September 29, 2011
Bloomberg News Service really doesn’t like financial speculation taxes (FST). In fact it dislikes them so much that it is prepared to make things up to try to get people to oppose an FST. It told readers that the very low financial speculation taxes (0.05 percent on each side of a stock trade 0.005 percent on each side of a derivative trade) being considered by the European Union would shave 0.5 percentage points off of Europe’s growth rate.
Let’s think about this one for a moment. In the last three decades, the cost of trading shares of stock and derivatives has almost certainly fallen by at least twice this much. If the increase in the cost of trading from this tax would slow growth by 0.5 percentage points, then we should expect that a decline in costs of more than twice this size would raise annual growth by perhaps as much a 1.0 percentage point.
Since growth has been very weak in this last decade of low trading costs, does Bloomberg really want to tell its readers that it would have been 1.0 percentage point lower if there had not been a decline in transactions costs?
What about the UK which already has a tax on stock trades that is 5 times the size of the tax being considered by the EU. (This tax somehow appears as a “small duty” in the Bloomberg piece.) Since the UK tax is 5 times as large as the one that Bloomberg tells us would slow growth by 0.5 percentage points, does Bloomberg want us to believe that the UK’s growth rate might increase by 2.5 percentage points (5*0.5 percentage points), if the UK eliminated its stock transfer tax?
Of course these claims are absurd on their face as is the claim that the tax could possibly have an impact on growth of the order of magnitude claimed by Bloomberg. This is clearly a case of Bloomberg making stuff up to put down a measure it doesn’t like.
And we know that people resort to making phony arguments when they know they don’t have real arguments. So, we should all extend a big thank you to Bloomberg News Service.
[Non-correction: I did find the EU study to which the Bloomberg editorial referred. It does refer to a reduction in GDP growth of 0.5 percent. However, this section is awkwardly worded and it is very clear that it is actually referring to GDP levels, not growth rates. In response to the comment by editorial board member Paula Dwyer (below), I suggest that it is Bloomberg that needs to make a correction.]
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