A financial transaction tax – collected each time a futures or options contract is traded – is under serious consideration in Europe. In September 2011 the European Commission proposed a 0.01 percent on derivatives trades (including futures and options), along with a separate tax on stock and bond trades. Together these two taxes are expected to raise 57 billion Euros ($89 billion) in new revenues. Britain, which is home to a thriving global financial center in London, would bear the brunt of this tax and has vowed to veto it. Other countries with much smaller financial sectors, led by France and Germany and joined by Austria, Belgium, Finland, Greece, Italy, Portugal, and Spain, strongly support this tax. These nine countries claim to be prepared to implement some version of this tax on a country-by-country basis if the EU-wide effort fails.
The amount of this EU tax on a per-contract basis would vary from one commodity to the next and from one time to the next because it would be calculated on the value of each particular contract at the time it is traded. For example, for corn at $6.50 per bushel, the value of a 5,000-bushel futures contract is $32,500, so a 0.01 percent tax would amount to $3.25 per round-turn. For soybeans at $13.50 per bushel, the value of a 5,000-bushel futures contract is $67,500, so a 0.01 percent tax would amount to $6.75 per round-turn.
One reason behind Britain’s objections is that it already charges a “stamp tax” of 0.5% of the value of transactions involving securities, but not futures or options. This is five times the proposed EU transaction tax rate on stock and bond trades and is the highest such tax in Europe, so imposing a new EU transaction tax on top of the existing stamp tax is viewed as excessive. Stamp taxes date back to the late 1600s, and originally referred to a “stamp” required on all paper and printed materials. The Stamp Act of 1765, which extended this tax to the American colonies, was highly unpopular. Although it was repealed the following year, it was one of the grievances that caused the colonies to declare their independence from England.
Here in the US, a so-called “user fee” on all futures and options transactions is outlined in the Administration’s proposed budget for fiscal year 2013. The Commodity Futures Trading Commission (CFTC) has requested $308 million for fiscal year 2013, a 50% increase from the $205 million enacted for the current fiscal year that ends September 30. According to the Administration’s proposal, all funding for the CFTC’s budget – the entire budgeted amount, not just the year-over-year increase – would come from user fees.