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Chason: New taxes will not lead to financial stability

Eric Chason, associate professor of law and director of the W&M Tax Conference, believes that, in theory, tax policy can help stabilize the economy by discouraging large financial institutions from engaging in behavior that puts the general public at undue risk.

By employing taxation, government may recoup some of the costs of bailing out banks, Chason noted. A properly designed tax also may help direct financial institutions toward activities that are beneficial to the overall economy, he said.

{{youtube:medium|U4TKeIClk_k, Chason discusses the carbon-tax model.}} 

Chason uses the environmental carbon tax as a model. The tax, instead of limiting (i.e. regulating) the amount of carbon that can be released, makes firms pay a tax on the amount of carbon released, Chason explained. He believes that identifying the activities engaged by financial institutions that pose systemic risk is the key toward moving forward with such policies. The problem, however, is identifying something clear to tax, Chason explained. “Unlike carbon emissions, the risk coming from financial institutions is hard to observe and even harder to measure," he said.

During a videotaped interview with the W&M News, Chason spoke about the carbon tax as a model and about how a recent European Union decision to impose a financial transactions tax could directly affect U.S. financial institutions. He said:

The carbon tax—“Carbon is a pollutant. It harms the environment. One way of regulating this is to tell those who would emit carbon, 'Well, there’s only so much carbon you can emit.' … Another way is to say you can emit however much you want, but you have to pay a price.”

E.U. financial-transactions tax—“The E.U. … has taken a very aggressive position about who is subject to the tax. One thing that is clear from their view of this tax is that by simply transacting with an E.U. country that is subject to the tax, the counterparty is, itself, subject to the tax.”

{{youtube:medium|4r1TUpyLYeo, Chason discusses the E.U. model.}} 

Chason specializes in areas of employee benefits law, tax law and trusts and estates. He is author of numerous articles in leading law journals, including the forthcoming (2013) “The Uneasy Case for Deferring Banker Pay.”