UK’s Brown pushes measure despite widespread opposition.
UK Prime Minister Gordon Brown says backing for his Tobin Tax on financial transactions is gaining steam. But opposition to the measure remains overwhelming, according to a new survey by Greenwich Associates, which indicates that 90 percent or more of the financial institutions and corporations in the US and Europe are against it.
Treasurers argue that such a tax would have a “sharply negative impact on investment returns, market liquidity and pricing, and on companies’ ability to raise capital,” Greenwich officials said.
Mr. Brown wants to use proceeds from such a tax to fund a vehicle to wind down troubled financial institutions in an orderly manner. He floated the idea at the G20 meeting last fall, but was rebuffed, and the Obama administration’s plan for a bank liability tax appears to be another nail in the Tobin Tax’s coffin.
The idea has widespread academic backing, especially from those who challenge the conventional wisdom that liquidity is a good in and of itself. Tobin Tax backers tend to argue that liquidity breeds bubbles and attempts to rein it in can therefore help stabilize the financial system. Supporters of the tax believe it could make “bear raids” by short sellers more expensive. (See “Market Update: Transaction Taxes Back on the Agenda.”)
But these assertions carry little weight with financials and corporates. The greatest support for such a tax was in Europe, but even there, only 12 percent of the survey respondents thought it is good idea. Mr. Brown would need to marshal significant political resources to pass such a measure in the face of such opposition.