The biggest banking and mutual fund lobby groups in the U.S. just sent a joint letter to the European Union blasting the new push in Europe to slap a global tax on financial transactions worldwide, including stock, bond and derivatives trades.
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The letter writers warn the new tax would hurt businesses, investor portfolios and 401(k) accounts, as well as consumers and “domestic economies” around the world.
The letter was sent to the EU’s commissioner of taxation, who has called the new tax “unquestionably fair, technically sound and legally robust.”
U.S. co-signers are the Financial Services Forum, the Securities Industry and Financial Markets Association (SIFMA), the Financial Services Roundtable, the U.S. Chamber of Commerce, and the Investment Company Institute, which represents the country’s mutual funds.
A U.S. Treasury spokesperson this morning emailed a statement to FOX Business noting the U.S. opposes the EU’s new Tobin tax: “We do not support the proposed European financial transaction tax, because it would harm U.S. investors in the U.S. and elsewhere who have purchased affected securities.” The spokesperson adds: “Treasury has raised these concerns with European counterparts.”
Eleven countries in the EU, including France, Italy, Germany and Austria (for the full list see below), are now moving to assess a 0.1% tax on stock and bond trades, plus a 0.01% tax on derivatives, which is estimated to raise $48 billion annually out of investor portfolios worldwide.
Much of the eurozone is in recession, and governments there have been seeking to raise fiscal revenues via higher taxes. Great Britain is not among the group of 11 countries.
So-called spot currency transactions would be exempt from the new tax, as would central bank purchases of sovereign bond securities. Currently, there is no ceiling on the tax rate under discussion, meaning, it could go higher.
The letter writers warn that while the new EU tax on trades is “specifically designed to be global in its reach,” it “would collect revenue from financial markets and investors around the world to which the minority of EU countries that support the tax have little or no connection.”
The banking letter writers also say the new tax raises serious U.S. trade issues, that the Tobin tax raises “novel and unilateral theories of tax jurisdiction” that “are both unprecedented and inconsistent with existing norms of international tax law and longstanding treaty commitments.”
Describing it as an overreach, the U.S. finance groups say the tax comes at a time when the U.S. and the EU have worked to “eliminate barriers between the two regions” in trade.
Citing the “high risk” of “double and multiple taxation, the letter writers also note the new Tobin tax would lead to “increased trading costs,” “dramatically reduced financial transactions,” “diminished liquidity” that could lead to “higher volatility” in the markets, and that it is a “job-killing tax.”
Noting that they are “concerned” that this “broadly extraterritorial transaction tax will cycle through the entire global economy,” the letter writers warn the EU countries will be “harming businesses and investors” because it will “raise costs to issuers, investors, and retirees.”
The groups also note: “We believe that the wisdom of Presidents Kennedy and Johnson in repealing this job killing tax in the United States still holds true today. The extraterritorial application of this tax in the United States by other jurisdictions would further fray the bonds that bind our global economy.”
The 11 countries are Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia. The U.S. letter writers also warn that if these countries enact a Tobin tax, they could see “reduced asset prices, substantial movement of trading to other venues” and “market dislocation.”
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