Today’s big news (apart from the fact that we haven’t had a sterling crisis) is the launch of the Robin Hood Tax – aka the Tobin Tax. Having been around for years in the anti-globalisation movement, the idea of a tax on financial transactions was promoted by Gordon Brown and Nicolas Sarkozy amongst others last year as one way of financing transfers to developing countries for adaptation and mitigation. The Copenhagen Accord includes the proposal to find $100 billion a year. The Robin Hood Tax people say that taxes ranging from 0.5% on transactions in stocks and 0.005% on currency transactions would raise $400 billion a year which would also help end global poverty.
The Tobin tax concept is supported by a wide range of people, for a range of reasons (for example, Paul Krugman seems keenest on its dampening effects on speculation). Leaving aside the issues of how the money is disbursed and spent, I’m pretty well-disposed to it as well, but can’t help thinking that for the purposes of raising finance for adaptation in particular, a straightforward wealth tax might not be better.
The reasoning goes like this. Past emissions have committed us to a certain amount of climate change (you can see that despite Climategate we haven’t given in to the solar radiation and water vapour camp…). Many of those most affected will be very poor, living in the developing world, and will need help to adapt successfully. At the same time, historically carbon emissions rose in step with energy use from fossil fuels in the development of industrial capitalism, from the early 19th century onwards. That capitalism, with the huge increases in productivity it led to, has produced wealth on a vast scale – total household wealth in OECD countries has been estimated to make up 90% of the global total of $125 trillion (in 2000, probably more now despite the financial crisis). This is around $112 trillion.
Money made through investments in oil companies, electricity companies burning coal, iron and steel companies and so on, has of course been re-invested many times since, in assets ranging from property to fine art to government bonds to pension funds, and many of these new investments will also profit from activities that involve emissions. A large proportion of wealth represents embedded historical carbon emissions. The point is that all that wealth was accumulated at the wrong set of prices – with an effective subsidy to carbon – and the effects of overaccumulation are now being suffered by others who by and large don’t own that wealth. Thus there is a strong case for taxing wealth to pay for adaptation, compensating the losers at the expense of the winners.
To raise $100 billion from total wealth of $112 trillion would require an annual tax rate of 0.09%, applied across all asset classes. On a pension pot of £100,000, for example, this would be £90 a year. The other point about a wealth tax is that it is very, very progressive, since the distribution of wealth is much more unequal than the distribution of income. In Britain, for example, recent data from the ONS show that the top 10% of households own more wealth than the rest put together.
A Tobin tax is a reasonable proxy, and probably cheaper to collect. But because it is the right source of funding for adaptation, highly progressive, and the least damaging of taxes to growth, I still can’t help thinking that Robin Hood should be aiming his arrows more directly at a wealth tax.