What do Hong Kong, Singapore, Australia, and Switzerland have in common? They are four of the top five ranked countries in the conservative Heritage Foundation’s 2012 Index of Economic Freedom.

The Heritage Foundation scores countries based on a variety of factors, including the extent to which they depend on the rule of law, have limited government and regulatory efficiency, and the openness of their markets. The Freedom Index then ranks each country based on its score, categorizing them as “Free,” “Mostly Free,” “Moderately Free,” “Mostly Unfree” or “Repressed.”

For those wondering, the United States ranks tenth and is “Mostly Free.”

While Public Citizen does not endorse the index or its criteria, we do find one unique commonality between Hong Kong, Singapore, Australia, and Switzerland that is particularly noteworthy: Each of these countries imposes taxes on financial transactions to curb speculation.

Take Hong Kong for example. The top-ranked country on the index imposes a “stamp tax” of 0.3 percent on stock trades. And the Heritage Foundation extols Hong Kong’s “robust and transparent investment framework,” saying that it “has demonstrated a high degree of resilience during the ongoing global turmoil and remains one of the world’s most competitive financial and business centers.”

Thus, despite frequent scaremongering on both sides of the political spectrum that financial speculation taxes would destroy markets and devastate the economy, the top-ranked countries in the conservative think tank’s estimation prove that such taxes, when implemented properly, have done no such thing.

In fact, financial speculation taxes would likely restore the economy. That’s because they have the dual ability to curb some of the worst excesses of financial market speculation and simultaneously raise significant amounts of money to heal the ailing budget.

Short-term speculation doesn’t add value to the real economy, and it threatens near- and long-term economic havoc. This is not just speculation. (Pardon the pun.) We have witnessed the continued fallout from Wall Street’s excessively risky short-term trading activities, from the 2008 financial crisis to the 2010 flash crash and, most recently, Knight Capital’s rogue algorithm trading debacle.

A financial speculation tax in the U.S. would redirect activities to more productive and efficient allocation of capital and foster long-term investment that would boost job creation and strengthen our economy.

Even a miniscule tax, such as the 0.03 percent fee—that’s three pennies on $100 of Wall Street trading and is one-tenth the size of Hong Kong’s “stamp tax” rate—as proposed by U.S. Sen. Tom Harkin (D-Iowa) and U.S. Rep. Peter DeFazio (D-Ore.), would cut down on speculative activities like computer-driven high-frequency algorithm trading. At the same time, those pennies would quickly add up, raising more than $350 billion dollars over the next decade, according to the nonpartisan Joint Committee on Taxation.

Other countries are using financial speculation taxes successfully; it’s time we do too. The United States is in desperate need of a permanently robust and resilient economy. A financial speculation tax can help get us there.

Comments

  • In Economic Warfare, Abdelnour lays out a plan for restoring economic freedom around the world. Along the way, he reveals the true nature of the enemy that threatens to destroy the free market capitalist system that has made this nation great.

  • factchecker

    I disagree, we can’t prevent something unless the tax is high and even then farmers use it too, the tax could also backfire leading to more riskier
    investments perhaps more transparency and restrictions are necessary.

    The index of economic freedom is a biased index
    it shows heritage’s flaws as they rank countries
    on success even though many are “tax and spend”

    We could go on and on about how singapore has a great public school system as proof that gov works, and of course using a single element
    is very anecdotal, for instance singapore had strict gun control and I doubt heritage will tout that as a model, likewise singapore
    has high income inequality , so citizen won’t.

    I applaud public citizen but this is a poor article, whether a tax is warranted is debatable
    but using heritage to justify something further
    is not, what if heritage lowered its ranking based on the tax, would this article exist?

  • Andy Mayo

    Excellent article, one more proof that taxes are key to a thriving society/economy because public spending is a critical economic engine for growth, not only through direct spending on infrastructure and R&D, etc., but also by putting money in the pockets of consumers.

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