Income tax datapoint of the day

By Felix Salmon
June 2, 2009

The top marginal income tax rate for a Chicago futures and options trader is 23%. Understandably, the traders are upset that the Obama administration is trying to raise it. But their arguments are pretty weak:

The vital service traders provide is to give markets liquidity… Says Brodsky, “If options markets don’t provide liquidity, people may be less willing to own stocks because they can’t hedge them efficiently.”

Personally, I can think of quite a few people who are wishing that they had been less willing to own stocks over the past few years.

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Comments
5 comments so far

LOL literally. And clearly, nearly all of those who were willing to own stocks a few years ago didn’t take the opportunity to hedge them efficiently.

Posted by bdbd | Report as abusive

Note well that this argument kind of requires the supposition that people in the 25% bracket right now are doing something less societally beneficial than options traders.

Yeah exactly, if they increase the tax rate and people become less willing to buy stocks, it will be a win win situation.

How is that “vital”??? I am quite sure options/futures markets didn’t exist 1000 years ago and guess what – the humanity somehow made it through those difficult times without this “vital” service!

How about doctors? Scientists? Engineers? The lady who cleans the bathrooms everyday? Their services are a lot more vital to me than the options dude’s. Tax the option guy, not the doctor.

Posted by kman | Report as abusive

Actually the tax cut-out is even more perverse than Felix depicts. The 23% rate only applies to owners of Chicago futures and options firms, not necessarily the traders who are often just employees of these firms. Thus, it is very common for a trader to pay a higher marginal tax rate than his/her boss even though the boss’ total compensation is greater.

Posted by Ken | Report as abusive
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