Posted by on September 17, 2019 3:05 pm
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A tax on financial transactions has long been a popular idea on the far left, with the latest proposal for a levy on transactions coming from UK’s Labour Party under the leadership of the unreconstructed Marxist Jeremy Corbyn. However the proposal is a spectacularly bad idea, argues Tim Worstall in CapX, reviewing the many negative impacts that taxing financial transactions would have on the UK economy — already on shaky ground thanks to the uncertainty surrounding Brexit.



  • Worstall notes that Labour’s shadow chancellor, John McDonnell — the man mooted to be in charge of the country’s public finances — has mentioned the idea of a financial transaction tax repeatedly, most recently this week. 



  • One of the biggest problems with this idea is that while it is meant to hit rich bankers and stockbrokers, ever favorite targets of populist economics, Worstall points out that in reality some of the biggest losers would be pension funds. Higher tax bills mean, you guessed it, less money for pensioners. So a tax meant to claw back from plutocrats will in fact soak ordinary people instead.



  • More fundamentally, financial transactions taxes, like so many other socialist wheezes, actually end up bringing in less revenue because they depress the business activity that creates wealth to be taxed in the first place — in this case deterring the economically critical function of investment.



  • This is not exactly a big secret: the EU discarded the idea of a financial transactions tax after their evaluation showed that it would have precisely these harmful macroeconomic effects.



  • By the way, governments that have levied financial transactions taxes tacitly admit all this when they exempt their own bonds from the tax because it would make it more expensive to raise money — a nice crowning bit of hypocrisy from the Borrowers That Be.