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Friday, September 30, 2011

A Special Finance Tax

The IMF is usually accused as being a conservative institution that favors elite bankers over the needs of everyday people.  Surprisingly, the IMF proposes taxing the finance industry to reduce financial excesses and pay for past bailouts:
The International Monetary Fund has proposed a set of broad taxes on the financial industry to guard against future crises, and the levies that would target "excess" profits and compensation as well as raise hundreds of billions of dollars in the United States alone.
In the agency's most detailed statement yet about how banks and finance companies should pay to offset their risk of failure, IMF staff outlined a possible "financial stability contribution" that would be based on the threat that a firm's collapse would pose to the economy. The levy, the IMF said, should raise an equivalent of at least 2 percent of a country's economic output -- around $300 billion in the United States -- and set it aside to underwrite the costs of putting failed institutions out of business.
A separate "financial activities tax" would impose taxes based on excess profit and perhaps pay, a proposal designed to discourage outsize executive bonuses and the sort of high-return but risky investments that helped drive the global economy into its worst recession in decades.
...[One purpose is] to recoup the public funds spent propping up the financial sector, and how best to raise money to pay for future problems.  The idea is a central issue in the financial reform debate under way in Washington and European capitals, where legislators have offered a range of measures: from a fee on large institutions, proposed by President Obama, to a tax on all financial transactions, being discussed in Europe.
...[The other purpose is] an effort to minimize the "systemic risk" posed by companies that grow so large that their failure can cascade into a larger crisis.
Taxing profits above a certain level "would become a tax on 'excess' returns in the financial sector," the staff paper said. "As such it would mitigate excessive risk-raking." The tax would also apply to "remuneration" -- possibly all the wages at a financial firm, but more likely executive pay and bonuses considered unreasonably high.






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