfortunately most of that tax is not paid by the rich and wealthy, but by the not wealthy SMEs and entrepreneurs, by means of lesser and more expensive access to bank credit.

Not only is it an immensely regressive tax, the AAArisktocracy is risk-weighted at only 20%, but, as an “unexpected that should have been expected consequence”, it also ends up causing stagnation that diminishes government ordinary tax revenues.

Even worse, that tax stimulates banks into creating excessive exposures to what has always been more dangerous to the stability of the sector, namely what has ex ante been perceived as very safe, but that ex post could turn out to be very risky.

Sir, compared to this tax, all other financial transactions taxes proposed, seems almost irrelevant.

@PerKurowski ©

Brother you who do not have a dime, or a job, can you spare me a dime or a job, so that we can grow together?

Sir, I am not taking a position for or against a minimum wage but, when Edward Luce writes that increasing “it would inject a much-needed stimulus into the anemic recovery without involving a dollar of taxpayer money”, something definitely does not sound right, “Avoiding poverty pay is the tonic America needs”, December 2.

If the company ends up paying for it, then we might have less employment and that of course nobody wants. And so, if the taxpayer is not paying for it…who is going to pay for it? Could it perhaps be mostly those who are not taxpayers because they earn too little? And so, if a stimulus, is it not in fact a quite regressive one?

And then Luce mentions that these minimum wage increases will affect “sectors where the bulk of new jobs are being created” and which in fact would point to the plan as being somewhat suicidal.

Honestly I do not think America needs a recovery stimulated by an increase in the minimum wage and Luce would do himself a favor looking at how economies where there is no minimum wage are doing.

Do I have an alternative plan? No, but I would of course start by eliminating immediately the odious regulatory discrimination which makes it so much more difficult for those perceived as “risky” to access bank credit in competitive terms. The growth in America and in Europe has, as in their past, to be based upon risk-taking and not risk-avoidance.

God, make us daring!

PS. Sincerely it is also a bit surrealistic reading that Luce feels that the unions “have reasons to hate” Walmart, the largest employer in the USA, and all this operating on a 3 percent margin, in the poorer sectors of the real economy. Don't we wish we had such banks!

Down with all corporate taxes, these only dilute the citizen’s tax representation.

Sir, I refer to Mr. George Osborne’s, Mr. Pierre Moscovici’s and Wolfgang Schäuble’s “We are determined that multinationals will not avoidtaxes” February 16, and which unfortunately does not seem to imply that the “smaller businesses paying up to 30 per cent” will now be able to pay the 5 per cent the authors indicate multinational pay. 

Yet all corporate taxes will, no doubt, at the end of the day, one way or another, be paid by a citizen somewhere. And therefore that citizen’s payment will occur without the governments being held accountable to that citizen, allowing instead that citizen’s tax-paying-representation powers to be exercised by the corporations. 

Also, since the final real bill for a corporation’s tax might hit someone earning or having absolutely nothing, these corporate taxes can de facto also be extremely regressive. 

I therefore hope the ensuing discussions and determination of this powerful trio, gets to be oriented toward lowering or better yet eliminating all corporate taxes. Of course, a zero corporate tax would imply that all investment income had to be taxed at the same level as all other income. 

Down with corporate taxes! The only ones who should have the right to cover for a government expenses are the citizens, and that right should not be diluted in any way. 

PS. This is not the moment, but if you have time, I would like to refer you to My Tax Paradise, because nothing is more powerful against sinful tax-havens than a virtuous tax heaven.

We must stop petit bank regulatory bureaucrats from distorting the markets with their risk-weights

Sir, George Magnus opines that “Draghi’s bond-buying plan is economically unsound” September 18. I fully agree with him but for a reason he does not mention, or is perhaps not even aware of. 

Most of those funds that ECB’s “outright monetary transaction” generate more sooner than later, will flow through a banking system that has become regressive, as a consequence of bank capital requirements based on risk. 

If regulators are not willing to allow the funds to flow where these could be most productive, but insist on these flowing to where they ex-ante believe these to be safer, they completely ignore the role of the market… and that is as economically unsound as it comes. 

We must urgently allow the market decide without some petit bank regulatory bureaucrats distorting its functioning by assigning, quite haphazardly, the risk-weights which decide how much capital each bank needs, and, with that, who in this bank capital scarce world, gets the loans.

Do not worry it looks like they are just staging it! Help!

Sir Sir Samuel Brittan clearly rapped all of us who dare to ask “how we are going to pay for it?” over our knuckles, “A framework for economic stability” December 5. We do not deserve it. In a world where the British Pound should have imprinted “In the British Taxpayer We Trust”, since that is all it has backing it, not asking the question could frighten away all economic stability. The quoted Harold Macmillan “Whatever the temporary difficulties from trying to run too fast, if we stand still, we are lost” might have benefited from having much less darkness around him than what exists now.

Having said that, Sir Brittan needs not to be overly concerned with any excessive prudence. In the US, all similar discussions on how to pay for it, and the screaming about the implications for the taxpayers, anyhow all end up with new tax-rebates being given.

Finally on Brittan’s quoting Friedman’s recipes for fiscal stability, how strange he did not comment on the absence in them of the regressive VAT.

The US tax system needs better working progressivism.

Sir I could not agree more with Martin Wolf when in “How Obama should face his vast economic challenges” November 12, he mentions “taxation of energy”. That should be as they say in the US a “slam dunk” though let us remember that even an Al Gore, a Nobel Prize winner because of is environmental friendliness, does not dare to mention such tax in the land of the cars.

What I do not agree with though is when Wolf recommends a regressive “national value added tax rather than to rely so heavily on the income tax” as I believe that the US has to create some better working progressivism in their tax system since the very hard times fiscal ahead requires massive doses of legitimacy. Do not forget that the US dollars should actually say “In God… and in the American taxpayer we trust”

We need to look at other possible explanations than trade

Sir Jagdish Bhagwati in “The selfish hegemon must offer a New Deal on trade” August 20, complains that “the labour lobbies believe, without any compelling evidences, that the American wages have been stagnant because of competition from the developing countries”. But, even if he is right, since he offers no other alternative explanation for the widening gap between the returns to capitals and the returns to labour in the economy, he is actually helping to keep the focus on trade as being the culprit.

Bhagwati would serve his worthy cause better by pointing out the effects of other developments that have run in parallel to the growth of global trade. How much of the capital-labour gap could be explained by the following?

1. The discrimination implicit in risk based pricing that has allowed the financial sector to charge some groups with extremely high interest, based on some quite dubious logical reasons. Borrowers that cannot pay the high interests should not have received the loans to begin with, at least not at those high rates, and those who can serve the loans have de-facto evidenced they merited lower rates.

2. The growing tendency to use intellectual property rights of all sort and kinds to create unregulated monopolies that capture rents.

3. The increased regressiveness of taxes that results from the tendency of turning away from taxing income to taxing consumption.

Net out the effect of those three factors and you might not have anything left to blame trade with.