TOBIN TAX PRINCIPLES

The Tobin Tax is a tax on currency speculation, once per transaction. The idea and name comes from James Tobin, a Nobel laureate economist at Yale University. The currency market is now over one trillion dollars daily, and the proposed tiny percentage tax (suggestions range from .1% to .5%) would be on speculative transactions only. The purpose is to discourage volatile short-term trading and its destabilizing effect on country currencies, restoring national macroeconomic controls over currency fluctuations. Billions in revenue would be generated, as much as $300 billion to $1 trillion yearly. Part of the revenue would go to an international fund, another part to national budgets.

Features:

The Tobin Tax is a proposed transaction tax on currency speculation. The concept comes from James Tobin, a Nobel laureate economist at Yale University. Here is how it would work: Currency speculators trade at the rate of over one trillion dollars each day. Speculative transactions would be taxed at a tiny percent of volume (.1%-.5%), once per transaction. Non-speculative transactions would be exempt, about 10-15% of the daily volume. The tax would discourage overnight or short-term currency trades, the most volatile, while leaving longer-term investments barely effected. Dangerous currency volatility would thus be reduced, and national macroeconomic autonomy restored. Billions in revenue, potentially as much as $300 - $600 billion per year, could be generated, according to economic studies. Parts of the revenue would go to international trust funds, other parts to national budgets. Both parts could be used to fund worthy projects.

LIST OF PRINCIPLES

Multilateral Cooperation to Tax Currency Speculators

1. The financial crisis in Asia and elsewhere is adding to human suffering which must be alleviated. When currency is devalued, the purchasing power of citizens plummets, food and other basic items become too expensive, the environment is less protected, and jobs are lost. Further, this crisis exacerbates existing problems, such as the widening gap between rich and poor, the strain on the global environment, and high rates of unemployment.
   
   
2. One of the causes of the financial crisis is the large volume of currency speculation that now occurs on a global basis. The foreign currency exchange has grown recently to over a trillion dollars daily, much larger than all the stock exchanges of the world. This market is so large and volatile that government central banks can no longer adequately protect the currency of their own nations.
   
   
3. The existing institutions that regulate national and international monetary systems have inadequate and sometimes even destructive policies to deal with the crisis. For example, the austerity programs of the International Monetary Fund increase the level of suffering for those with the least "safety nets," while doing little to prevent destructive volatility. Reform of these institutions is an essential part of any effective solution to the crisis.
   
   
4. Reforms are needed in many aspects, but should include mechanisms to reduce the volume of destabilizing capital flows, through a transaction tax on currency speculation. Commonly but not necessarily called the "Tobin Tax," after the Nobel economist who originated the concept, this tax would deter short-term or overnight trades, and thus shrink the volume of daily currency trading from its present trillion dollar daily level. Such a shrinkage would restore each nation¹s ability to control its own currency, as well as generate revenue.
   
   
5. To effectively reduce volume, the tax percentage must be large enough to make overnight speculation unprofitable. Proposals range from .1% to .5% per transaction. Longer-term investments occur less often, so would not be adversely affected by this small tax, and the overall remaining volume would be enough to create sizable revenue.
   
   
6. Adoption by the major currency nations of the Tobin Tax mechanism would accomplish the volume-shrinking goal, so the adoption need not be universal to be effective.
   
   
7. Collection and enforcement of the Tobin Tax are considered to be economically and institutionally feasible, and concerns regarding tax avoidance could be dealt with through adoption of regulatory mechanisms.
   
   
8. Since the revenue could be quite large, over one hundred billion by some estimates, baseline criteria for allocation to meet basic needs should be established. Basic human needs and basic environmental needs must be met first, through existing international agreements such as those addressing environmentally sustainable development, climate change, and hunger.
   
   
9. The international portion of the revenue should be set aside in a series of earmarked trust funds for basic needs that are cooperatively administered in an open and democratic fashion. Administering agencies should cooperate with local civil society to provide actual services for basic needs, such as disaster aid and food distribution, small-scale agriculture and reforestation, health clinics and disease prevention, local water systems and pollution control mechanisms.
   
   
10. Such administration should occur within the framework of producing local jobs, while ensuring adequate environmental safeguards, and protection of the rights of workers and other citizens.
    
    
11. Political will is the key to successful adoption, and grassroots support is essential to educate decisionmakers regarding this opportunity.

• Is it economically feasible? There is a healthy debate going on among economists, but within that debate, most economists find it a credible proposal which must be studied and dealt with in great detail.

• Is it politically feasible? That will depend on citizens, grassroots organizations, political parties, parliamentarians and congresspeople, and heads of state around the world. The Canadian Parliament has recently become the first to pass a Motion about the Tobin Tax.

• What would happen to the revenue? This is where local citizens and grassroots organizations come into the picture. It is essential that guidelines be established and priorities be set, so that this will not be yet another "pork barrel". We should be demanding international criteria such as earmarking funds for poverty and the environment. And we should be asking our elected representatives to look seriously at this opportunity to reverse global environmental devastation and the disaster of poverty.