183 A Tobin Tax, not Global but National (for domestic purposes) - Ellen Brown

(1) A Tobin Tax, not Global but National (for domestic purposes) - Ellen Brown
(2) Cut Wall Street out; States can Finance their own Recovery - Ellen Brown
(3) Obama's Jobs program not working; what he should do - Robert Reich
(4) Britain to Tax Bankers' Bonuses
(5) City complains about Tax on Bankers' Bonuses

(1) A Tobin Tax, not Global but National (for domestic purposes) - Ellen Brown

http://www.truthout.org/110709C

TUESDAY 8 DECEMBER 2009

Shifting the Burden From Main Street to Wall Street: Why We Need a "Tobin Tax"

Saturday 07 November 2009

by: Ellen Hodgson Brown J.D., t r u t h o u t | Op-Ed

"Wall Street owns the country. It is no longer a government of the people, by the people, and for the people, but a government of Wall Street, by Wall Street, and for Wall Street. Our laws are the output of a system which clothes rascals in robes and honesty in rags."

-1890 speech by Populist leader Mary Ellen Lease, thought to be the prototype for Dorothy in The Wizard of Oz

Consider these arresting facts:

    * The Bank for International Settlements estimates that in 2008, annual trading in over-the-counter derivatives amounted to $743 trillion globally - more than ten times the gross domestic product of all the nations of the world combined.
    * Just five super-rich Wall Street banks control 97% of the U.S. derivatives market: JPMorgan Chase & Co., Goldman Sachs Group Inc., Bank of America Corp., Citigroup Inc. and Wells Fargo & Co.
    * Wall Street traders compete to design computer programs that can move many trades in microseconds, allowing them to beat ordinary investors to the "buy" button and to manipulate markets for private gain.
    * Goldman Sachs, the uncontested leader in this game, was reported in September to be sitting on a cool $167 billion in cash. Meanwhile, a September survey of state finances found that state governments faced a collective budget shortfall for fiscal 2010 of $168 billion - nearly the same amount.
    * In 2008, Goldman Sachs paid a paltry 1% in income taxes - less than clerks at WalMart.

Wall Street bankers have been called today's "welfare queens," feeding at the public trough to the tune of trillions of dollars. They are taking from the taxpayers and not giving back. These banks were rescued so they could make loans, take deposits, and keep our money safe. But while that is what banks used to do, today the big Wall Street money comes from short-term speculation in currency transactions, commodities, stocks, and derivatives for the banks' own accounts.

Wall Street traders have been criticized for profiting from "speculation" or "gambling," but that criticism hardly goes far enough. With high-speed computer programs, math whizzes, and taxpayers to bail them out when all of that brain power short circuits, these traders are not even gambling. What they have is a sure bet, while the rest of us are gambling, taking real risks for our rewards, which are liable to be few. The winnings of the Wall Street traders are coming right out of our pockets and our tax money.

Meanwhile, the sales tax on these speculative trades is zero. Wall Street's gamblers have managed to trade in practically the only products left on the planet that are not subject to a sales tax. Parents in California are now paying 9% sales tax on their children's school bags and shoes, and race track winnings and other forms of gambling are taxed at up to 25%. But trades in Wall Street's "financial products" get off scot free.

We need to get some of our tax money back, and we can. But first, a closer look at Wall Street's questionable trading practices ....

Why Goldman Always Wins

In the midst of the worst recession since the Great Depression, Goldman Sachs is having a banner year. According to an October 16 article by Colin Barr on CNNMoney.com:

    "While Goldman churned out $3 billion in profits in the third quarter, the economy shed 768,000 jobs, and home foreclosures set a new record. More than a million Americans have filed for bankruptcy this year, according to the American Bankruptcy Institute."

Barr writes that Goldman's "eye-popping profit" resulted "as revenue from trading rose fourfold from a year ago."

Why Goldman always seems to win at this game became evident in a revealing incident last summer, in which the bank sued an ex-Goldman computer programmer for stealing its proprietary trading software. Assistant U.S. Attorney Joseph Facciponti was quoted by Bloomberg as saying of the case:

    "The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways."

