Marketplace

Finally a sensible article about this tax. Defazio’s tax as currently proposed at is far too extreme and has potential to cause a major increase in market volatility, which is bad for everyone, not just Wall St fat cats. The stamp tax Defazio keeps mentioning in the UK has so many loopholes that no professional traders there actually pay it — that’s why their exchange retains high volume. Also, the more Defazio’s tax succeeds at curtailing excessive trading, the more it fails at bringing in cash (less volume = less tax revenues) — thus, it’s a truly self-defeating tax. A far more realistic approach would be an increase in capital gains tax.

Hi Scott. A transaction tax is a terrible idea. Here are some of my thoughts from my blog

“[The reason this is such a bad idea] has to do with behavioral economics. This kind of a tax changes the playing field as a result of which all sorts of people and participants will change their behavior. ALL of these behavioral changes have to be taken into consideration in order to show the overall tax revenue implications of such a proposal.

If you understand the way markets work, and especially what has happened with the technological and information revolutions since the 1980’s, and that an entire culture and its related multiple additional subcultures have arisen all around the markets as individuals have participated in many ways as never before, then you can see that the collateral damage will be MASSIVE. This MASSIVE change will have significant tax implications which almost all advocates do not even think of, much less mention. The question is the OVERALL tax revenue implications of the proposal given all of the subsequent changes it will cause.

The result will be much less corporate revenue, less individual revenue, job loss, small business loss, website and pay site implications, computer, phone and internet implications, and the list gets very long very quickly. All of those additional changes will result in more revenue loss for the government.”

Why do something to raise revenue which will actual net a LOSS in tax revenue? And, yes, it will cost a LOT of jobs, in many places that people do not think about like software design, website design, accounting, etc.

Dr. Kendall Harmon Summerville SC

I make my living as a day trader. This tax will put me out of business. Instead of paying tens of thousands of dollars in taxes every year, I will be unemployed and paying zero taxes. How is that good for the budget deficit or the economy? In addition to traders like me losing their jobs, there will be thousands of layoffs at brokerage firms. And when the transaction tax causes daily volume to drop to a trickle, the amount of tax collected will be a pittance compared to the economic damage caused by thousands of people losing their jobs.

Like Tom above, I make my living as a daytrader. With such tight margins on my trades, this tax will put me out of business. Simple daytraders DID NOT cause the financial crises! The govt needs to come up with answers other than just more taxes which make a weak economy even weaker. I fail to see how putting daytraders out of business HELPS ANYBODY! Any politician that supports such a tax will absolutely get voted against by me! And I ALWAYS VOTE!

How about a tax on derivatives alone. I think Ralph Nader floated this idea during the presidential campaign last year. It made sense then and it makes sense now.

The fundamental idea of a stock is that you can take an ownership stake in a company because you like what they do, think they are going to succeed and want to be a part of it. Why would we want to tax that?

The DeFazio bill will go about as far as a car with square wheels.

Great, if this gets pushed through, liquidity in the markets will dry up and business will just go overseas. Those pushing for this tax aren’t considering the jobs that will be lost because of this tax and the trickle down affect associated with these job losses. You want to make life even worse for Americans just push this tax on through. This tax will affect everyone from Wall Street to Main Street if passed. Why not consider a bank levy as suggested by Secretary Geithner and the IMF instead? I’m sure there’s other way to accomplish this goal versus hitting everyone with such an all encompassing tax.

There are many thousands of middle class jobs dependent on the business of creating and processing financial transactions. These jobs are not just on Wall Street, but located throughout the country in data centers, call centers and support operations.

It is very easy to imagine that there will be a net loss to U.S., both in terms of overall revenue and jobs.

Most trading is currently done on very thin profits-per-trade, and there will be no sense at all in continuing these activities on the part of individuals or institutions. Trading volume will drop dramatically, cutting into any gains “imagined” by the sponsors of the bill.

Finally, I want to make the point that our economy is currently at a tipping point, and enacting a transaction tax is an extremely risky move with many unintended consequences.

If the street is against it, then it must be a good thing! But we must be careful, because they will always try to be one step ahead of the good intentions for the majority of people they take advantage of. Thats the business of America, capitalism and making money. This is all well and good. But as a society changes, so do the laws that govern that society. What makes good sense is to have a healthy country with happy people, not some dream of making it big in America while the vast majority of people sink into poverty.

The transaction tax is a tax on MAIN STREET, not Wall Street. Millionssssssssssssss of middle class people have brokerage account where they buy & sell stocks. Do you realize that the 1/4% transaction tax will result in a $270 tax on buying & later selling 1,000 shares of Walmart? How is that a small tax? How is that on Wall Street? It’s on you, me, and the millionssssssssssssssss of others with brokerage accounts. Totally unfair & unjust. If you want to tax Wall Street, put a windfall profits tax on Goldman Sachs, Morgan Stanley, etc.

