This past week in Luxembourg, the European Court of Justice struck down legal opposition by the British government in order to move forward in creating a new tax law in the European Union. Commonly known as the "Tobin Tax," named after American economist James Tobin who first proposed the idea in the 1980s, the law would tax the financial sector of the EU in order to cover some of the costs placed on taxpayers in the outcome of the recent financial and debt crises. The European Commission first announced the proposition of the new law in 2011, during which it stated that the financial tax law would require institutions in participating member states to pay a tax of at least a tenth of 1 percent of the value of transactions with other institutions. Since then, debate among EU member states regarding the effectiveness and possible consequences of implementing the tax has ensued.
The primary source of opposition to the new tax law has come from the British government, which has reflected the views of London's financial center. From an economic perspective, the British believe that the implementation of the tax will hurt London's financial competitiveness with other financial centers like New York and Hong Kong. Furthermore, the political interests also strongly oppose transferring any tax authority over to the EU government in Brussels. President Obama of the United States has also shared similar views as the British government over the effectiveness of taxing financial transactions, stating that the tax would be vulnerable to evasion, create an incentive for traders to work around it, and place a new burden on retail investors.
On the other side of the debate, many European governments have strongly advocated for the benefits of ratifying the new tax law. Aside from the main proponents of Germany and France, other supporters include Austria, Belgium, Estonia, Greece, Italy, Portugal, Slovakia, Slovenia and Spain. A primary argument in support of the tax has been that even a small percentage on each transaction could generate enough money to relieve those suffering the worst economic crisis on record in Europe, the negative effects of climate change, and to help economies in the developing world. The EU commission also believes that the tax could generate as much as 35 billion euros (about $48 billion) each year if used in the 11 countries that currently support it alone. Labor unions also support the new tax law with the aim of moderating financial speculation, as well as creating a new source of revenue for poor people in Europe and overseas.
Clearly, this debate regarding views over the proposed "Tobin Tax Law" is exposing some internal economic rifts amongst EU member states, especially between the financial interests of the United Kingdom and continental Europe. Britain is currently speculating whether or not it may be time to severe ties with the European Union due to several factors, including economic policy differences and immigration of EU citizens from central and eastern European countries. Should the United Kingdom either leave the EU or at least remain outside of the tax, many economists believe that such a tax could actually push more financial business towards London, as banks leave countries where the tax would be in place.