A Tax Too Far

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Taxes: With so many bad ideas rolling around Washington these days, what's one more? Democrats and their union allies think slapping a tax on investment trades is a good idea. In fact, it's a recipe for a meltdown.

Given the turmoil in the financial markets in recent years, you'd think mature adults would realize that destabilizing tax hikes would be out of the question. Yet the AFL-CIO and congressional Democrats are proposing a one-tenth of 1% tax on all stock trades as a way to pay for things like infrastructure.

This so-called Tobin Tax - named for Nobel prize winner James Tobin, who came up with the idea to lower volatility in the financial markets - would raise as much as $100 billion from investors.

But it's really nothing more than radical redistribution of wealth masquerading as fiscal rectitude.

Nor is this just an American idea. Britain is in the middle of a national quarrel over a Tobin Tax on its most successful industry, the financial business. Government bureaucrats and left-leaning politicians want to take The City - London's mighty financial district - down a peg or two.

And when the U.S., Britain and other members of the G-20 meet later this month, they are being encouraged by "activists" - that is, wealth-hating leftists - to consider an international Tobin Tax on all financial transactions as a kind of social leveling device.

This is the dream of all the global social engineers - a massive tax on wealth that could be used by unaccountable international bureaucrats for their grand schemes to make a better world.

What will come of it is what has come from all international organizations of governance - incompetence, corruption, malfeasance and endless misery for those whom they supposedly want to help.

But, you ask, why not tax the financial industry? Aren't banks and investment houses and rich people still making out like bandits? Every time you read of a Wall Street executive pocketing a multimillion dollar bonus, you have to wonder. And the inclination is to say, "Let's get even and tax them." It feels good, so why not?

Because envy is a bad basis for policy, and it'll only come back to haunt us. Whatever else you might think of Wall Street, it's been enormously successful at getting lots of capital to fast-growing, wealth-building, product-innovating, job-creating companies.

Put a tax on stock transactions, and you tax creation of new businesses and new jobs. It's that simple. There's an old rule in economics: Anything you tax, you get less of. Tax investments, you'll get less investment. And that's the last thing we need.

As for the argument that the tax would be "only" 0.1%, any tax that raises $100 billion isn't small. It will reduce the present value of the stocks and bonds you own in your 401(k) or personal account, not to mention those your retirement fund owns.

In short, it'll prolong the recession, and you'll be poorer now and in the future as a result. So will the rest of the world, by the way.

Eight years ago, a U.N. panel pushed for an International Tax Organization to "harmonize" taxes to end "harmful" tax competition. It too wanted a Tobin Tax to help pay for "global public goods."

Consider this: From $1.2 trillion in 2007, private investment flow to the less-developed world is expected to plunge 70% this year to $363 billion. Anything that raises the cost of transactions will further impede the flow of capital, making the world poorer. Is this what we really want?

A global Tobin Tax would punish private investment and reward statist failures. Instead of an idea whose time should never come, it seems to be one that just won't go away.

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