Thos sounds like a great idea! I don’t trade, but I watch others. This would raise alot of money.

The $150 billion number is based on current volume of trades. It doesnt take into account what happens to trading volume AFTER the tax. The proponents of the tax just day dreaming that $150 billion new revenue will pop out of thin air like magic.

I have read more than a few hundred articles the past year on the proposed Wall Street financial transaction tax. It is a tax on Main Street like in the UK. If bailed out firms actually fail to get an exemption like in the UK, the increased costs of firms own transactions will be passed onto us anyway through higher fees and reduced yield in addition to the cost of our own transactions. This tax is purely intentional wealth destruction of the middle class. We have no other options to accumulate a bit of wealth. The cost of the tax itself is a fraction of the total cost. Consider substantially increased spreads as a result of nearly all short-term trading ceasing and unable to overcome that “tiny” tax. I’m talking about what it will cost the average long-term investor or your fund’s manager to purchase a share of stock for you. Right now spreads are $0.01 per share because of lots of highly competitive trading. All those traders are averaging one cent gross to facilitate your purchase. Even proponents of the tax admit that trading activity will return to the 1980’s and spreads will cost $0.53 on average. Guess who will make that 53 cents? The exempt bailed out banks after all the competition is destroyed. That would be a 2% loss on the purchase of a $25 stock and 2% again on the sale in addition to the tax and much higher broker fees. Imagine the reduced compounding. Yields will be reduced by 1/3 to 1/2 over a lifetime of long-term investing. The new tax will not raise $150B, more like $15B after 90% of trading activity simply ceases, and far less when subtracting other revenue. A study from the Independent Budget Office of New York City concluded that such a tax would result in net Negative revenue with 100’s of thousands of jobs lost if just the NYSE and AMEX exchanges were taxed. A few million jobs would be lost if all exchanges and the entire financial sector were to be taxed. Income tax from millions would no longer be collected. Capital gains revenue would plummet as money is moved out of the market for higher returns with far less risk and lower expenses. The whole point of the markets is for businesses to easily and cheaply raise capital to operate which in turn creates real jobs. This tax will make it much more difficult for businesses to raise capital. Even more businesses will move out of the US destroying a few million more jobs. All that destruction to “create” a few temporary jobs. It’s really sad to see such ignorant ideas even being mentioned.

I think if done right, this could be a good idea. I say that a typical investor who buys stocks. The largest single trade I’ve made in the last year or so was about $10,000, so this bill would have taxed that by $25. It’s about the same fee I would have had to pay if I did the trade by phone.

I think that they need to do something to discourage short-term horse trading and encourage long-term investment that capitalizes economic growth.

So, I don’t think this is such a bad idea. The people who will get hit the hardest are the quantitative trading funds, hedge funds and derivatives traders who do lots of frequent short-term trading. They’re not doing very mcuh for the economy. They’re basically diverting capital from being invested in new growth and skimming the markets like a casino.

Since there’s a desire to tax what some perceive to be nonproductive activity, I propose a tax on blog posts. These are clearly a drain on the economy because people are spending productive time to produce blogs and comments that no one reads and fewer care about. They generate no jobs and produce no goods, and people should pay for the privilege. The tax won’t be high -let’s say 1 cent per post, for now. It can always go up.

Speaking as a British National…this tax would be disasterous if it was passed. Liquidity in the US financial markets would drop like a stone overnight. The major damage would occur in the products used by companies, government entities and individuals for hedging risk such as futures and options in commodities and financial products. It would become impossible for any trader of these products to eek out a living when he/she is being taxed on every transaction as opposed to being taxed on the profits that he/she makes.

Traders add liquidity by seeking very small price discrepancies and taking the other side of the trade, as a result everyone benefits as a result of tighter spreads and a pricing mechanism that is fair to both buyer and seller. I feel ridiculous for having to mention this but with all the rhetoric about ‘Wall Street and Main Street’ this fact doesn’t seem obvious to all.

Brokerages would become unviable business entities overnight due to the sharp drop in volumes and many of the financial exchanges very existence would be threatened. It doesn’t take a genius to see that this would lead to enormous job losses. Some liquidity would move away from the US but that is assuming other nations such as the UK and those in the Eurozone don’t follow such a hairbrained idea, if they did much liquidity would simply vanish altogether.

But ironically the biggest loser of all would be the US Government and taxpayer itself. The annual borrowing requirements of the US Treasury have quadrupled since the crisis began due to the enormous deficits that the US is now running. These are being financed by Chinese and Japanese investors buying US Treasury bonds and they would run a mile as soon as the liquidity dries up. The end result being at best a higher cost of financing the deficits, at worst a massive flight of capital away from the US dollar, a complete collapse in the currency of Zimbabwe proportions.

