The Wrong Tax for Europe

There is ample reason to be angry at financiers, and real change is needed in how they operate. But the European Commission's proposal to tax financial transactions, despite its noble intellectual lineage, is no solution to Europe’s problems – or to the world's.

CAMBRIDGE – Europe is already in pickle, so why not add more vinegar? That seems to be the thinking behind the European Commission’s proposed financial transactions tax (FTT) – the Commission’s latest response to Europe’s festering growth and financing problems.

The emotional appeal of a tax on all financial transactions is undeniable. Ordinary Europeans have to pay value-added tax on most of the goods and services that they buy, so why not tax purchases of stocks, bonds, and all kinds of derivatives? Surely, such a tax will hit wealthy individuals and financial firms far more than anyone else, and, besides, it will raise a ton of revenue.

Indeed, the European Commission estimates that its proposed tax of only 0.1% on stock and bond trades, and 0.01% tax on derivatives, will raise more than €50 billion per year. As a bonus, an FTT will curb destabilizing speculation in financial markets.

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