The obvious implication was that Goldman has a program that allows it to manipulate markets in unfair ways. Bloomberg went on:

    "The proprietary code lets the firm do 'sophisticated, high-speed and high-volume trades on various stock and commodities markets,' prosecutors said in court papers. The trades generate 'many millions of dollars' each year."

Those many millions of dollars are coming from ordinary investors, who are being beaten to the punch by sophisticated computer programs. As one blogger mused:

    "Why do we have a financial system? I mean, much of its activity looks an awful lot like gambling, and gambling is not exactly a constructive endeavor. In fact, many people would call gambling destructive, which is why it is generally illegal....

    "What makes Goldman Sachs et. al. so evil is that they offer vast wealth to our society's best and brightest in exchange for spending their lives being non-productive. I want our geniuses to be proving theorems and curing cancer and developing fusion reactors, not designing algorithms to flip billions of shares in microseconds."

Gambling is an addiction, and the addicted need help. A tax on the microsecond trades of Wall Street gamblers could sober them up and return them to productive labor, and transform Wall Street from an out-of-control casino back into a place where investors pledge their capital for the development of useful products.

Speeding Tickets to Slow Day Traders: The Tobin Tax Gains Momentum

The fact that speculative trades remain untaxed suggests a tidy way the public could recover some of its bailout money. The idea of taxing speculative trades was first proposed by Nobel Prize winning economist James Tobin in the 1970s; but at the time, the tax raised prohibitive accounting problems. Today, however, modern technology has caught up to the challenge, and proposals for a "Tobin tax" are gaining traction. The proposals are very modest, ranging from .005% to 1% per trade, far less than you would pay for a pair of shoes. For ordinary investors, who buy and sell stock only occasionally, the tax would hardly be felt. But high-speed speculative trades intended to manipulate markets for private gain could be slowed up considerably. Short-term traders, who often make money on very small margins, might be discouraged from trading at all.

Various proposals for a Tobin tax have received renewed media attention in recent months. President Obama gave indirect support for the tax in a Press briefing on July 22, when he recommended that the government consider new fees on financial companies pursuing "far out transactions". Leaders from France, Germany, and the European Commission endorsed putting a speculation tax on the agenda at the G20 meeting in Pittsburgh in September. Brazil has now imposed what may be the first Tobin Tax on foreign investment inflows. A U.S. bill proposing to tax short-term speculation in certain securities, called "Let Wall Street Pay for Wall Street's Bailout Act of 2009", was introduced by Rep. Peter DeFazio (D-OR) last February. A different bill to regulate derivative trades was approved by the Financial Services Committee in October.

Derivatives are essentially bets on whether the value of currencies, commodities, stocks, government bonds or virtually any other product will go up or down. Derivative bets can cause shifts in overall market size reaching $40 trillion in a single day. Just how destabilizing short-term speculation can be - and just how lucrative a tax on it could be - is evident from the mind-boggling size of the market: $743 trillion globally in 2008. Promoters of international development have suggested that a mere .005% tax could raise between $30 billion and $60 billion per year, enough for the G7 countries to double international aid.

More than raising money, however, the tax could be an effective tool for slowing harmful speculative practices. According to a number of Nobel Prize economists, a downsized speculative market would go far towards creating a more sturdy financial system, helping to avoid the need for future bailouts. But if the tax is too small, it might not have the desired effect on speculation. The larger 1% tax originally proposed by James Tobin is therefore favored by some proponents. The much-needed income from a U.S. tax could be split between federal and state governments.

Opponents of the Tobin tax, led by the financial sector, argue that it would kill bank jobs, reduce liquidity, and drive business offshore. Supporters respond that Tobin tax profits could be used to create new jobs, and that the small size of the tax would hardly affect cash flows - although certainly the speculative market would shrink. Players in dice-rolling speculative operations have long claimed that their trades "stabilized" the system by enabling investors to hedge risk, but the recent financial crash has exposed that defense as being without clothes.

Officials from the International Monetary Fund insist that implementing a Tobin tax would be logistically impossible. But Joseph Stiglitz, a Nobel Prize winning economist and former World Bank leader, disagrees. In Istanbul in early October, he said that a Tobin tax was not only necessary but, thanks to modern technology, would be easier to implement than ever before. "The financial sector polluted the global economy with toxic assets," he said, "and now they ought to clean it out."