I think future generations would realize that the passing of such a tax would be as harmful to the US and the world ecomony as was the rise in protectionism that occurred after the 1929 Crash, culminating in WW2.

It is a very dangerous idea indeed and I hope for my children and grandchildrens sakes it does not happen.

While I ended up “reading diagonally” the last half of the commentary posted thus far, many of the commenters claim that “thousands of jobs will be lost.” I would like for them to provide concrete evidence of this. Without such proof, I perceive the claims as simply “the sky will fall” rhetoric.

Personally, I favor some kind of trading tax on stocks that are sold from a portfolio, including stocks sold by pension plans, insurance companies, and the like. Perhaps the tax could be graduated: Stocks held less than an hour, 1-percent tax; stocks held less than a day, 0.75-percent; stocks held less than a week; 0.7-percent; and so on. Stocks that are held at least 5 years could be sold without being taxed. My reasoning is that more effort would be expended in evaluating the long-term value of a company.

Lets be honest about the motives behind this bill…it is to punish banks like Goldman Sachs, Citibank, Bank of America, etc that (allegedly!) lost billions when the property bubble burst, were bailed out by the taxpayer and now have no shame in paying themselves billions in bonuses. And that stinks doesn’t it?

Ironically though if it does pass in any shape or form there will no doubt be last minute exceptions made for ‘important liquidity providers’ such as Goldman, no doubt due to their connections in high places and key role within the ‘Plunge Protection Group’, the working group created by the Government but assisted by private banks to allegedly(!) manipulate the stock market on behalf of the Fed/Treasury, no doubt for the ‘greater good’…

As an independent trader I would be happy to see Goldman brought down a peg or two for (allegedly!) raping the taxpayer and paying themselves enormous bonuses…but this is not the way to do it. You need to directly target all firms that received taxpayers money during the peak of the crisis when they could not finance their operations without state aid. The private banks were bailed out after all, if my business was able to recieve a loan directly from government I would be happy to pay a slightly higher rate of tax for this privilege! But my business does not pose systemic risk so it is not worthy of consideration!

The transaction tax however is a crude and poorly thought out proposal devised by left wing adademics and politicians that will not dent Goldman and the larger players but it will eliminate the small independent trader that has not received any taxpayers funding, had absolutely nothing to do with the crisis but on the contrary makes a vital contribution to liquidity in the marketplace in the purest sense.

And the key word here being ‘marketplace’…do we want the financial marketplace to be a real market comprising of a numerous and diverse mix of participants, small and large, or do we want it to be solely comprised of government entities and a small band of privileged banks, ‘too big to fail’, with questionable ethics, but strong on government connections?

Because this tax would result in less competition in the capital markets, wider spreads and costs, greater central planning and power concentrated in fewer hands and every investor, saver, commercial hedger, etc etc would lose out.

But this is kinda obvious, isn’t it?

This tax will hit main street more badly than Wall Street. We will be taxed 4 times on our retirement savings: when we earn the money, when we buy stocks, when we sell them and finally one more time on capital gains. Like most people, I don’t have a guaranteed pension (just a 401K) and social security will be probably be bankrupt when I retire so my stocks investments are my only retirement savings. I guess we will all have to get a union job or work for the government if we want to retire.

Sounds like a tax on the middle class to me. I know that the large corps won’t have profit margins hurt by this tax. They will simply up their fees to accommodate the extra charges. After all, it’s the middle class 401ks that are dumped into these big banks and most people have no clue which fund charges 1% and which fund charges 3%. Most people won’t notice a 1% increase in a fund to pay for the 0.25% tax.

Also, considering it’s per transaction, it seems I would be buying stock in $1,000.00 increments and not $100,000. Which profit margin do you believe will affected more? Yes, the tax on a hundred grand would be more, but the profits would be excessively more.

Should have let those banks fail, sure, there would have been pain for all of us for awhile, but then again, we would have lived in a true capitalistic society right? hmmmm, congress and the fed bailed out those banks, not average Americans, and now the average American pays the bill, this is wrong!

Those who think Congress and the Fed didn’t bail out average Americans didn’t come through the Great Depression: Millions of small bank-account holders (my paternal grandparents among them) lost money to the bankers that they never recovered. The only reason the same grandparents didn’t lose their farm mortgage to the same bank was that FDR was smart enough to come up with the Farm Credit Bureau; and over the next several years my father and his brother were able to save enough money to get the farm back from the FCB. Had the bank had its way, the farm would have gone the way of my grandparents’ bank account.

As for a Government Trust Fund — look at what’s happened to the Social Security Trust Fund, the Highway Trust Fund and the Airport Trust Fund. Congress has always used them as piggy banks in order to offset the deficit.