Pelosi Calls For International Transaction Tax

by Leroy Baker, Tax-News.com, New York

23 November 2009

Nancy Pelosi, the Speaker of the House of Representatives, has said that the United States should not impose a "Tobin tax" on financial transactions in isolation because such a move could damage the competitiveness of the nation's banking and financial services industry.

While appearing to support the idea of a bank transaction tax in principle, Pelosi told a recent news conference that the US could not go it alone and that there would have to be "an international rule."

"We'd have to do it as an international initiative," the California Democrat argued.

Nevertheless, there appears to be substantial support for some form of transaction tax among Congressional Democrats, and many are backing legislation introduced in the House earlier this year by Rep. John Larson, a Connecticut Democrat, which would impose a tax on over-the-counter (OTC) derivatives, such as the complex mortgage-backed instruments that caused the credit crunch.

Under Larson's Transparent Markets Act of 2009, the Internal Revenue Code would be amended to impose an excise tax on OTC derivative transactions at 0.25% of the fair market value of the underlying property, or the notional principal amount of the financial instrument in the transaction.

The bill defines "derivative financial instrument" as any option, forward contract, short position, notional principal contract, credit default swap, or similar financial instrument in any share of corporate stock, interest in a widely held or publicly traded partnership or trust, debt instrument, commodity which is actively traded, foreign currency, or specified index.

The idea of a global Tobin tax (named after the economist who first suggested the idea in the 1970s to dampen currency market speculation) is supported in other countries, particularly in the UK where Prime Minister Gordon Brown spoke in support of the idea at the G20 meeting in Scotland earlier this month.

The proposal does not, however, seem to have the same level of backing in President Obama's administration; following the Scottish G20 meeting, Treasury Secretary Tim Geithner said that a Tobin tax was not something the US government could support at this time.

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