Taxing Banks for Risky Investments

As governments around the world broke open their piggy banks to bail out most of major financial institutions, it comes as no surprise that these governments are feeling a bit strapped for cash. In looking for a way to recoup capital spent on these institutions because of their risky investment practices, a popular proposal is the taxing of banks for such risky investments.

Numbers that the Americans are debating include a levy at 0.15% for 10 years on all financial institutions with more than $50 billion in consolidated assets.

With Germany and England ready to take action and implement similar levies, and with Obama seeking to push the US to do the same, it’s unclear what kind of overall effect these levies would have on banking if they are carried out on a piecemeal, domestic basis. These financial institutions are international in character. Their activities transcend national borders, and thus any attempt at regulation will need to account for the cross-border transactions and international nature of the institutions. Will domestic regulation really solve the inherent problem of big banks making big investments without thinking about the potentially big (and devastating) consequences?  Probably not.  So then what’s the point?

Edwin M. Truman, Senior Fellow at the Peterson Institution for International Economics in Washington, proposes a different analysis. He says, “There are two dimensions — paying for the past and paying for the future.”  Instead of…

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A Direct Route to Russian Social Insurance Contributions

The economic crisis has hit Russia hard and left the government scrambling for ways to fill its budget.  Efforts to revive the Russian economy have taken a significant chunk out of the Stability Fund, Russia’s emergency funds for economic stability largely accrued from natural resource profits.  This vast amount of government spending has left the Russians eager to do a bit of spring cleaning and tighten up budget income sources.  This has led to a series of tax developments and increased tax enforcement.

One such effort has been the transformation of taxation for social benefits with the coming into force on January 1st, 2010 of federal law N 212-FZ “On Insurance Contributions to the Pension Fund of the Russian Federation, Social Security Fund of the Russian Federation, Federal Medical Insurance Fund of the Russian Federation and Territorial Medical Insurance Funds.”  Before 2010, there was a single tax for social benefits called “Edinnii Sotzialnii Nalog” (Unified Social Tax), which was collected by the federal tax revenue agency on behalf of the government.  Russia has now opted for a more targeted approach to this tax.  Instead of a single tax, the new legislation introduces employer payments to four separate funds: pension fund, social security fund, federal medical insurance fund and territorial medical insurance fund.

As a way of transitioning from a single tax to a series of contributions, the Russian government has set the initial tax…

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Death and… Capital Gains Taxes

A new year, a new US budget.  This year, the name of the game is payback – paying back for all the extravagant government spending over the past year.  On President Obama’s budget agenda is a variety of tax revisions and increases following Bush tax cut expirations aimed at Wall Street and America’s affluent in order to fund the on-going expensive public spending, aimed at pulling America out of the global recession.  While much of the American public is occupied with the move to reinstate higher progressive taxes for the upper-end earners (as high as 39.6 percent for singles earning more than $200,000 a year), that isn’t the only major change Obama is looking to make.

Obama is looking to implement progressive increases in capital gains tax.  The plan would initially raise the tax from 15 percent to 20 percent.  But what does this mean for the market?

Capital gains tax is traditionally viewed as a method by which the government can encourage more long-term investments.  The classic example of a capital gains investment is the purchase of property.  By offering investors a lower rate of tax, the government can effectively stimulate these supposedly more-secure, longer term investments.  The low capital gains tax was one large factor leading to the build up of the housing market boom.  But now, we are facing the aftermath of the housing market bust.  People aren’t buying and selling…

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