Chapter13 - Transactions Tax

A ‘Transactions Tax’ would be a slight variation to the commonly discussed: ‘Robin Hood Tax’ or ‘Financial Transaction Tax’. A ‘Transactions Tax’ would be a tax on all transactions with no exemptions. Whenever money moves, a very very minute tax is taken.

Robin Hood Tax or Financial Transaction Tax

A Robin Hood Tax is very small Financial Transaction Tax (FTT) levied on a range of financial transactions or on all financial transactions. A very small FTT is capable of culling as much tax as all the current taxes combined. An even bigger bonus is that a Robin Hood tax (FTT) would reduce financial speculation detrimental to our economy with a secondary effect of increasing financial stability. The reduction in financial speculation would also include speculation in international currencies that is particularly damaging to a nation’s finances and economy.

The FTT is a micro-tax on transactions. It would reduce the incidence of high-frequency trading for the purpose of short-term profit against those genuine longer term investors who invest for the benefit of industry. These High-Frequency Traders use so-called ‘super-computers’ to scalp the system.

My suggestion is a Transactions Tax on ALL transactions. This will then serve as a replacement for the damaging Sales Tax and its variants: VAT and GST. A Transactions Tax is identical to a Robin Hood Tax and an FTT except that it applies to ALL transactions.

The rate is open to discussion, but it would be exceedingly low, much lower than common taxes such as GST, Income Tax, and Company Tax. Proponents tend to suggest figures in the range $0.05 per $1000 (0.005%) through to $1.00 per $1000 (0.1%). To ordinary citizens, this amount can be treated as irrelevant. These small fees are even small compared to fees and interest that citizens pay as bank and credit card fees. The TT is even more irrelevant to a citizen compared to current taxes on income, goods, and services. Have a good study of this table:

Why a Transactions Tax is Good for the Citizens
Typical Income
Cells show Tax calculated on: Tax on $100 Tax on $1 000 Tax on $50 000 Tax on $1000 000
Transactions Tax at 0.005% $0.005 $0.05 $2.50 $50
Transactions Tax at 0.01% $0.01 $0.10 $5 $100
Transactions Tax at 0.025% $0.025 $0.25 $12.50 $250
Transactions Tax at 0.05% $0.05 $0.50 $25 $500
Transactions Tax at 0.1% $0.10 $1 $50 $1000
Below are current taxes and the amounts they remove from circulation.
GST at 10% $10.00 $100.00 $5 000 $100 000
VAT at 17.5% $17.50 $175.00 $8 750 $175 000
Personal Income Tax 35% $35.00 $350.00 $17 500 $350 000
Company Tax at 30% $30.00 $300 $15 000 $300 000
Credit card interest at 20% $20.00 $200.00 $10 000 $200 000
Credit Card Fee at say 2% $2.00 20.00 $1000 $20 000
International Money Exchange Fee at say 2% $2.00 20.00 $1000 $20 000
The proposed Transaction Tax fees are so small compared to other taxes and fees that they are almost irrelevant. However, they have the potential to collect enough tax to greatly reduce Income and Sales Taxes. The Transaction Tax would improve business productivity immensely because far less would be drained from the Circulating Money in the Real Economy.

My thoughts are towards something between $0.20 per $1000 (0.02%) and $1 per $1000 (0.1%). My version of a Robin Hood tax would be called a ‘Transactions Tax’ which would include all transactions on all bank accounts, including speculation, hedge funds, share transactions, derivatives, foreign exchange transactions and other financial transactions, many of which escape tax at present. This incudes everyday expenditure on eggs and carrots. Sales Tax would then be reduced to zero on most everyday items and Income Tax and Company Tax would be reduced significantly. Most of the items purchased by ordinary citizens have Sales Tax at $100 per $1000. This would reduce to less than a $1 per $1000. This would be a fabulous boost to the productivity of business and limit fast trading speculation.

A diagram comparing a Transaction Tax at 0.1%, Sales Tax at 10% and Income Tax at 30%. Creative Commons Attribute - Andy Chalkley.

The Transactions Tax would raise hundreds of billions of dollars annually.


