Although France’s cabinet, the Council of Ministers, has recently adopted a plan for a financial transactions tax, similar measures are highly unlikely in the United States.
French media reported yesterday the cabinet approved a supplementary finance bill containing the tax, but the measure will still have to pass France’s main legislative body, the National Assembly, before becoming law. French Budget Minister Valérie Pécresse and Finance Minister François Baroin first proposed the bill in November.
In a television interview last month, French President Nicolas Sarkozy said the tax would generate €1 billion in new revenue.
“What we want to do is create a shockwave and set an example that there is absolutely no reason why those who helped bring about the crisis shouldn’t pay to restore the finances,” Sarkozy said in the interview.
Joseph Cangemi, past chairman of the Security Traders Association and current board member, said the tax is a longshot in the U.S., despite some politicos arguing for it.
“Today, it would be an uphill battle to get it passed in Congress,” Cangemi said.
Cangemi said the tax, designed to hit larger, wealthy investors, would actually have a greater effect on the small investor. “It is a direct tax on investors, all investors,” he said. And the tax would have a greater effect on the person with the smaller transaction.”
The Securities Industry and Financial Markets Association echoed Cangemi’s remarks, telling Traders Magazine that the tax, even if passed and approved in France, will likely face an uphill battle here.
“We’ve said numerous times before that we do not support a financial transaction tax because it is ultimately a tax on investors,” said Andrew DeSouza, spokesperson for SIFMA. “The fact that figures like Treasury Secretary Geithner comment that it won’t work illustrates the long road such a tax would have to be enacted in the current economic environment.”
In December, financial transaction taxes were introduced both in the U.S. Senate and House of Representatives, but those bills have so far gone nowhere, and President Barack Obama expressed opposition to such a tax at the G20 summit last year.
However, in France, the tax continues to move. The supplementary finance bill containing the tax passed its first hurdle when it was adopted by France’s cabinet, though it still has to pass the French National Assembly.
The measure would impose a 0.1 percent tax on all transactions in French securities. The tax would also include credit default swaps. Adoption of the proposed measure is not expected until the end of the month. The proposed tax would come into force in August regardless of whether or not the European Union agrees to impose a financial transactions tax across the EU.
Speaking on the sidelines of the Pragma Quantference in New York City on Thursday, David Mechner, co-founder of Pragma, said he did not think France’s move would have much impact on the U.S. Most people already thought the measure had a good chance of passing in France, and such a tax would have enormous repercussions if passed here, he said.
“It would be a big change for the structure of the market in the U.S.,” Mechner said. “It would have a pretty significant impact on volumes, on high frequency traders and on exchanges.”
Though many leaders in the EU are pushing for a Europe-wide tax on financial transactions, the United Kingdom has remained staunchly against such a move. Last month, British Prime Minister David Cameron said French banks should relocate to London if France goes ahead with such a tax.
In a recent opinion piece, Dan Waters, managing director of the Investment Company Institute Global, said if the European Union adopts a financial transaction tax, it “would do little more than cause trading to flee Europe for untaxed markets.”
Waters said such a tax would make markets less efficient by reducing liquidity, increasing bid-ask spreads and impairing price discovery.
