More on the union-Dem plan for new investment taxes

September 1, 2009

I got some really great comments on that post

1) 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!

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

3) 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!

4) 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.

7 comments

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I support the proposal to impose this taxation. The upsurge in day trading has made our markets more vulnerable to manipulative and corrupt influences that create volatility and an unstable environment, it has also undermined long-term value investing.

The imposition of this tax will help stabilize our markets at a time that stability is critical.

Those who are ranting and raving against this tax are, for the most part, day traders, most of whom are working with limited capital, decreasing in numbers because they are being flushed out by the big boys who have the advantage of huddles, flash-trading, front-running and the manipulation large volume can manifest.

It’s time to deter this behavior. Our markets are not gambling casinos, they are mechanisms that critically influence the integrity of our economic system and the day to day lives of our citizens.

Perhaps day traders who look unfavorably upon this proposition should cultivate their gambling talents and become professional blackjack players instead.

Posted by Renfro | Report as abusive

There are two groups that push this tax.

1) Those who see a possible new revenue source for more government programs. More taxes, more government, more taxes more government, repeat (the vicious cycle)

2) The second type, are the people who feel the need to dictate the right way to make a return on capital. (holding an investment longer is somehow more ethical and better for society) They feel compelled to punish those who do not fit in their narrow view of the market. Similar to the evangelical preacher who shouts hell and damnation to all but the few that fit in their small world view. These “intellectual elite” feels compelled to dictate behavior because they just know better than you. The problem lies in the fact that most really don’t understand the mechanics of a robust, transparent, liquid market or how to make one. They reside in “think tanks”, college campuses, and government bureaucracies, not in the the trenches of markets themselves.

Here are the facts:

Anyone who buys a stock and has no guarantee what the future price will be is “speculating”. Second, short term “speculating” is as old as the exchange itself, since the days of trading under the buttonwood tree. Exchanges covet short term traders because they make markets and provide liquidity. Floor traders, NYSE specialist operations, designated market makers, upstairs traders, proprietary traders, etc, are all short term traders (liquidity providers). They risk their own capital making it possible for you and I to sell a stock efficiently within seconds.

Ask anyone in FL, NV, or CA, how nice it would be to have a willing buyer within seconds of offering property for sale. Better yet, go back a year when the treasury department and Congress created the TARP and ask how important liquidity is to a market.

This tax will lead to a stampede of trading activity away from US exchanges to exchanges in other countries that do not charge a tyranny tax. For traders it will be seamless since most exchanges are electronic. Our exchanges are the envy of the world, don’t ruin it.

Posted by mark | Report as abusive

Dave Mathisson a Managing Director and Head of advanced Execution Services for Credit Suisse had a great piece in Traders Magazine regarding this tax:

….”Fortunately, companies and pension funds and mutual funds don’t truthfully need to fear the U.S. equity market being destroyed by this tax. For in reality, the tax wouldn’t stop equity trading-it would just move it to our neighbors to the north.

Canada already dual-lists many U.S. stocks. Sophisticated broker-dealers already seamlessly route to whichever market has the best price.”…..

http://www.tradersmagazine.com/issues/20 _293/-103613-1.html?CMP=OTC-RSS

If the Canadian exchanges don’t seize this once in a lifetime opportunity another exchange will. This would devastate our exchanges, their employees, and the significant tax revenue generated from them.

Posted by Jill | Report as abusive

If you support the transaction tax bill I will not vote for you in your upcoming election, nor will my family members – thanks in advance for your opposition to this punitive tax, which would inhibit active trading and market liquidity.

Posted by John | Report as abusive

Some politicians and others are taking a Political Risk. Do they not know that there are over 100 million Investor Class voters?

For those seeking revenge: The large institutions that were recently bailed out will be exempt from this tax as they are in the UK. If not exempt, they have the means to find a creative way to avoid it. Only the average investor will be left paying this tax, same as they do in the UK. Small trading firms will fail as this tax will be way too expensive. Brokerage fees from reduced competition will increase substantially as a result of these failures. Mutual funds will pass the cost on to investors as a result of reduced yield. Liquidity will be reduced by 90%. That means stock investors, or an investor’s fund manager, will be paying 50 cents per share instead of the current 1 or 2 cents. All that and more plus the actual tax will cost at least 1% lower gain annually. The funny part is you will pay this tax even if you have a loss for each year. Of all things, a tax on losses. The greatest loss is from reduced compounding. Find a retirement calculator and compare a 1% difference in annual yield, and you will lose one third of your retirement to this tiny tax over a lifetime of investing.

Sweden tried this tax by demand of the citizens for a only a few years as the people found out how much this tax really cost them. Up to 90% of financial activity moved out of Sweden. I don’t remember if it ever recovered after the tax was abolished.

Proponents of this tax claim hundreds of billions in revenue will be gained annually. The Independent Budget Office of New York City determined that a much smaller transaction tax would result in net negative revenue. The higher the tax, the lower the revenue with hundreds of thousands of jobs lost, most of them not even directly related to finance.

The Canadian government’s Staff of the Parliamentary Research Branch did a comprehensive study on the transaction tax in several other countries that actually still have or had the tax. Conclusion of their study: “Sweden, on the other hand, appears to be a classic example of an experiment gone wrong, while Germany, like many other countries, has decided that the costs outweigh any benefits from this type of tax.”

There are only about 12 countries that still have this antiquated tax and most of them have recently lowered, abolished or are considering abolishing the tax as it has been a complete failure. The US had the transaction tax until the LBJ administration abolished it in 1966. We had the trans tax during the 1929 crash. Some proponents claim the tax will prevent crashes. What happened in 1929? Maybe the tax is a big reason why it took decades for the market to recover.

Posted by Ola | Report as abusive

I am strongly against this tax. This tax is unfair and it’s going to kill many traders who struggle to make a living during this difficult times. Let’s do simple math: With $10,000 and 1 buy and 1 sell transaction a day a trader will have to pay $10,000 * 0.001 * 2 = $20 of transaction tax per day. If he does just 1 buy and 1 sell transaction a day for 250 business days ( 1 year ) then his annual tax will add up to $20 * 250 = $10,000. It means that he has to pay the annual transaction tax that is equal to his initial capital!!! Never mind that he has to pay the capital gains on profits. The tax will put the traders out of business during the difficult times when is next to impossible to find a job. Only the actual profits should be taxed not one’s intentions to make them.This should be unconstitutional in my mind.

The government’s policy in general should be helping citizens in their endeavours to make a living on their own instead of choking their small enterprises with taxes.

Posted by George K. | Report as abusive

America is going the way of a 3rd world communist country. This is what and who you have voted for.

People for this tax are too stupid to realize the broader effects this will have on our capital markets.

Posted by dan czab | Report as abusive