U.S. standing still on financial transaction tax as EU proceeds

WASHINGTON Mon Feb 25, 2013 10:55pm GMT

Jack Lew, President Barack Obama's nominee to lead the U.S. Treasury Department, testifies before the Senate Finance Committee on Capitol Hill in Washington February 13, 2013. REUTERS/Kevin Lamarque

Jack Lew, President Barack Obama's nominee to lead the U.S. Treasury Department, testifies before the Senate Finance Committee on Capitol Hill in Washington February 13, 2013.

Credit: Reuters/Kevin Lamarque

WASHINGTON (Reuters) - Much of Europe is speeding toward a tax on financial transactions, but the idea is going nowhere fast in the United States, as the Obama administration reaffirmed its opposition.

U.S. President Barack Obama's Treasury Secretary nominee Jack Lew, in a written response to a Republican senator weighing his nomination released on Monday, said the White House still opposes the tax.

"The administration has consistently opposed a financial transaction tax on the grounds that it would be vulnerable to evasion, create incentives for financial reengineering and burden retail investors," Lew said.

Little support has emerged in Congress for instituting such a tax, which is firmly opposed by Wall Street banks.

This is the case even though 11 European Union countries, including Germany and France, this month agreed to a trading tax that would raise up to $45 billion (29.6 billion pounds) annually.

Lew, expected to win Senate confirmation as early as this week, also cited scepticism from the International Monetary Fund about the tax in a statement answering questions from Orrin Hatch, the top Republican on the Senate Finance Committee.

The EU tax would be set at 0.01 percent for derivatives and 0.1 percent for stocks and bonds. Further approvals are needed in the EU before the transaction tax becomes a reality.

At a Washington think-tank seminar on Monday, European Union tax commissioner Algirdas Semeta said the only way to avoid the tax would be to give up all financial trading in the countries where it will be imposed.

"This tax, which was dismissed by sceptics as a pipedream, is about to become a reality," he said.

Semeta, who will meet with U.S. Treasury officials while in Washington, said he doubts he will change minds immediately, adding that Europe may first have to prove the tax can work.

Obama's annual budget proposals have proposed hundreds of billions of dollars in new taxes by closing corporate tax loopholes, but he has never proposed a tax on transaction.

The White House has opposed the tax since its re-emergence as an issue in the wake of the 2007-09 financial crisis.

Obama has instead backed a "financial crisis responsibility fee," which would be levied on the riskiest parts of a bank's balance sheet, on institutions with assets of more than $50 billion.

Cornell University Business Law Professor Lynn Stout said a transactions tax would not slow the economy, as critics contend, because it would discourage speculative behaviour and other elements of the financial system that add no value.

"It taxes the socially useless and wasteful part of finance," Stout said at the think-tank event.

Critics said a transaction tax would cut trading volumes, reduce the pensions of future retirees and could lead to double taxation on some transactions.

"We are very gratified that Treasury is taking what we think is a sensible position," said Payson Peabody, tax counsel at the Securities Industry and Financial Markets Association.

U.S. Senator Tom Harkin and Representative Peter DeFazio, both liberal Democrats, last month said they would reintroduce their proposal to add a 3-cent tax on each $100 in financial transactions. The congressional Joint Tax Committee has said that tax could raise $352 billion over a decade.

The congressmen have introduced the idea before, but it has not moved forward.

(Additional reporting by Anna Yukhananov; editing by Kevin Drawbaugh, G Crosse)