While Wall Street's welfare queens have been busy collecting generous government handouts, the 50 states have been left to fend for themselves. Some 48 states have faced budget crises in the past year, forcing them to cut libraries, schools, and police forces, and to raise taxes on income and sales. A sales tax on the exotic financial products responsible for precipitating the economic crisis is long overdue. == ...

Comments

Sun, 11/08/2009 - 16:33 — Ellen Brown (not verified)
My main purpose in writing this article was to expose the outrageous trading practices of Goldman et al. The whole stock market is actually gambling and is not nearly so critical to the economy as everybody thinks. It's good for gamblers (or not, depending on if they win or lose), but it doesn't actually fund businesses. The only money going to the business is at the IPO (initial public offering), which is not traded on the stock market. Stock market trades are all secondary trades -- buying from other buyers, hoping to find a sucker who will buy at an even higher price. I'm in the stock market myself, and I like gambling; but I don't like the fact that the big boys can manipulate markets unfairly with their program trading. They need to be stopped, and a Tobin tax seems as likely as anything to do it. Since they own Congress, however, I doubt the tax would actually pass; my current goal is chiefly to inform and expose.

Sun, 11/08/2009 - 17:02 — Ellen Brown (not verified)
On a Tobin tax discouraging investment, I disagree. It would merely discourage speculative high-speed trading. When I used to have my money with a broker and paid $100 per trade, I pursued a buy and hold strategy, investing only in companies I thought were good productive long-term investments. When I switched to Scottrade at $7/trade, I did a lot more trading; but I didn't have any more money in the stock market than when I was with a regular broker. I just played the market more. A modest tax on trades will not discourage prudent investors looking to own companies with good productive potential. But it will discourage program traders doing multiple trades per second. "Hot money" inflows are not really good for a country. They create quick speculative bubbles that can collapse equally quickly when the hot money flows out again. Better the prudent, reasoned investments that intend to stick around a while.

Sun, 11/08/2009 - 17:42 — Ellen Brown (not verified)
One more comment: the Tobin tax is being co-opted by the G20 and the Bank for International Settlements, which are talking about imposing it globally. If we want to make sure that money gets used in the U.S. for U.S. recovery purposes, we need to agitate to have it adopted in the U.S. on our terms, to be used for U.S. purposes, with the proceeds split with state governments for local use. If we stand aloof and say nothing, we will wind up paying a tax to the globalists for purposes adverse to our national interests. ...

Wed, 11/11/2009 - 04:26 — Ellen Brown (not verified)
Hi, Geithner said he wanted the banks to pay the money back after they got back on their feet rather than taking it out of a Tobin tax, but that assumes that the banks actually get back on their feet; and he's ignoring the harm high-speed program trading can do to the markets. Interesting that Gordon Brown now favors the tax though. Trying to redeem himself before election time perhaps.

(2) Cut Wall Street out; States can Finance their own Recovery - Ellen Brown
http://www.truthout.org/1031091

TUESDAY 8 DECEMBER 2009

Cut Wall Street Out! How States Can Finance Their Own Economic Recovery

Saturday 31 October 2009

by: Ellen Hodgson Brown J.D., t r u t h o u t | Feature

Pouring money into the private banking system has only fixed the economy for bankers and the wealthy; it has not done much to address either the fundamental problem of unemployment or the debt trap so many Americans find themselves in.

President Obama's $787 billion stimulus plan has so far failed to halt the growth of unemployment: 2.7 million jobs have been lost since the stimulus plan began. California has lost 336,400 jobs. Arizona has lost 77,300. Michigan has lost 137,300. A total of 49 states and the District of Columbia have all reported net job losses.

In this dark firmament, however, one bright star shines. The sole state to actually gain jobs is an unlikely candidate for the distinction: North Dakota. North Dakota is also one of only two states expected to meet their budgets in 2010. (The other is Montana.) North Dakota is a sparsely populated state of less than 700,000 people, largely located in cold and isolated farming communities. Yet, since 2000, the state's GNP has grown 56 percent, personal income has grown 43 percent and wages have grown 34 percent. The state not only has no funding problems, but this year it has a budget surplus of $1.3 billion, the largest it has ever had.