In the UK, financial transactions are approximately £2 000 000 billion. In 2014 - 15 UK tax receipts equaled £513.6 billion. This is very close to 0.025% of the total transactions. Thus, an FTT of 0.025% would produce exactly the same tax as all the currently collected of taxes combined. Thus, an FTT of 0.025% could completely replace the whole of the current UK tax regime. Thanks to Simon Thorpe, again, for this analysis. [1]

According to Simon Thorpe:

It must be remembered that 80% of foreign exchange on Forex is for the purposes of speculation. That is betting against the health of nations. To my mind, anyone betting against the currency of a nation in a manner to damage the finances of that nation should be considered an enemy combatant and treated as a financial terrorist.

There are numerous estimates of the tax collecting ability of a Robin Hood tax and they depend rather heavily on the magnitude of the tax and the number of items that are excluded. I list a few examples mainly sourced from the websites of the Robin Hood organizations around the world:

John Maynard Keynes 1936

Economist John Maynard Keynes suggested that a transfer tax on securities transactions might reduce financial market speculation. The idea emerged in the wake of the great depression to counter speculation in the market.

Critics say that investors may pull their money out of the countries that apply the tax. However, Britain has a minor tax on share trades that appears not to have damaged the market in shares. This tax of 0.5% is significantly higher than my proposed FTT but and it has not significantly hampered one of the largest stock exchanges in the world. [3] And a point against the FTT detractors is that it is UK specific and has not caused the flight of capital from that stock-market.

Mr. Schmidt of Canada found that: “a Currency Transaction Tax of 0.5 basis points (0.005%) in the major currency markets would reduce transaction volume by 14% ... A 0.5 basis point CTT would raise at least $US33 billion every year, probably more.”

The advantage of an FTT is that is is a comparatively trivial expense for those that partake in trade or long term investment but would be a disincentive to those trying to game the system by buying for short term gain. This is sometimes referred to as high-frequency trading.

Ralph Nader: “A good start would be a tax on financial speculation... It has the potential to curb risky speculative trading that contributes little real economic value.” [4]

Tobin Tax 1972

This was proposed by Nobel laureate economist James Tobin in 1972. He proposed a currency transaction tax (CTT) and revitalized his ideas in the mid-1990s. The Tobin tax is an FTT on currency transactions.

The trading on financial markets has grown dramatically in recent years. The volume of financial transactions is now many times higher than world GDP. In 1990 financial transactions were fifteen times the GDP. In 2015 they are 73 times higher. [2] The volume of foreign exchange transactions is about 70 times greater than the volume of world trade and this is mostly due to a dramatic increase in derivatives. Just as currency speculation far exceeds the requirements of international trade, the derivatives market vastly exceeds any requirement for hedging and insurance. A Transactions Tax or an FTT maybe the only way of curbing this dangerous activity. ‘Boom and Bust’ cycles that have dangerous international consequences would be softened. This is not going to get support from the finance industry.

With the advent of rapid trading, the world’s finance sector no longer performs its social function in a satisfactory manner. Trading has moved towards the gain of a quick profit rather than the serving of the Real Economy and in so doing creates instability.

High-Frequency Traders account for 70% of US equity market. At the London Stock Exchange, it is 30% to 40%. The UK has a 0.5% stamp duty on share trades.

Just as the area to which newly created money is spent dramatically influences the economy, in a similar manner, the area from which money is removed influences the economy. One cannot use the undeniable collection ability of a Transactions Tax as the logic to stop taking taxes from other areas. A specific amount of tax needs to be collected in an efficient manner, but it needs to be collected in a manner to assist the economy, not destroy it. We need to carefully consider where we input new money tokens into the economy and where we remove such money tokens. A Transactions Tax is quite essential, but is not a replacement for other taxes. Other taxes are required to maintain balance, reduce inappropriate activity, curb speculation, to prevent land becoming a financial asset and other reasons.

Be wary of anyone advocating an international FTT tax collected by a regular multinational company posing as a supranational organization. An international tax may be going to a private corporation masquerading as a world taxation agency. An international tax agency would be out of the reach of any elected government of any nation. The owners and managers of such an organization could be described as an unelected world government. There are already organizations that are out of the reach of any elected official. These are owned and operated by private corporations and operate with complete immunity from the laws of any nation and pay no tax to anyone. Are you aware of any organizations that have these characteristics? No regular media outlet will ever tell you about this. Do the IMF, World Bank and Bank for International Settlements match the above characteristics? Be wary of an international tax collection agency. Likely candidates will be a carbon tax or an FTT.