There is a showdown brewing at the G20

At the upcoming G20 Summit, in Seoul November 11-12, tensions will be high on a number of issues including U.S. trade imbalance with China and monetary policy.


There will be some added pressure on President Obama and Prime Minister Cameron to sign and adopt the Robin Hood Tax. Britain's Robin Hood Tax campaign is supported by the TUC, Friends of the Earth, and ActionAid Campaign. Supporters of the Robin Hood Tax including Secretary Brendan Barber said the tax could mean the world's banks paying to reduce deficits they helped cause and would remove such swingeing cuts in public spending. The Robin Hood tax would put billions of pounds into fighting poverty and climate change. Supporters estimate that the tax in the U.K. alone would generate nearly £20 billion, which they argue would save hospitals and schools from deep public spending cuts.


So why would anyone be opposed to these measures in encouraging aid and making banks pay their fair share of a problem that many believe they created?


Well, one needs to dig a little deeper to realise what the real implications of this tax would be on the finacial sector and the world economy. The Robin Hood Tax, which is a tax of 0.05% on all bank transactions not involving members of the public, takes the remaining revenue to fight climate change and poverty. The Robin Hood Tax has also been known as The Tobin Tax, proposed by economist James Tobin. The Tobin Tax is a tax on currency transactions, and even before the Tobin tax there was the idea of a financial transaction tax.


However, whatever name you choose one fundamental thing can be said: it's a bad thing for economic recovery. TaxPayers' Alliance Director, Matthew Sinclair, issued a warning a year ago about that this type of tax. It would be dangerous and irresponsible for the global economy. While it makes for eye-catching headlines, Sinclair argued that "it would endanger Britain's economic interests and do nothing for ordinary taxpayers or the stability of the financial system."


Furthermore, the tax would cause markets to collapse, liquidity to go down, and prices to become less accurate. Liquidity is obviously needed during a recession to keep capital flowing and to keep banks lending so that consumers are able to invest in the economy. However, the biggest problem with this tax is that ordianary taxpayers would pick up the tab.


Banks located in the UK could easily move their headquarters outside of the U.K. thus avoiding the tax altogether and creating financial meltdown, higher unemployment, and a loss of capital to invest. London would be particualrly hurt by this move because of its linakge to the world's financial and capital markets. Any move to drive banks out of town would simly be reckless and irresponsible.


In simple terms, this means a massive burden on taxpayers.


As Sinclair points out if politcians were serious about tackling the recession. They would examine what caused the recession. Banks were exposed to risky mortagage loans.


This also means that many people who took out mortgages that they simply couldnt afford were instrumental in creating this crisis. It should come as no suprise that while banks did have a role in the crisis so did individuals who failed to practice austerity and personal responsibility and were living beyond their means.


Hopefully, Mr. Cameron and Mr. Obama will reject this ridiculous tax which will simply hurt consumers. Instead the world leaders should continue to press for: limited government, lower taxes, and fiscal responsibility.

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