Who Taxes Financial Transactions and Will Others Join?

As governments ponder how best to extract more tax revenue from the wealthy and pay the bill for tackling Covid, the idea of a levy on financial trades is having a moment. Hong Kong increased its financial transaction tax in February, while jurisdictions in the U.S. and Europe debate a similar move. Watching warily are those who would stand to lose out, including market makers and high-frequency traders who make tiny margins from trading millions of positions a day.

Generally speaking, they are levies on sales of stocks (most commonly) or bonds, and can extend even to transfers of derivatives and foreign exchange. Also known as stamp duty, some variant of a transaction levy has long been widely applied to the transfer of real estate, land and patents, among others. In some instances, the charge is only paid by one party in the transaction, for example, the buyer of a stock. James Tobin, a Keynesian economist, proposed a tax on all foreign-exchange transactions in 1972 (it became known as the Tobin tax) not to fill government coffers but to reduce market volatility.