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Taxing the Street
Perhaps you heard on the Marketplace Morning report this proposal to tax Wall Street transactions. The revenues would go toward deficit reduction and job creation on Main Street. I understand the motivation behind this, but there's a pretty good case against it.
The Hill reports on what Democratic sponsors are calling the "Let Wall Street Pay for the Restoration of Main Street Act of 2009." Catchy pop(ulist) title. Here's the gist:
Under a bill being drafted by Democratic Reps. Peter DeFazio (Ore.) and Ed Perlmutter (Colo.), the sale and purchase of financial instruments such as stocks, options, derivatives and futures would face a 0.25 percent tax...
Half of the $150 billion in tax revenue would go toward reducing the deficit, while the other half would be deposited in a "Job Creation Reserve" to support new jobs.
More from one of the bill's co-sponsors:
DeFazio notes that the United States had a similar tax from 1914 to 1966. The United Kingdom currently has one, he writes, and maintains "the highest volume exchange in Europe." He said the British experience is evidence that such a tax would not push trading overseas.
Opponents believe the bill would push trading overseas. But there are other potential pitfalls. Taxes on trades as opposed to gains hit losing transactions too. The bill "aims to exempt retirement accounts from the impact of the tax," but that sounds tricky. When a similar proposal was floated a few years ago, Matt Welch made this argument about Wall Street's activity:
Yes, it helps lucky or shrewd investors earn money (while making many of their brokers rich), but that's only one side of the equation. The other side is, companies get to raise money to finance their operations for such useful endeavors as ... hiring people...
Whether it's through a day-traded purchase of a brand new dot-com stock, or a 10-year corporate bond in GE, the capital markets allow companies to raise money that would otherwise not be available.
So, it's possible a transaction tax might result in a net loss of jobs. As much as people might like to see Wall Street "controlled" through taxation, it's difficult to pull off without damage elsewhere in the economy.
At Clusterstock, John Carney points out the reality that government stinks at creating reserve funds. The money winds up in the big pot and gets spent:
There is no way to actually have the US government accumulate a financial security surplus. In one way or another, the surplus results in the purchase of government bonds, the purchase of government bonds will generate revenue for the government, and that revenue must be spent.
In the words of humorist P.J. O'Rourke, "Having a government Trust Fund is exactly the same thing as not having a government Trust Fund."
Your thoughts? Do you support a tax on Wall Street transactions?
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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.
It will raise very little, if any, money. Thousands of people will become unemployed and stop paying taxes. And trading volume will drop so the amount of transaction taxes collected will not amount to much. When all is said and done, all it will do is create a lot of unemployment.
I don't think thousands of people would be unemployed if it were implemented properly on trades that meet certain critera.
You make the transation tax deductible against the capital gains. It basically encourages more thoughtful, longer-term investing. That's how you capitilize economic growth.
Based on your reply, I would guess that you don't work in or understand a very complex industry. I, for one, would immediately be put out of business, as would thousands of other traders like me. In turn, brokers would lose millions of dollars in business and be forced to lay people off. That would effect all the businesses (i.e., IT) that support those brokerage and related firms. And so on down the line.
If this bill passes, I would have no choice but to surrender my American citizenship and move to Singapore, or some other tax friendly country, so that I can support my wife and children. I would hate to leave the country where I was born and raised and always thought of as the land of opportunity. But if the politicians take away my ability to feed my family, I have no choice but to leave.
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