Robin Hood TaxIn January, 11 European countries moved significantly closer to implementing a financial transaction tax, known informally as a "Robin Hood" tax, which would be levied on stock, bond, and derivatives trades, with the proceeds potentially used to fight poverty and climate change.

Here in the U.S., the idea of a financial transaction tax has never gotten any real traction in Congress, but that may be about to change.

Sen. Tom Harkin of Iowa and Rep. Peter DeFazio of Oregon are planning to reintroduce a bill this month that would levy a Robin Hood tax right here in the States at an even higher rate than what looks set to go into effect in Europe.

Pennies on the Pound

If implemented as proposed, Europe's version of the tax will be as follows: a 0.1 percent levy on stock and bond trades and a 0.01 percent levy on derivatives trades.

For the U.S. version, Harkin and DeFazio are calling for a 0.03 percent tax on stock, bond, and derivatives trades, or 3 cents for every $100 worth of transactions.

The name of the proposed U.S. tax is The Wall Street Trading and Speculators Tax. According to Harkin, proceeds would "help raise necessary funds to invest in our infrastructure and the education of our children."

A nearly identical bill was introduced by the same two legislators in November 2011, but got nowhere. So why are its chances better now?

C'mon, Everybody's Doing It

A combination of peer pressure and popular sentiment might make a stronger case for a financial transaction tax this time around. With large economies in Europe all but certain to levy the tax -- and with heavy hitters like Germany, France, Spain, and Italy signed on -- the U.S. will feel more under the gun than ever to come up with its own version. But notable for its opposition to the tax: the government of England, where The City is both the heart of London and a world financial capital to rival Wall Street.

And it's no secret to the average person that the combined shenanigans of Wall Street and The City were behind the financial crash and ensuing global recession. To add insult to injury, taxpayers watched as many of the big banks at the root of the crisis were bailed out to the tune of billions one minute, only to turn around and pay their employees and executives hundreds of millions in bonuses the next.

As such, there's strong popular feeling on both sides of the Atlantic for some sort of general recompense and contribution to the greater good from the banks.

Also like much of Europe, the U.S. has a high level of public debt and runs chronic budget deficits. So the federal government is looking for quick and politically easy sources of revenue. A tax levied on big, unpopular financial institutions fits that bill perfectly.

Who Wins, Who Loses?

Critics argue that a financial transaction tax will hurt the little guys: middle-class investors who are just trying to save for their kids' college, retirement, or a rainy day. But this wouldn't be the case.

Middle-class investors are typically buy-and-hold types, investing in stocks or bonds more or less for the long term. As such, they don't make trades in the kinds of volumes that would be affected in any real way by such a minuscule tax. Remember, we're talking about 3 cents for every $100 here. To boot, Harkin and DeFazio's bill would explicitly make exceptions for retirement and education savings accounts.

As is clear from the tax's official title, speculators are one of the main targets of this bill: professionals who trade in high volumes and extremely high speeds and whose actions, as a result, can sometimes destabilize markets. It's hoped that a financial transaction tax of this kind would make that sort of trading prohibitively expensive and therefore make markets more stable for everyone.

Last time around, Harkin and DeFazio's bill drew the support of senators such as Bernie Sanders (I-Vt.) and Sherrod Brown (D-Ohio) -- no strangers to anti-big-bank legislation -- as well as a host of similarly minded congressional representatives. If the resubmitted bill picks up any real traction this time around, expect support from the same bunch and probably many more, now that Europe has made its move and there's some real momentum building for a Robin Hood tax on the Continent.

But also expect staunch opposition, and not just from conservative politicians. Wall Street and the financial services industry will certainly get in on the fight, as well, if not under the withering glare of the public eye, then behind the scenes. Because while a tax of 3 cents on every $100 of trades doesn't add up to much when you're building a personal retirement portfolio, it can add up to quite a pretty penny when you're building a hedge fund.

John Grgurich is a regular contributor to The Motley Fool. Follow his dispatches from the bleeding heart of capitalism on Twitter @TMFGrgurich.


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154 Comments

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setanta_1

offset pOverty and cLIMate chANge ?
what ?
we've had the war on poverty since LLLLbeeeeeeeeeeeeJ and the outcome is and has been a failure and this climate change bs ,is just THAT-BS-
as even the esteemed BBc is stepping back from IT as the truth FINALLY GETS OUT to joe lamebrain.

