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Robin Hood tax rides again

By Kay Bell · Bankrate.com
Tuesday, October 25, 2011
Posted: 1 pm ET

There is no dress code for Occupy Wall Street. But at the gathering in Chicago this month you could have caught a glimpse of several protesters in green tights.

The group was calling for a Robin Hood tax. And they dressed to make their point, including the legendary bandit's vest and green conical hat, complete with red feather.

The official name of the levy that the Occupy Wall Street group is seeking is a financial transaction tax. It gets its nickname because advocates of the tax want to use the money, which would be paid primarily by wealthier individuals making large-scale financial transactions and currency trades, to pay for programs for the less well-to-do.

Although the financial transaction tax idea is getting new life, it's not a new tax idea.

In 1972, the late American economist and Nobel laureate James Tobin suggested a securities transfer tax as a way to discourage currency speculation and penalize short-term trading. Since then, folks have brought up the idea whenever there's an impasse over how to pay for projects without adding to the federal deficit.

Two years ago, a couple of Democratic Congressmen led a Tobin Tax charge, introducing a bill with the clunky name "Let Wall Street Pay for the Restoration of Main Street Act of 2009." As the title and timing indicate, folks were pretty worked up over the Troubled Asset Relief Program, also known as TARP or the Wall Street bailout, that was enacted just a few months earlier.

That bill, which didn't go anywhere, would have added a 0.25 percent tax to the sale and purchase of stocks, options, derivatives and futures. Retirement accounts, however, would have been exempt from the transaction tax.

The proposal was projected to raise $150 billion. True to its Robin Hood moniker, the bill's supporters wanted half of the new transaction tax revenue to go toward reducing the deficit and the other half would to be deposited in a "job creation reserve" to support new employment opportunities.

Opponents of a Tobin Tax say the idea just won't work. If such a tax is tacked onto to financial transactions, they argue, investors would simply find other avenues for their money. That would slam the stock market, kill jobs and produce more tax losses for the U.S. Treasury.

Even the Secretary of the Treasury isn't keen on the idea. When Timothy Geithner has been asked about a transaction tax, his standard reply is that he hasn't seen a version of it that makes much sense.

But we tend to like our tax myths as much as our other fanciful stories.  The idea of being rescued by a Robin Hood character, I mean tax, that takes from the wealthy to meet the needs of the poor is tailor-made for Occupy Wall Street. The tax proposal even has its own website, robinhoodtax.org.

Now the Robin Hood tax idea has gone global. Some of the Occupy Wall Street contingent is calling for protestors to take to the streets in support of a 1 percent tax on financial transactions in advance of the upcoming summit of the Group of 20 leading economies in France. They argue that the tax could "slow down some of that $1.3 trillion easy money that's sloshing around the global casino each day -- enough cash to fund every social program and environmental initiative in the world."

Matt Slaughter, a dean of Dartmouth's Tuck School of Business, told Marketplace radio that the tax "sounds intuitive and maybe sounds just in some sense. But boy, like a lot of things in public finance, the devil's in the details."

While it could raise a lot of money, financial institutions would likely pass costs onto consumers. Witness the debit card fees now in the works.

Individuals at any income level would pay the tax directly when they bought or sold an asset.

And from an investing standpoint, money managers might hold off on trades to avoid fees. That's the classic case of letting the tax tail wag the dog. It might save some tax dollars, but it also might not be the best investment move.

At a time when investments are already volatile, I'm leery of anything that might add more bumps to the stock market ride. My portfolio is making me nauseated enough as is!

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