Why is North Dakota doing so well, when other states are suffering the ravages of a deepening credit crisis? Its secret may be that it has its own credit machine. North Dakota is the only state in the Union to own its own bank. The Bank of North Dakota (BND) was established by the state legislature in 1919, specifically to free farmers and small businessmen from the clutches of out-of-state bankers and railroad men. The bank's stated mission is to deliver sound financial services that promote agriculture, commerce and industry in North Dakota.

The Advantages of Owning Your Own Bank

So, how does owning a bank solve the state's funding problems? Isn't the state still limited to the money it has? The answer is no. Chartered banks are allowed to do something nobody else can do: They can create credit on their books simply with accounting entries, using the magic of "fractional reserve" lending. As the Federal Reserve Bank of Dallas explains on its web site:

    "Banks actually create money when they lend it. Here's how it works: Most of a bank's loans are made to its own customers and are deposited in their checking accounts. Because the loan becomes a new deposit, just like a paycheck does, the bank ... holds a small percentage of that new amount in reserve and again lends the remainder to someone else, repeating the money-creation process many times."

How many times? President Obama puts this "multiplier effect" at eight to ten. In a speech on April 14, he said:

    "[A]lthough there are a lot of Americans who understandably think that government money would be better spent going directly to families and businesses instead of banks - 'where's our bailout?,' they ask - the truth is that a dollar of capital in a bank can actually result in eight or ten dollars of loans to families and businesses, a multiplier effect that can ultimately lead to a faster pace of economic growth."

It can, but it hasn't recently, because private banks are limited by bank capital requirements and by their for-profit business models. And that is where a state-owned bank has enormous advantages: States own huge amounts of capital, and they can think farther ahead that their quarterly profit statements, allowing them to take long-term risks. Their asset bases are not marred by oversized salaries and bonuses; they have no shareholders expecting a sizable cut, and they have not marred their books with bad derivatives bets, unmarketable collateralized debt obligations and mark-to-market accounting problems.

The Bank of North Dakota (BND) is set up as a dba: "the State of North Dakota doing business as the Bank of North Dakota." Technically, that makes the capital of the state the capital of the bank. Projecting the possibilities of this arrangement to California, the State of California owns about $200 billion in real estate, has $62 billion in various investments and has $128 billion in projected 2009 revenues. Leveraged by a factor of eight, that capital base could support nearly $4 trillion in loans.

To get a bank charter, specific investments would probably need to be earmarked by the state as startup capital; but the startup capital required for a typical California bank is only about $20 million. This is small potatoes for the world's eighth largest economy, and the money would not actually be "spent." It would just become bank equity, transmuting from one form of investment into another - and a lucrative investment at that. In the case of the BND, the bank's return on equity is about 25 percent. It pays a hefty dividend to the state, which is expected to exceed $60 million this year. In the last decade, the BND has turned back a third of a billion dollars to the state's general fund, offsetting taxes. California could do substantially better than that. California pays $5 billion annually just in interest on its debt. If it had its own bank, the bank could refinance its debt and return that $5 billion to the state's coffers; and it would make substantially more on money lent out.

Besides capital, a bank needs "reserves," which it gets from deposits. For the BND, this too is no problem, since it has a captive deposit base. By law, the state and all its agencies must deposit their funds in the bank, which pays a competitive interest rate to the state treasurer. The bank also accepts deposits from other entities. These copious deposits can then be plowed back into the state in the form of loans.

Public Banking on the Central Bank Model

The BND's populist organizers originally conceived of the bank as a credit union-like institution that would free farmers from predatory lenders, but conservative interests later took control and suppressed these commercial lending functions. The BND is now chiefly a "bankers' bank." It acts like a central bank, with functions similar to those of a branch of the Federal Reserve. It avoids rivalry with private banks by partnering with them. Most lending is originated by a local bank. The BND then comes in to participate in the loan, share risk and buy down the interest rate.