February 13 2013 at 2:41 PM Report abuse -1 rate up rate down Reply
ctc1066

I've been in the financial business for 30 years. As a Wall Street type I see both sides of the coin. We tax all types of transactions in this country from real estate to grocery purchases to car sales to airline tickets. Taxing is the drug that feeds the Congressional spending addiction. We have tended to exclude from taxes compassionate and/or critical need items such as prescription medicines. Financial transactions that are involuntary in nature such as depositing your paycheck (since no one gets paid in cash) writing checks or using your debit card since in most cases you are paying sales tax on these transactions so are not subject to transaction taxes. A tax on trades whether by individuals or big banks is not far from how we currently operate. The typical individual trade is about $35,000. The tax would be $10.50. Not an unreasonable amount. It is only fair that we tax both individuals and companies or we perpetuate the class warfare and sense of entitlement that Democrats have used to create the chaos and division we see in our society today. But I digress. The financial industry makes about 1.5 trillion dollars in these transactions a year for individuals and banks, mutual funds, credit unions, etc. The tax on that amount comes to about 450 million dollars a year. The bankers will of course argue against it. As a shareholder in any company I would expect them to. In the end they will lose and that 450 million, merely an appetizer for a spend crazy Congress will get misspent on giveaways to some politcally connected solar energy company or some community activist organiation. Taxation only really helps when spending is controlled. When you have a liberal government that is determined to buy votes by giveaways and entitlements the cycle of spending will never stop thus taxation will never solve the problem.

February 12 2013 at 1:19 PM Report abuse rate up rate down Reply
Thomas

That's right. Let's punish people who have worked hard for what they earn and own, yet allow the freeloaders to continue to sit on their dead a$$e$ and reap the benefits of the hard work of others. Mark my words, one day there will be more members of the recipient class than there are of the working class and then the gravy train will come to a screeching halt. That will be the day that we will need all those high capacity magazines because the deadbeats will come a-calling to get their fair share. I already have their "share" in mind.

February 12 2013 at 12:23 PM Report abuse +1 rate up rate down Reply
Ol Bob

If speculators were required to take delivery on commodities before they could resell, there would be no speculators driving up prices artificially.

February 12 2013 at 12:18 PM Report abuse +1 rate up rate down Reply
cboowillie

Robin Hood Tax???? All taxes are taking from the workers and given to the clueless...

February 12 2013 at 12:10 PM Report abuse +1 rate up rate down Reply
xgomazx

What people fail to realize is that Robin hood. regardless of purity of intentions. Was essentially a theif.
Thievery is still thievery no matter what its masqueraded as.

February 12 2013 at 11:32 AM Report abuse rate up rate down Reply
Alan

Clearly a misnamed tax - the name intended to cause people to be against it. This could be the best thing that ever happened to securities trading. Not that it would encourage more trades, quite the contrary. It would discourage automatic trading based upon fractional cent movements and cause investors to hold securities for a longer time. This would add stability to the markets.

February 12 2013 at 11:19 AM Report abuse -1 rate up rate down Reply
tjstieg

I thought all taxes levied were "Robbing Hood"--Any and all monies colleected by governments just go into a general fund and are spent on whatever the most self serving items are for the legislators at that time.

February 12 2013 at 11:04 AM Report abuse +2 rate up rate down Reply
1 reply to tjstieg's comment
setanta_1

bbbbbbbbuuuuuuuuut it workS in eurOland and WE MUST BE JUST LIKE THE EURONILS(urinals for those that don't get IT)
""free health care"" aaaaaaaand the TAXATION that goes right along with IT
gas prices soaring
cost of a pack of cigarettes
groceries
cost of LIVING
TAXES TAXES TAXES........can VAT be far behind ?
WAIT till THEY put a surcharge on ALL BANKING TRANSACTIONS from depsits/withdrawals on up etc---why are social security checks NOW DIRECT DEPOSIT ONLY ?????
WHY SOON we'll be JUST LIKE THEM
and that's WHAT these buktards WANT.

February 12 2013 at 11:19 AM Report abuse -1 rate up rate down Reply
chuckhalper

This is a classic political scheme.Gee--- It's got it all. A clever name, "Robin Hood Tax", that suggests its done by the good guys. "Its for education", a lie that has worked over and over again with the populace. Its designed to punish those reviled fat cats on "Wall Street and greedy rich" people, a neat tip of the hat to class hate. And, "it won't affect the middle class" which means that if someone else gets whacked, its OK. We pay enough in taxes. These our of control spenders in Washington must stay up nights thinking of new ways to get in to people's pockets. Oh, and if you think it won't affect you, service fees on managing a 401K will be featured in a letter that your 401K administrator will mail to you soon after enactment of this"noble tax".

February 12 2013 at 10:25 AM Report abuse +1 rate up rate down Reply
tonycgi

Can't come up with any Spending cuts, so go to where they were going all along New Taxes. It will be and always been the plan for Income Re-Distribution. Have a nice day all.

February 12 2013 at 10:15 AM Report abuse +2 rate up rate down Reply