I am in favour of a financial transaction tax, because we can.
Indeed, we all know nothing is sure except for death and taxes, so I honestly think that if financial transactions can be taxed, we should at least try.
For the moment, labour is heavily taxed, while we surely want more work. Consumption is heavily taxed, while most people like to consume, and according to classical economic theory, consumption is a good thing. This is why we are always looking for things to tax, to lift the burden, mostly from labour. If we tax financial transactions, how much can we rake in for financing the global or national commons, before the tax will affect negatively the economy? Or would there be an ideal level, where up to a certain point, taxing financial transactions diminishes volatility while not affecting liquidity to a degree it damages the economy? Most articles and blogs I read seem to argue that financial transactions can be taxed, and up to a certain point, the total effect of taxing these transactions would even be positive, like taxing gambling, leading to less negative externalities. So I definitely think we should tax financial transactions, but we should be cautious and have good feedback systems in place, so we can raise the level until the optimal utility for society is obtained.
What should we use this tax for? This tax should be used to finance the budget of the government that raises the tax. It should be diluted in the total budget, because it is necessary to limit the pressure to raise this tax to a level that is defined not by the carrying capacity of the financial system, but because of the funding needs of one department or sector. We could consider the tax can finance the national government or global governance.
This tax cannot be seen under the same rules as pollution: “the polluter pays” means you pay to redress damages. Most financial transactions don’t do any damages (remittances, foreign direct investment, etc.), while some speculative transactions can do damages or at least don’t bring much added value to the overall economy.
So using the financial transaction tax to diminish the overall tax burden is a good policy, up to a level probably with less externalities than taxes on labour or consumption.
But what if we allocate the financial transaction tax to climate change adaptation or development? The group setting the tax level would be the environmental lobby, craving for income, balanced by the financial sector wanting to limit this transfer. I would be surprised if the result of this power struggle would deliver optimal results for the environment or the financial sector.
The environment and development should be financed as much as needed and affordable; while the financial transaction tax should be as high as useful to maximise its benefits. The two should not be directly linked.
A few more links on Robin Hood: