There have been major happenings of late for the financial transaction tax. After many years (okay, let's face it -- decades) on the fringe, the idea of a small tax on Wall Street trading has moved solidly into the center of mainstream debate.
On September 12, long-shot candidate Jeremy Corbyn became Britain's Opposition Leader, winning nearly 60 percent of Labour Party members' votes -- a stronger mandate than Tony Blair's in 1994. Shortly before the election, he filmed this interview expressing his support for a financial transaction tax. Afterwards, he immediately reinforced his commitment to pushing the UK to join other European nations in adopting such a tax. The UK already has a tax on some stock trades that raises about $5 billion per year, but the current conservative government has been opposed to an EU plan for a much broader-based tax.
Corbyn said adopting such taxes, which would generate massive revenue and curb short-term speculation, is the "socially responsible" thing to do. And while he doesn't want the UK to wait around for the United States to get on board before taking action, he gave a nice shout-out to Senator Bernie Sanders and his efforts to move a financial transaction tax bill through the U.S. Congress.
Sanders got an even bigger boost the day after Corbyn's stunning victory when a new YouGov/CBS News poll showed him with a commanding lead in the early caucus and primary states of Iowa and New Hampshire. The Vermont senator's surge has done a great deal to elevate the financial transaction tax in this country. Sanders made it a core part of his Wall Street reform plan, arguing that it would "reduce risky and unproductive high-speed trading and other forms of Wall Street speculation." Revenue would be large enough, he says, to provide debt-free public college education.
Meanwhile, finance ministers from 11 EU governments that have committed to implementing a financial transaction tax met on September 12 to hammer out some of the final technical details. While this regional initiative has dragged on for several years, there are some encouraging signs of progress. The latest intel suggests negotiators have largely fended off financial industry efforts to water down the tax. For example, they have reportedly rejected calls for exempting all derivatives and taxing only net transactions at the end of the trading day, which would've crippled the impact of the tax on high-frequency trading. It also sounds like they're working to develop a fairly narrow exception for "market-making," i.e., buying and selling activity aimed at providing liquidity to markets. Once the design questions are settled, they will move on to establishing tax rates for different instruments.
European campaigners, including labor unions, environmental, global health, and other civil society groups, will continue to push hard for as robust a tax as possible. They are supported by a growing number of financial industry professionals who see the tax as an important tool for discouraging short-term speculation and returning financial markets to their proper role of serving the real economy. Avinash Persaud, a former senior executive of JPMorgan, UBS, and State Street, gives a strong plug for the tax in his new book, Reinventing Financial Regulation: A Blueprint for Overcoming Systemic Risk. Douglas Cliggott, a former JPMorgan Chase Managing Director, makes similar points in this recent Fortune commentary.
The European Commission has begun drafting the legal text in the areas where there is already agreement on their coordinated tax, with a final deal now expected in January or February 2016. By that time, we'll see where things stand in the U.S. debate. The momentum is definitely in the right direction.