One of the BND's functions is to provide a secondary market for real estate loans, which it buys from local banks. Its residential loan portfolio is now $500 billion to $600 billion. This function has helped the state to avoid the credit crisis that afflicted Wall Street when the secondary market for loans collapsed in late 2007. Before that, investors routinely bought securitized loans (CDOs) from the banks, making room on the banks' books for more loans. But these "shadow lenders" disappeared when they realized that the derivatives called "credit default swaps" supposedly protecting their CDOs were a highly unreliable form of insurance. In North Dakota, this secondary real estate market is provided by the BND, which has invested conservatively, avoiding the speculative derivatives debacle.

Other services the BND provides include guarantees for entrepreneurial startups and student loans, the purchase of municipal bonds from public institutions and a well-funded disaster loan program. When the city of Fargo was struck by a massive flood recently, the disaster fund helped the city avoid the devastation suffered by New Orleans in similar circumstances; and when North Dakota failed to meet its state budget a few years ago, the BND met the shortfall. The BND has an account with the Federal Reserve Bank, but its deposits are not insured by the FDIC. Rather, they are guaranteed by the State of North Dakota itself - a prudent move today, when the FDIC is verging on bankruptcy.

The Commercial Banking Model: The Commonwealth Bank of Australia

The BND studiously avoids competition with private banks, but a publicly-owned bank could profitably engage in commercial lending. A successful model for that approach was the Commonwealth Bank of Australia, which served both central bank and commercial bank functions. For nearly a century, the publicly-owned Commonwealth Bank provided financing for housing, small business, and other enterprise, affording effective public competition that "kept the banks honest" and kept interest rates low. Commonwealth Bank put the needs of borrowers ahead of profits, ensuring that sound investment flows were maintained to farming and other essential areas; yet, the bank was always profitable, from 1911 until nearly the end of the century.

Indeed, it seems to have been too profitable, making it a takeover target. It was simply "too good not to be privatized." The bank was sold in the 1990s for a good deal of money, but it's proponents consider it's loss as a social and economic institution to be incalculable.

A State Bank of Florida?

Could the sort of commercial model tested by Commonwealth Bank work today in the United States? Economist Farid Khavari thinks so. A Democratic candidate for governor of Florida, he proposes a Bank of the State of Florida (BSF) that would make loans to Floridians at much lower interest rates than they are getting now, using the magic of fractional reserve lending. He explains:

    "For $100 in deposits, a bank can create $900 in new money by making loans. So, the BSF can pay 6 percent for CDs, and make mortgage loans at 2 percent. For $6 per year in interest paid out, the BSF can earn $18 by lending $900 at 2 percent for mortgages."

The state would earn $15,000 per $100,000 of mortgage, at a cost of about $1,700, while the homeowner would save $88,000 in interest and pay for the home 15 years sooner. "Our bank will save people about seven years of their pay over the course of 30 years, just on interest costs," says Dr. Khavari. He also proposes 6 percent credit cards and 6 percent certificates of deposit.

The state could earn billions yearly on these loans, while saving hefty sums for consumers. It could also refinance its own debts and those of its municipal governments at very low interest rates. According to a German study, interest composes 30 percent to 50 percent of everything we buy. Slashing interest costs can make projects such as low-cost housing, alternative energy development, and infrastructure construction not only sustainable, but profitable for the state, while at the same time creating much-needed jobs. == ...

Comments

Sat, 11/21/2009 - 01:15 — Ellen Brown (not verified)
In response to Abigail, credit generated by a state-owned bank is not at all the same thing as money generated by private banks on the fractional reserve system. Private bankers continually syphon profits out of the system, making it essentially an unsustainable Ponzi scheme. Credit generated by a publicly-owned bank is closer to a community currency system: borrowers create money whenever they take out loans, "monetizing" their own promise to repay. The money is extinguished when they pay the loan off. The interest goes back to the community (the government of the people who trusted the borrower with their credit), reducing the need for taxes. The system is eminently sustainable, as was shown in Benjamin Franklin's colony of Pennsylvania, which set up the ideal model with its provincially-owned bank.

