According to a January 22 release from Sen. Tom Harkin (D-Iowa) and Rep. Peter A. DeFazio (D-Ore.), a looming vote by EU finance ministers to allow European governments to impose a financial transaction tax might bolster an effort to impose the same tax here in the States.

What the what?  An Obamacare tax, higher capital gains and dividend taxes, and California’s Prop 30 weren’t enough?

So what is a “financial transactions tax?”

A financial transaction tax is a tax imposed on a specific type of transaction for a particular purpose. When applied to the world of finance, it typically means a small tax on the purchase or sale of stocks, bonds, or other financial instruments.

Different U.S. financial transaction taxes have been proposed (but not yet passed) in Congress since 2009.

Until recently, a major deterrent against any additional tax on U.S. stock traders was the possibility that major traders would simply shift their activities overseas. Of course if the EU passes a parallel regime, Europe will not prove nearly as attractive an option for such multinational players.

This is why Harkin and DeFazio, longtime advocates of a U.S. financial transactions tax, publicly lauded the European move, which would allow for a tax of 10 basis points on stocks and one basis point on derivatives on financial transactions.

“Today’s actions mean there will be less opportunity to shift U.S. trading overseas to avoid a U.S. FTT.  Wall Street’s criticisms of an FTT are rapidly shrinking,” said DeFazio.

By contrast, Harkin’s and DeFazio’s proposed three basis points (three cents on every $100 financial transaction) tax seems downright cheap!

Before we start patting ourselves on the back, it would be wise to note that only 11 EU countries have joined in the efforts to create an EU financial transaction tax:  Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain.  Notably absent is the UK, Europe’s biggest financial hub, and a natural destination for any trading firm that might seek to escape U.S. taxation.

Also, the EU proposal is specifically meant to raise funds to shore up shaky banks.  The Harkin-DeFazio measure won’t necessarily be tied to the same “too big to fail” safety net.

Hmmmm… maybe those three basis points aren’t such a good deal after all….

Photo by European Parliament