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.
15 responses to “Tobin or not Tobin….”
Interesting post. While it’s good that we have some international leader backing for the Tobin Tax via Brown and Sarkosy, it’s reportedly the US (and by proxy the IMF etc.) who are going to be the main obstacle so if anyone has information on whether the Obama administration have made any noises about this that would be helpful.
In this vein presumably the situation with an international wealth tax is similar – i.e. sounds like a good idea but what is the likelihood of such a tax being introduced?
Perhaps helpful to focus on the situation within the UK and I bring your attention to a recent book by David Willets on inequality between the generations ‘The Pinch’ which shows how wealth has become massively concentrated in the hands of the baby boomers at the expense of their children’s generation. This wealth has been generated for a number of reasons not least the massive growth in the economy that has come from the use of low cost, high carbon fossil fuels. So as you say ‘A large proportion of (this) wealth represents embedded historical carbon emissions’. And of course this has left in its wake a huge ecological debt, payable in climate change impacts. With this in mind and applying the polluter pays principle quite naturally ideas of a wealth tax (or variants e.g. land value tax) come to mind. Willet’s book may be a bit of a game changer so perhaps one to watch.
I’ve been writing and thinking about intergenerational justice and climate change for a while now. Of course intergenerational justice can be applied to sustainability generally but carbon use really shows it clearly. I’d be interested in any thoughts on how to implement solutions to inequality between the generations. Here are some ideas to start the debate!
i think the intergenerational framework is helpful, in the UK context, as the arguments for shifting the tax burden towards wealth may be far broader than the unequal emissions of carbon – is about unequal opportunities to accrue wealth and unequal quality of life more generally – and any opportunity to advance climate change policy in a non-climate change context/frame is worthy of some attention.
and I think the frame has potential to be quite potent. family is a huge motivator for people and once you get past the word ‘intergenerational’ you realise you’re actually talking to grandparents about their grandchildren.
Thanks Lucy. Will take a look.
Conceptually I agree that a wealth tax is much more pleasing – however, have you tried pitching the idea to US Politicans? Any formulation which hints at historical responsibility or carbon debt is a non-starter.
The beauty of the RHT, conceptually imperfect as it may be, is that there is an opportunity. Hopefully a few more Green NGOs will notice this and throw their weight behind it (current support seems to be heavily skewed towards the development groups).
I’m not convinced that a Tobin Tax/RHT will be as easy a political win as some people think. At the same time, perhaps rather curiously, the US has wealth taxes that the UK doesn’t – a local land tax in some states, for example, and don’t forget that Obama is reversing the top end tax cuts that Bush brought in. Wealth taxation also receives support from perhaps surprising quarters, such as Martin Wolf at the Financial Times. The political presentation is key – the right in the UK managed to mobilise mass support against increasing inheritance tax from people who wouldn’t pay it in any case. Surely we can at least get people to see things more clearly.
Sure. But are these not all examples of transfers within a particular country? As soon as you start to talk about transfers between countries, things become much more complicated.
I do agree though that a RHT is unlikely to be an easy win, but my sense is that the political conditions for this are more favourable than an international wealth tax (which conceptually I certainly would prefer).
Great logic – a global wealth tax has lots of theoretical appeal … but it won’t work in practice. Jean Baptiste Colbert (French Minister of Finance under Louis XIV) said: ‘The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.’ Your wealth tax would cause an awful lot of hissing from the world’s wealthest people. It would also be an expensive nightmare to administer and create a large industry in avoidance and evasion. The beauty of a Tobin Tax is that all the transactions you want to tax are already recorded, so it is much, much cheaper to administer and very, very difficult to evade. If – and I admit it is a sizeable if – all the world’s major financial centres are covered by the tax, the authorities just have to set the tax rate and sit back and watch the money roll in (oh yes, and decide what to do with it).
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