James Pethokoukis

Politics and policy from inside Washington

Dems/unions push new wave of investment taxes

August 31, 2009

American equity investors have suffered a lost decade of portfolio performance — the S&P 500 is about where it was back in 1998 — and trillions of dollars of lost net worth, so it may seem a terrible time to hit them with a $100 billion-a-year investment tax. And, of course, it is.

But good sense isn’t stopping the AFL-CIO from pushing just such an ill-advised plan. The nation’s largest labor organization is proposing a tenth of a percent tax on every stock transaction, to fund infrastructure projects that would, presumably, employ union members.

It would be a version of economist James Tobin’s proposal to levy a tax on currency trades as a way of reducing speculation and volatility.

Anti-globalization forces later latched onto the idea. More recently, so too have financial reform proponents such as Adair Turner, the chairman of Britain’s Financial Services Authority, who recently suggested Tobin taxes may be a way of containing the size of the financial sector.

Now organized labor is genetically hard-wired to figuring out new ways to clobber capital, forgetting that America’s investor class resides on Main Street as well as Wall Street. But you might figure its political allies could be a wee bit savvier.

Yet congressional Democrats are also toying with similar ideas. Earlier this year, a group of House members introduced a bill that would impose a quarter percent tax on all securities transactions, with the hope of raising at least $150 billion a year.

More recently, one of that bill’s sponsors, Representative Peter DeFazio, an Oregon Democrat, has proposed a 0.2 percent tax on crude oil futures contracts to tamp down on speculation and pay for national transportation spending.

With a stock transaction tax, investors would get hit directly through passed-along trading costs, just as a cap-and-trade emissions plan on business would quickly mean higher energy costs for consumers.

But there would also likely be some indirect, though severe, impacts.

To the extent that active traders are nudged aside, volume would thin and spreads widen. Some investment firms might choose to locate offshore or trade overseas.

And if that happens, these various transaction taxes would generate less revenue than expected — as well as cost domestic jobs — perhaps prompting tax proponents to advocate even higher levies to make up for the shortfall.

And don’t forget that the Obama administration is already proposing to raise capital gains tax by a third for wealthier Americans.

Maybe if the unions are really looking to fund more infrastructure spending through higher taxes, they could show some sacrifice by supporting taxes on members’ “gold-plated” healthcare plans, whose benefit costs may be 50 percent higher or more than the plan of the typical American worker.

So far unions have been vetoing efforts in Congress to use just such a tax to pay for healthcare reform. Then again, raising taxes of any kind during a period of economic weakness is a risky proposition.

Comments

Why is our union trying to tax us out of trading in the stock market in our ameritrade & scottrade accounts after we get home from work??? We’re trying to make some money for our retirement! That tax is huge! Do you realize that 1/10 of 1% means if we buy & sell 1000 shares of Walmart that we would have to pay $100.00 in taxes above our regular commission from our broker?!?!?! We can’t afford that! Lower commissions brought us into the market. Why is our union trying to kick us out of it???

Posted by Jack Pearson | Report as abusive
 

Don’t these idiots realize that a transaction tax makes a market even more volatile? Look at China for example, they have a 1/10 % transaction tax, which severely reduces liquidity. Look how their market girates UP 5% one day, DOWN 8% the next!
If you want to generate some fees from trading profits, TAX the profit on on those who earn them. Like Goldman Sachs & Warren Buffet. Don’t let them weasel their way out!

Posted by Lyubov Kozyar | Report as abusive
 

What is the AFl-CIO doing suggesting anything. No one cares what they think. If they like the idea they should go buy an island and start their own government. They aren’t part of the government (at least not yet). I think we should have a tax on soda and all the proceeds are sent to me. Are they retarded. Yeah let’s raise taxes and use the money to benefit their union. Just write that up as a bill and we’ll vote on it right away.

 

Placing a tax on trades will dry up much liquidity, and drive most traders out of America’s mkts.

Posted by John | Report as abusive
 

This tax AMOUNTS TO 5 TIMES all of my current trading cost combined!

