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 seeing the tax as a sure-fire way to implement reform in the banking industry, he would see it as a way for governments to recoup their bailout cash and to provide a cushion for future bailouts.

One other contentious factor in the taxing of banks is the worry that levies will create further competition for banking jurisdictions. While when it comes to corporations law, Roberta Romano has deemed this competition for jurisdiction the genius of American corporate law, it is not clear that there is a direct parallel for the banking sector. For a financial institution, its bottom line may more readily be finding the jurisdiction with the lowest tax, as opposed to a jurisdiction with great legal experience in banking affairs. Starting competition between major governments as to who could offer the lowest levy won’t address the major internal reforms sought for the entire banking system.  Banks are also usually backed by some kind of governmental guarantee (at least to a certain amount), which complicates a government’s interest in hosting a foreign bank seeking to evade that nation’s bank levies.

So what can these levies do so long as there is no unified global approach? The answer is, in short, insurance.

In the case of Sweden, the insurance role of the levy  funded by those financial institutions creating the risks is clear.  According to measures adopted late last year, the government plans to raise roughly 2.5% of the GDP in the form of bank levies over the next 15 years. The annual levies begin at 0.018% of the institution’s liabilities (equity capital and some junior debt securities excepted.) Starting in 2011, the levies will rise to 0.036%. Sweden has based these numbers on what they project a potential future banking crisis would cost. As such, money collected under these taxes is allocated into a stability fund. If a future crisis were to arise, bailouts would come from this fund and not from the public purse.

Meanwhile, the world awaits to see if there will be a global reaction to these proposed levies. All eyes will be on the G-20 meetings in Washington later this month when the IMF delivers a report on bank levies.  While it still remains a contentious matter, there may still be hope for a more unified approach in order to revolutionize responsibility undertaken by financial institutions.

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 rates:

• Insurance contribution to the Pension Fund – 20%
• Insurance contribution to the Social Security Fund – 2,9%
• Insurance contribution to the Federal Medical Insurance Fund – 1,1%
• Insurance contribution to the Territorial Medical Insurance Funds – 2%

While these new measures certainly have the effect of bringing insurance contributions into the realm of taxable income, which was not the case before the 2010 reform, the departure from a single tax approach may be more than just for bureaucratic convenience.  Whereas the government has in the past seen fit to collect tax to be poured into the general federal holdings, and then to be later allocated as per the Russian budget, payments to these four funds under the new legislation go not to a central federal revenue-collecting body, but to the funds themselves.

The direct collection of social taxes by the specific funds enables the organizers of these funds to have more immediate access to the money that has been raised, without having to jump through bureaucratic hoops in order to get the money from a central taxing authority.  Given Russia’s on-going difficulties with meeting the needs of pensioners, in addition to the stresses placed on the government purse due to the needs of the unemployed, any way to grease the wheels of these public programs is an effort worth applauding.

Also, this more direct structure fosters greater transparency in the tax collection process.  In a country still notorious for its corruption, transparency in a fragile economic state is of the utmost importance.  This should help foster more public confidence in the national economy.

Benefiting from this increased transparency, the government also is able to raise these tax figures to adjust the specific needs of the funds.  In anticipation of future needs, the government has already planned to raise the tax percentages in 2011 accordingly:

• Insurance contribution to the Pension Fund – 26%
• Insurance contribution to the Social Security Fund – 2,9%
• Insurance contribution to the Federal Medical Insurance Fund – 2,1%
• Insurance contribution to the Territorial Medical Insurance Funds – 3%

Of course, it remains to be seen how effective these changes are at improving the overall condition of social programs available to Russian citizens.

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 at pre-recession rates.  In fact, the IRS says that income from capital gains is down 40 percent since the 2008 stock market crash.

So the big question is what will the effect of the increase of capital gains tax be?  That is a matter still up to debate.

Intuitively, one would think that raising the capital gains tax would be linked with fewer capital gains investments being made.  Based on this logic, Obama is proposing to cut capital gains tax for small businesses.  He hopes this will help to stimulate their growth.  This means that the raise in the capital gains tax could be a bitter blow to the fragile market of individual investors who will now be taxed more for their capital gains investments, and may therefore discourage them from making these further investments.  Newt Gingrich has called for the US to follow the footsteps of countries like Austria, Belgium, Germany, Greece, Luxembourg, Mexico, New Zealand, Portugal and Turkey by effecting a total abolition of the capital gains tax. He writes that elimination of the capital gains tax would incent economic growth, encourage job creation, create capital and venture capital funding.  Increasing the capital gains tax would do just the opposite.

But Gingrich’s view isn’t the only one out there.  Another possible effect of raising the capital gains tax is also… nothing.  Clinton Deputy Commerce Secretary Robert Shapiro suggests, “This increase will not just have no severe effect on the economy but have almost no effect except higher revenues.” The argument is since it will have no impact, positive or negative, on the market, it’s just money ready to be collected for the government.   The government has already lost 6.2 percent of its tax revenue due to overall income losses during the recession.  It certainly has a lot of ground to recover to just break even and start paying down the national debt.

But is that a fair analysis?  Should the government make any and all tax increases to raise revenue when there is no overall immediate effect on the market?  Or should the government only make tax increases or tax cuts in an effort to affect taxpayer behaviour or to offer them a subsidy?  With a recovering economy starting to show new signs of life, is recouping taxation money a justification for the method in which they seek to generate income, or does the government have a higher duty in its taxation policy?   While this may seem like a purely political question, it concerns the fundamental underpinnings of the taxation system.