What You Need to Know About the Robin Hood Tax

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What's happening in the headlines can affect you as an investor. Here's what's going on, what you need to know, and what you should do.

The cold, hard facts
The New York Times is reporting that the "Robin Hood Tax" -- a tiny, worldwide financial-transaction tax on trades, bonds, and other financial instruments -- is starting to get attention from the world's 1% and 99% alike.

The idea is backed by German Chancellor Angela Merkel and French President Nicolas Sarkozy, billionaire philanthropists Bill Gates and George Soros, and even Pope Benedict XVI. The tax has also become a rallying point for labor unions, Occupy Wall Street, and demonstrators around the world, including a group that marched on the G20 meeting recently in southern France.

Some context
Merkel sees it as a way to make the global financial system pay for its role in the financial crisis. Gates sees it as a way to funnel money from the G20 nations to the world's poor. Others see it as a way to curb the high-speed trading many blame for causing wild swings in financial markets.

In the opposing camp, British Prime Minister David Cameron says his country would adopt it only if it were levied globally; otherwise, trading would flee London to markets without the tax. Likewise, the Obama administration says the tax could drive trading overseas and would hurt pension funds and individual investors.

What you need to know
In recent years in the United States, bills of this sort have been introduced but haven't gotten anywhere. That's because the tax would hit high-frequency traders the hardest, which includes the likes of JPMorgan Chase (NYS: JPM) , Morgan Stanley (NYS: MS) , and Goldman Sachs (NYS: GS) -- i.e., big investment banks that make a lot of money from high-frequency trading and have a lot of influence in Washington.

And with a tax-averse, Republican-controlled House of Representatives, and even a Democratic president who's opposed, it's unlikely this bill will get any traction here in the United States.

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At the time this article was published Fool contributorJohn Grgurichloves the smell of newsprint in the morning, but he owns no shares of any of the companies mentioned above. The Motley Fool owns shares of JPMorgan Chase.Motley Fool newsletter serviceshave recommended buying shares of The Goldman Sachs Group. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has a scintillatingdisclosure policy.

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