The Global Fund for AIDS, TB, and Malaria announced today that they’re about 8 billion short of their fundraising goals, which puts at risk the 2015 goal to: eliminate HIV mother-to-child transmission worldwide, prevent the spread of multidrug resistant TB, and eradicate malaria as a public health issue.
The Global Fund is a multinational pooling organization with independent project selection and evaluation processes, which is why folks like Jeff Sachs find its financing model so attractive (sans the bilateral, state-to-state politics). As such, many are pointing to the economic downturn as to why more countries aren’t meeting the Fund’s pledge expectations. Where there’s a challenge, so too is there often an opportunity for creativity, and that’s precisely what Senator Pete Stark from California is up to with House Resolution 5783. The HR, otherwise known as the Investing in Our Future Act, amends the Internal Revenue Code to impose an excise tax on currency transactions exceeding $10,000 equal to 0.005% of the value of the currency acquired in the transaction (currency transaction tax). This will capitalize (no pun) on currency speculation in which people buy and sell currencies to profit from fluctuations in their price, irrespective of their underlying value. Studies estimate that a worldwide 0.005 percent tax on dollar transactions would raise $28 billion a year and reduce speculative currency trading by 14 percent – ostensibly a win-win. The gains from the tax would be used to pay for investments in children, global health, and climate change mitigation.
In a press release sent from his office in late July, Senator Stark (who is also Chairman of the Health subcommittee of Ways and Means) said, “Every day, there are $4 trillion worth of currency transactions. The vast majority of these are speculative – banks trying to make a buck by out-guessing the system. This speculation contributed to the last Wall Street crisis and makes our financial system less stable.”
Apparently 60 other countries are already supporting a global Financial Transactions Tax (FTT), which is a tiny tax on financial market transactions such as equity, bond, derivative or foreign exchange trades. The Austrian Institute for Economic Research estimates that a global FTT could yield US$286 billion annually for a tax set at a rate of 0.01% and US$917 billion a year for a 0.1% tax rate. At a mid-range tax rate of 0.05%, an FTT would raise annual revenues of approximately US$650 billion – almost enough to cover the costs of the MDGs (~$170bil), the funds needed to help developing countries adapt to climate change and cover the budget deficits of developed countries.
The most pressing problem with speculation is the volatility of asset prices over the long run. The overshooting of exchange rates, stock prices, interest rates and commodity prices fosters a “predominance of speculation over enterprise” and thereby dampens the real economy and employment. An FTT is thought of as an effective means of diminishing short-term speculative trades because it is collected each time a transaction occurs, which would have a stabilizing effect on asset prices and (I’m told) would thereby improve overall macroeconomic performance. PLUS, then governments have this enormous source of revenue to spend fighting entrenched social issues.
Stark’s bill has been referred to the Committee on Ways and Means and the Committee on Foreign Affairs for a period TBD by the Speaker. Let’s hope the US jumps on board, but I’ll keep my ear to the ground for any stirrings in Congress about a spec tax’s negative effects on banks.