Example:

5000 shares $50 per share costs $50 to buy and sell. At a low cost direct access broker. (Including commission, exchange fees, SEC fees, etc)

This tax would be an additional $250 for that trade. To add insult to injury you have to pay it even if you lose money on the trade. On top of that you have to pay taxes on any profit via capital gains tax!

There is no right time to have a tax like this. BUT ATER A MARKET CRASH THERE IS NO WORSE TIME TO CONSIDER SUCH A TAX!

Posted by Mark | Report as abusive
 

When my last few financial advisors lost half my retirement I said enough is enough. I placed my retirement account into a discount brokerage and began to manage it myself. This has allowed me to sleep at night and also become the king of my own financial destiny. Now they are going to tax me into oblivion for creating my own future. These people are crushing and ruining our country. How will my son ever succeed with these complete buffoons attempting to create a Mao Tse Osama? Fkc them all dammit

Posted by my own destiny | Report as abusive
 

Taxation is the primary key to facilitate redistribution of wealth. It is absurd that everyone had to go along with the trillion dollar bail out of the world banking system but now those same circles that are more than willing to accept these tax payer handouts are whingieng about a 0.1% tax on securities trades. What planet are they from?

Securites tax is a no brainer as it taxes those that can most afford to pay it. The only pity is that the proponents of the tax are shooting at such a low percentage. What is wrong with 0.25%? This would mean a 0.5% in and out tax on a trade. If the investor – speculators can’t handle this amount then in means that they are currently scalping low percentages from the market and 0.5% is going to kill the 30 minute trades.

The global imbalances between the classes and also between the size of the financial sector economy and real economy need to be redressed.

Obama has the answer as to how to do it.

Posted by Greg | Report as abusive
 

if it comes to true, then markets will plunge again…
speculators and investors will get killed

 

just another example of what our elected officals think of hte people who put them in office. We must have lost our minds. I say vote the bums out…immediately!

Posted by Tim | Report as abusive
 

tax them anyway you want until the percentage of tax on investments and investment income is equal to the tax on wages…. there is a huge inequality bought and paid for by the investor class. level the field.
since reagan around 10980, society has given and given to the privileged class on the theory of supply side trickle down. if you look at top 1% income and sales of luxury yachts and homes through the ’90′s and ’00′s, nothing trickled anywhere… the egomaniacs just bought bigger boats.

Posted by Ted | Report as abusive
 

The moochers and the looters are running amuck

Posted by pr | Report as abusive
 

The same govt that has just critiqued flash trading in the high frequency equity space claiming that it increases transaction costs to the “main street investor” is now taxing that very own group. They apparently dont care about the effect of higher costs to main street investors when that money is going to washington. But when this goes in the pocket of a PHD algo trader it is enough for Barney to deem it illegal.

Posted by jorge hendrickson | Report as abusive
 

A tax of one tenth of one percent would stop a lot of the pointless day trading that goes on in the market. Actually, day trading has evolved into “minute” or even “second” trading as computer technology has evolved. There are some markets in my view that could be eliminated altogether as far as I’m concerned (the options market for instance). There are way to many investors that have a lottery mentality when it comes to investing these days, and as far as the first comment on this subject goes, if you have a 1000 shares of Walmart, you can easily afford a tiny, tiny, tiny $100 tax.

Posted by JR | Report as abusive
 

Using the logic of this article, then the US should also levy an extra tax on all UAW members since tax money bailed out the union auto companies. Stop all bailouts and stop all goverment redistribution of wealth programs so that ALL people can have lower taxes.

Posted by Mike | Report as abusive
 

“America‚Äôs investor class resides on Main Street as well as Wall Street”
This is one of the main problems with financial regulation in the US. More regulation and measures against uncontrolled speculation are unmistakably necessary, but they would necessarily imply a transversal discontent. The common people has been sucked into the vortex of securities maarkets a long time ago by now, which put enormous political pressure on deregulation.
Moreover, american consumers boom of the last 25 years was fueled by the stock bull market, with people spending on the basis of future gains.
America finds herself caught up in an incredible but self-created paradox: financial stabilty clashes with economic developement.