(3) Obama's Jobs program not working; what he should do - Robert Reich

http://www.truthout.org/topstories/120909sg03

THURSDAY 10 DECEMBER 2009

The President's Job's Initiative Doesn't Measure Up

Tuesday 08 December 2009

by: Robert Reich

Barack Obama is trying once again for balance. On the one hand, he wants enough government spending to offset the timid spending of consumers and businesses. Otherwise, the jobs and wage recession could drag on for years. On the other hand, he doesn't want to set off more alarm bells about the budget deficit. Otherwise, conservative Democrats might join forces with Republicans to block heath care. So what does he do? A little bit more stimulus spending, but stimulus spending that doesn't look like more stimulus because it's not really adding to the deficit. It's coming out of savings from money already authorized to be spent on the bank bailout. Hmmm?

No president in modern times walks a tightrope as exquisitely as this one. His balance is a thing of beauty. But when it comes to this economy right now -- an economy fundamentally out of balance -- we need a federal government that moves boldly and swiftly to counter-balance the huge recessionary forces still at large.

States and cities, for example, are estimated to be $350 billion hole this year and next. They can't run deficits so they're wildly cutting spending, cutting jobs, cutting contracts, and raising taxes and fees. That's a huge anti-stimulus package roughly as big as the remaining direct spending in the old federal stimulus package. Which means, Obama's "new" stimulus, announced today, is about all we have, and it's not nearly enough.

The word in Washington is we're out of the woods. The rate of unemployment dipped from 10.2 percent in September to 10 percent in October. In our nation's capital, a one-month trend marks a turnaround. Don't believe it for a moment. The real story of October was the increasing number of Americans who dropped out of the labor force, too discouraged even to look for work.

Main Street is hurting worse than ever. Ten percent unemployment translates into roughly 18 percent of our workforce unemployed or underemployed. Housing markets are in terrible shape: One quarter of homeowners are paying more each month than their houses are worth; the rates of tardy mortgage payments continue to rise. Thirty percent of American households contain someone who has lost a job and can't find another, and yet almost all households are dependent on more than one wage earner in order to make ends meet. A quarter of all American children are now dependent on food stamps.

There is no reason to tolerate this degree of misery. We know exactly what to do. The government has the fiscal tools to do it. Start by bailing out state and local governments (if Congress would prefer to call it a loan and require payback over the next five years, fine). Renew unemployment and COBRA benefits. Increase federal spending on infrastructure. If we have to, hire people directly. The package should be $400 billion over two years.

We don't know exactly how much the President is proposing to spend, but sources tell me it's in the range of $70 billion, redirected from the $200 billion in TARP savings. The President's small, calibrated attempt to balance a stimulus with deficit reduction will in fact make the deficit worse over the long haul. It postpones the day when we're back to near full employment, when almost all Americans who need a job get paychecks on which they pay taxes. This isn't really balance at all. It prolongs the economic imbalance.

Robert Reich was the nation's 22nd Secretary of Labor and is a professor at the University of California at Berkeley. His latest book, "Supercapitalism," is now available in paperback.

(4) Britain to Tax Bankers' Bonuses

http://www.dailymail.co.uk/debate/columnists/article-1234038/Bankers-blame-themselves.html

Bankers have no one to blame but themselves

By Alex Brummer

08th December 2009

Raising taxes is never normally a popular step for any Chancellor. But Alistair Darling is unlikely to encounter much opposition when he announces tomorrow that he has decided to impose a supertax on the ferociously large bonuses that bankers have earned on the back of the taxpayer.

If ever there were a time when the nation could have expected the banks to show restraint it was over the last year. After all, without the enormous subsidies from taxpayers in Britain, the United States and on the Continent, many of the most famous names in banking would not even exist today.

In Britain alone, the handouts to the banking system have reached more than £1trillion (or £1,000billion), a sum equal to two-thirds of the national income.

Yet the bankers and their supporters in the financial community simply do not understand the level of anger directed against them and their foolhardy lending policies. They still believe they are entitled to high pay and bonuses and a privileged lifestyle.

Darling will not, of course, be the first Chancellor to impose a one-off 'windfall' tax on business. In 1981, the then Tory Chancellor Geoffrey Howe imposed a levy on what were seen as excessive bank profits.

Years later, in his first Budget after coming to power, Gordon Brown imposed a tax on the utility companies (many of them foreign owned) which were seen to have been exploiting the consumer.

