Will the CFTC, SEC Follow Europe with a Transaction Tax?

Now that eleven euro zone countries have approved a financial transaction tax, will U.S. regulators at the U.S. Commodity Futures Trading Commissino (CFTC) and the Securities Exchange Commission (SEC) follow suit?

Ironically, though the idea of a financial transaction tax was first proposed by American economist James Tobin, the Europeans are now first to levy the FTT.

“This is a major milestone in tax history,” said Algirdas Semeta of the European Commission.

The historic adoption of the transaction tax was executed through a process called enhanced cooperation, wherein nine or more nations cooperate on legislation with the permission of an EU majority. The U.K., Luxembourg, Malta, and the Czech Republic abstained from the vote in protest.

Critics of the financial transaction tax usually point to the prospect that it will fail unless implemented on a global basis. Those taxed by the process, they argue, will likely turn to foreign markets, therefore undercutting any revenue brought in through the tax and hurting business in the process.

Yet, now that eleven major euro zone countries have adopted the tax, it remains possible that more European nations may join, giving the financial tax much needed momentum.

But will a financial transaction tax ever be adopted in the U.S.?

CFTC, SEC and the Financial Transaction Tax

The most recent call for a U.S. financial transaction tax came from outgoing Congressman Barney Frank, co-author of the historic Dodd-Frank Act. Frank made combining the CFTC and SEC his final task as congressman, although clearly it was a quixotic effort.

On November 21, Frank introduce the Markets and Trading Reorganization Act, which called for a new regulatory body – the Securities and Derivatives Commission – that would combine securities and commodities into a single regulatory regime.

Calls for a merger intensified with the announcement of the acquisition of the NYSE by ICE. But how to fund such a merger?

Frank’s bill included a transaction tax that would self-adjust according to the budget of the super-agency. Critics of this approach argue that it would give the U.S. government unlimited power to increase agency funding without Congressional oversight.

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