An innovative new tax could fund climate transition and help rebuild the social safety net. So why is the White House knocking it?
When John Hurley, the U.S. Treasury Department’s director of international debt and development, said in April that the U.S. wouldn’t support taxation as a way to raise money to help communities working to claw their way out of poverty and cope with climate change, he raised the hackles of anti-poverty and climate justice advocates.
The context for Hurley’s controversial comments was a Financing for Development discussion at the United Nations headquarters. As the name implies, this process is meant to help make sense of the different streams of money flowing from national budgets, public financial institutions, development banks, and private companies to sustainable development efforts.
Developed countries have made promises, and in some cases signed legal treaties, to deliver development and climate finance to poorer states. But some countries, like the United States, are reluctant to identify specifically how they plan to generate new revenue to meet outstanding aid and climate funding commitments.
All the more alarming was Hurley’s singling out and trashing of one of the most promising forms of innovative finance — a small tax on trades of stock, derivatives, and other financial instruments called a financial transaction tax, or FTT. “Financial transactions taxes in particular are an inefficient way to raise revenues,” he said, “and have a distortionary effect on financial markets.”
The thing is, numerous countries — including many with robust financial markets, such as the UK, South Africa, Hong Kong, Singapore, Switzerland, and India — already have FTTs. In addition, 11 European governments have committed to implement the world’s first regional FTT next year, and are expecting to raise tens of billions of dollars in new revenue annually.
That could spell real relief for people facing austerity cuts in those countries and go a long way toward meeting international funding obligations. And FTTs enjoy huge global public support. Over a million people from around the planet have signed a petition calling for a financial transactions tax to fund job creation, public health, clean energy, community resilience, and much more.
An FTT could be a big deal here in the United States too, where our bloated and politically powerful financial sector remains largely untaxed.
That’s why on the on the opening day of the May round of informal negotiations over the Financing for Development outcome, 20 environmental, development, health, and public interest groups and small businesses sent an open letter to President Obama urging his administration to support a financial transaction tax.
The least the White House and its representatives could do, they demanded, is to keep their mouths shut during these critical conversations and not undermine the bold action of more visionary countries. We’ll see if the U.S. can resist the temptation.
The letter is available here.