Posted by Lightmare | Report as abusive
 

Sorry, but someone has to pay the bills, and the ordinary Joe doesn’t buy and sell stocks.

TAX THE RICHIES!

Remember the French Revolution? Its coming to a neighborhood near you, when Urban Youth who no longer have an after school program or subsidized lunches take it out with a knife on the wealthy classes.

Posted by Bob | Report as abusive
 

Economists and the people working the financial sector are lucky they haven’t been lynched yet. Until that day comes I could care one whit less that you babies are crying about more taxes.

Posted by Chris | Report as abusive
 

Hey, Jack; if you can afford the $100,000 for the stock, you can afford the $100 for tax.

Posted by Cordell | Report as abusive
 

Amazing. These idiots just don’t get it.

What worked so well for the auto industry will surely work in other industries. Their time has come and gone.

Posted by James | Report as abusive
 

That’s the result of not thinking before voting! Middle class voters who voted for Obama will very much have second thoughts now, hah?

Posted by Bill | Report as abusive
 

and as far as the first comment on this subject goes, if you have a 1000 shares of Walmart, you can easily afford a tiny, tiny, tiny $100 tax.

- Posted by JR

Hey JR,

If I make a package of eight hot dogs for my family of four, but my daughter only eats one, do you have the right to come into my house and eat the remaining one?

You have no right to declare what other people can and can’t afford to do with their own money. If you want to dictate what happens with someone’s money, make it your own.

Posted by Matt | Report as abusive
 

Hey, Jack; if you can afford the $100,000 for the stock, you can afford the $100 for tax.

- Posted by Cordell

Cordell,

You can obviously afford a computer. My monitor is going. Give me yours.

Posted by Matt | Report as abusive
 

The smokescreen continues for this union, and all unions. It’s a survival effort, and when a wounded animal is about to die, they attack. The unions are all about survival, on the backs of their members, and anyone who will listen, and then allow themselves to be soaked for a dollar, or a million. Unions claim they represent the people. Unions represent self-preservation. Period.

Posted by Rick | Report as abusive
 

Remember the French Revolution? Its coming to a neighborhood near you, when Urban Youth who no longer have an after school program or subsidized lunches take it out with a knife on the wealthy classes.

- Posted by Bob

Hopefully, they’ll greet you with guns. Make your own d@mn lunch, beggar. I worked hard for mine.

Posted by Matt | Report as abusive
 

The global economic slowdown has led to governments and economists taking bold steps to try and boost the economy. By and large the methods focus on increasing overall public and private expenditure which have proved popular and can stimulate the economy. However raising taxes will surely only increase the disposable income further.

 

“TAX THE RICHIES!” – bob

This is a perfect example of why America isn’t great anymore. It used to be “BECOME THE RICHIES!”

 

AFL CIO (the protagonist in the new story yesterday) also insisted that Obama not drop the public option on health care a few weeks ago. They are getting very bold on the national stage.

House member Peter De-Fazio (Dem OR) runs the bridge and tunnel committee and he is the sponsor of this financial transaction tax. If he wants to pay for roads and bridges, how about charging the users who cause these needed repairs. Doesn’t that includes transportation and manufacturing workers (union members of this union) who utilize these roads and bridges. Why tax electronic traders for transportation usage-related costs?

TARP is the only semi-valid statement to charging traders (prior sponsor language) and banks have started to pay back TARP, often with fully-provided for profits – thanks to trading profits in banks.

Traders already pay high taxes on trading profits. Why tax them twice? TARP was paid back after-tax, not before too.

Is this financial-transaction tax a form of taxation or extortion? Find “where the money is” (Herbert’s NY Times story months ago) and then think up a tax to grab at more of the profits. Haven’t unions gotten into trouble before for extortion-type behavior?

Haven’t unions also done enough recently to help bankrupt the manufacturing industries in America with chasing jobs to Asia? Do they now want to also bankrupt traders and send those financial jobs out of this country too?

