Why a continuously variable FTT makes really good sense

One of the big advantages of a Financial Transaction Tax is that it the rate can be continously modified - just like exchange rates. In this respect it is quite unlike the vast majority of taxes that are currently used to generate revenue. For example, when a government decides to drop the top-rate 50p tax band (as apparently the UK government would like to do), the effects will only be seen at least one year later. Changes in taxes on company profits such as corportation tax are also delayed. Indeed, given the motivation that such taxes provide for finding ways of "optimising" tax by using off-shore trusts and so forth, it becomes almost impossible to predict how much revenue will be generated in the future.

FTTs are very different. If a government, or a transnational organisation such as the EU, decides that it wants to raise a given amount to pay off national debt, finance infrastructure, replace existing taxes etc, it is perfectly possible to say that the rate of the FTT will be adjusted on a day to day basis to guarantee the level of revenue.

This would provide an incredibly potent stabilising force to the system because it would become impossible for the markets to threaten governments and force them into submission on issues such as regulation.

Actually, there is another interesting side effect of this. Imagine that you are one of the big players that is currently responsible for a substantial percentage of the $4 trillion per day in foreign exchange that is currently destabilising the system. In the UK, imposing an FTT of around 0.2% on the £300 trillion of foreign exchange would allow all the existing taxes to be abolished. And increasing the rate to 0.5% (which is the rate applied to share trading by the City of London) would allow the entire national debt to be paid off in just a year or two. But you might argue that as soon as any such FTT is introduced the bankers will just move their foreign exchange activities elsewhere. However, suppose that the tax applies to all transactions, and that the rate is continously varied to guarantee government revenue. This means that any banks that move foreign exchange operations elsewhere would immediately pay the cost on their other operations. Thus, if you are one of the big banks, and you know that you will have to pay in the end, there would be much less incentive to try and avoid paying your share by moving operations elsewhere.

For members of the general public, the changes in rate would be insignificant. Given that VAT and income tax can be abolished, increasing the FTT rate from 0.2% to 0.5% or even 1% or more is hardly a problem.

Finally, even if a minority of traders would oppose any restriction on their ability to siphon money out of the system, real entrepreneurs could only welcome such a move.

Is anyone listening out there? I really do think that we have a solution here, but it is going to take a lot of work to get the message across.

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