Should socialists support a `Robin Hood Tax’?

Yes, but critically argues Andy Kilmister.

Over the last months a considerable amount of support has been building up for a so-called `Robin Hood tax’ on financial transactions with the aim of using revenues from such a tax to promote economic development in the South and combat climate change. On an official level a number of politicians, most notably Gordon Brown, have declared support for such a tax. On a campaigning level the issue has been taken up by a group of activists and NGOs in the fight against global poverty with the actor Bill Nighey as a spokesperson for the movement. How should socialists respond to this proposal? Should such a tax be supported?

This article will argue that we should give a tax of this kind critical support because of its potential for opening up a debate about taxation and social justice and because it represents a challenge to the neo-liberal view of deregulated finance. But our support should centre on the scope for this demand to encourage political mobilisation rather than on the details of the proposal itself. Taken on its own merits such a tax raises more questions than it answers.

This is partly because of the lack of a detailed Marxist analysis of taxation even at a national level let alone in an international context. Such an analysis would have to look both at the aims of particular kinds of taxes and also at whether such aims are realised in practice.

Taxes have three main aims: to raise revenue, to change behaviour and to influence the distribution of income and wealth. Social democracy has traditionally endorsed all three of these; seeing taxation as key to funding public services and supporting at least some redistribution, while also tending to encourage the use of taxation to limit consumption of harmful goods and to aid socially important activities such as child-rearing. Neo-liberalism has challenged the social democratic rationale for taxation on all three counts; arguing that redistribution stifles economic initiative, that the public sector is a drain on the economy and that attempts by the state to affect behaviour are an affront to individual freedom.

Much Marxist writing on taxation has consisted of a criticism of this neo-liberal stance and of demands for social democracy to put its theoretical arguments for progressive taxation into practice more vigorously. But it is mportant to recognise the differences between Marxists and social democrats here as well. For Marxists the state is not simply a neutral mechanism which can be relied upon to achieve desirable ends given the right resources and policies; state expenditure and taxation are the site of political struggles. These struggles encompass all the three areas outlined above; the class character of the direction of state spending, of the distribution of resources and of attempts to change the way people act. It is important to look at how all three of these might be affected by a tax on finance.

Demands for a `Robin Hood tax’ have grown out of earlier campaigns for a `Tobin tax’ on currency speculation. A notable feature of the original Tobin tax idea was that it was mainly designed to change behaviour not to raise revenue. The important thing was to reduce foreign currency transactions in order to make exchange rates more stable and that was why the tax was framed as a tax on transactions rather than on the profits or incomes of those transacting.

But a tax on transactions raises an immediate problem from the point of view of redistributing income; what is to stop those being taxed simply passing the tax on to others, in particular to households? Faced with a tax-induced rise in costs, banks and other institutions (and the industrial companies on whose behalf many transactions are made) may well simply raise costs for working-class customers. This could be avoided by tight regulation of interest rates and other charges or better still by nationalisation; but this simply underlines the way in which such a tax needs to be seen in the context of broader political questions over the control of finance, not in isolation.

In addition to this, the rationale for the Tobin tax was the presumption that the vast majority of currency transactions are at best of no social value and in many cases are actively destabilising and harmful. That may well be true for the foreign currency markets, although it has been challenged in an interesting analysis by two economists close to the Communist Party, John Grahl and Photis Lysandrou, who argue that such transactions have an important role in providing liquidity for productive activity. However, it is not at all clear that the argument holds if we extend it to all financial transactions as is now being proposed. While finance has grown dramatically in a parasitic way on the back of production it does not follow that all financial activity is unrelated to production or could be taxed without affecting the rest of the economy. Again, this is not in itself an argument against such a tax but it does mean that it needs to be viewed in the context of production as a whole.

If the aim is to raise revenue rather than to alter behaviour then taxation of the profits of the financial sector becomes an alternative to a transactions tax. This would go some way to ensuring that the burden of the tax fell on capital rather than labour. But it would also require a much more direct challenge to the power of the financial sector than the current proposals.

Another key question about such a tax is that of who would decide how revenues are spent. Two main proposals have been put forward over the years by those supporting the Tobin tax; either some kind of international agency (perhaps under the control of the UN) or national governments. The first suggestion raises a number of issues about democratic accountability and control. The second highlights the question of resources. If governments receive revenue to spend according to the number of transactions within their jurisdictions then the tax may well end up favouring richer countries at the expense of those with limited financial markets. If the allocation of revenue to governments is determined by an outside body then again the question of democracy becomes crucial.

The impact of a Robin Hood tax, like any other tax, will depend upon the politics of who controls the funds gathered through taxation, who bears the costs of the tax and how the tax changes the behaviour of groups and individuals. We should not view such a tax as somehow standing outside such political questions. But equally, the fact that the tax raises such issues is not a reason to oppose it. Rather we should welcome the way that the campaign around the tax has put in question the dominance of neo-liberalism. By doing this it has laid the basis for a much wider debate both about the role of taxation and about how these particular proposals can be taken forward in a progressive way.