Shouldn’t unions be reconsidered for trust busting as monopolies or oligarchies? Don’t union members band together to collude on fixing (wages) prices and collude on strikes and other activities too?

Ads of Detroit auto workers usually show many over-weight older workers (not all of course) and they have a bad rep for poor qualify and higher health care costs. Their jobs are protected by the unions at all expense – even the company’s survival. Compare that to younger and more fit Asian workers; often beating them in the marketplace. Even the non-union auto workers of America’s South, with Asian-brand factories do much better in the marketplace.

If unions and other sponsors of the financial transaction tax want to rein in unproductive behavior, then why calculate all the money they will make on this extortion tax (which they have done)? Licking their chops of this potential tax windfall shows it’s really a greedy money grab and it’s not their true intention to stop fast trading.

Fast (super-computerized) trading is the new villain that is bringing back the financial transaction tax now. This tax has been shot down by leadership on each prior try.

How is trading (fast or slow) any less productive than building gas guzzlers that require cash for clunker programs later on, that require waste landfill fill-ups that ruin the environment and don’t help this country much? How about soda manufacturing workers, or fat food workers, or other industries that lead to problems for society? Is a new ethic’s czar going to decide what is productive and what is not? Traders provide liquidity, an important element of crucial financial markets – without which we all would be bartering on the farm – and much more (been discussed by many others earlier). Trading is a clean and legal means to making an admirable living. In fact, fast trading profits on Wall Street saved us all from a depression and sinking our financial system.

If unions fail in America, we will survive – maybe even turn around our slide into fewer jobs – but if traders fail, we are all sunk.

Don’t make traders an offer they can’t refuse and extort them out of business. It’s patently un-American, unethical and the wrong thing to do.

Isn’t it coldly ironic, that perverse progressive-left policies have lead to job cuts that have turned more people into online traders, as their last resort on making a living. Now the progressives want to fully bury these traders work-wise and put them on public welfare.

Robin Hood works when the rich are bad and Robin Hood is good. What about when the rich are good and Robin Hood is a just a plane old fashioned crook?

 

Well I must certainly say that there are a lot of interesting comments, I especially think it is interesting that many of you criticize the man who wants to speculate with his 100,000. Those trades employ someone at etrade and by the way, it is not whether or not he can afford it. The bottom line is that why should he when we could cut more entitlement spending or earmarks, and if he is smart which he is he will Shrug with Atlas, the intelligent people here will know what this means. For once I am really glad to be on the side of Goldman Sachs and am happy Wolf was playing Tennis with Obama while on vacation, no way this thing gets steam. Goldman has it’s tentacles farther into this administration and basically High Frequency Trading is one of the last frontiers of profit for them. Goldman Sachs people Corzine, Hormats(who was just appointed), and various others are all over Washington. And don’t forget Wolf CEO of UBS was one of BHOs largest supporters so for all you liberal wealth redistribution fans I have a suggestion. Stop whining and learn how to trade or get a better job.

Posted by freemarkets | Report as abusive
 

Also to Robert Green, Great Post, spot on. These whiners are just mad because they tried to day trade and could not take the pain. They probably don’t understand easy language or the difference between stocastics, macd, or who bollinger is. American people need to get over this Wealth Envy problem and start making money instead of crying to congress to help them steal it from the people who are working so hard to make more of it.

Posted by freemarkets | Report as abusive
 

I completely get the public wealth envy and the hatred of Goldman Sachs making all of this money out of thin air. So if the public is mad about Goldman don’t punish us the little guy. How about making them either make loans or rescind their status as a commercial bank which gives this all of this free leverage, or better yet charge them 2 percentage points more of interest or more on the money they are borrowing to get that leverage. I do think something needs to be done, but the something does not need to be another tax on the American People to facilitate Welfare payments in this case Corporate Welfare Payments to Goldman.

Posted by freemarkets | Report as abusive
 

They dont get it!! .. They will crush and cripple the market.. I pray for this country for the next few years..

Posted by Jeff Gold | Report as abusive
 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
  •