There can be little doubt that the Government's decision to tackle the proposed bonuses to be paid by the banks is partly due to the naivety of the board of the Royal Bank of Scotland headed by Sir Philip Hampton and Stephen Hester. Their disclosure that the board had set aside an estimated £1.5billion for bonuses earned in 2009  -  and that the bank's directors were prepared to resign en masse if the authorities vetoed those bonuses  -  left the Government with little choice but to play hardball.

It will not just be bankers at the partly nationalised Royal Bank of Scotland and Lloyds Banking Group who are going to be subjected to the supertax on bonuses.

It is my understanding that the Treasury will be taxing the bonuses paid at all the Londonbased banks including the high fliers at Goldman Sachs and European giants like Credit Suisse.

Goldman Sachs alone is planning to set aside £11.4billion for pay, bonuses and benefits worldwide to reward high fliers over the last 12 months. It is seeking to assuage public anger by offering to pay most of the bonuses in shares, rather than cash. The big debate in Whitehall has been over what shape the windfall tax would take and at whom exactly it should be targeted.

Early suggestions that a special tax should be imposed on profits, or that banks should no longer be allowed to charge past losses against future earnings, were ruled out. Such moves would penalise relatively successful banks such as HSBC, which have survived without government help, and would also damage the prospects

So the Government has decided to tax the bonuses themselves.

Most senior bankers and traders receive only a fraction of their earnings in basic pay  -  the rest comes through bonuses. The Government could attack the bonuses in a number of ways.

A supertax could be imposed directly on the bonus pool  -  the sum set aside by banks each year to pay bonuses. Or the Government could attack the recipients by adding a surtax on bonuses, in addition to the higher 50 per cent tax rate due to take effect next year.

Angela Knight, the director of the British Bankers Association, suggests that there will an exodus of Britain's top income producers  -  traders and financial engineers  -  to Switzerland and other countries with softer tax regimes.

Alistair Darling plans to take the sting out of the threatened exodus by making it clear that the 'bonus' tax is a one-off for this year only. However, he will also reiterate the Government's increasing commitment to an international effort, through the leading Group of 20 nations, to restraining fat bank profits over the longer term.

This would be achieved through some kind of tax on transactions such as foreign exchange deals and other areas of market trading.

There is no doubt that Darling will be accused of vindictiveness over his proposed tax on the bonuses paid to bankers. Critics argue he is simply creating a feast for tax accountants who always find a way around such schemes.

Banks could also try to get round the tax by turning bonuses into higher basic pay. But whatever the wheezes adopted and the threats made to shift operations overseas, the bankers have only themselves to blame for the clampdown.

If they had shown a modicum of self-restraint and a greater sense of public duty, they would not be staring down the barrel of more intrusive regulation and higher taxation.

(5) City complains about Tax on Bankers' Bonuses

http://www.thisislondon.co.uk/standard/article-23780564-this-tax-on-bankers-risks-hurting-us-all.do

This tax on bankers risks hurting us all

Evening Standard comment
07.12.09

The motivation behind Alistair Darling's proposal for a punitive tax on bank bonuses is obvious: the public, for excellent reasons, detests the bonus culture that helped land us in this mess.

Having bailed out the financiers, it seems like a poor return for them to go back to their bad old ways. There is also an ill-disguised element of class war at play.

The trouble is, the disadvantages of picking on the bankers outweigh any rational benefit. To begin with, how do you go about singling one group of professionals for punitive taxation in the pre-Budget report?

To impose higher tax on those who receive a big proportion of their income in one month could affect other groups.

Besides, financiers are mobile. If we impose a punitive tax regime, then the golden goose could simply fly.

The City is the engine that sustains the economy - and London's in particular. Without the profits generated by the City, the possibilities for recovery are slim.

Certainly, the financial sector made possible the public spending splurge of the last decade. Punitive action against the sector is against the national interest.

There is a rational policy to make a repeat of the bank bailout less likely, and it is not a crude attack on bonuses.

It is, as the Governor of the Bank of England says, to ensure that the state will, in future, underpin only the essential retail elements of the banking sector, not its risky investment banking operations.

That is not as politically attractive as bonus bashing. But it makes a lot more sense.