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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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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.
Why people say traders do not provide economic benefit? How about used car dearlers? Do they provide economic benefit? They buy your used car that you don't need and sell it to those who need it. Trader do the same thing. Buy the stock from those want to sell and sell to those who want to buy. Their role is to faciliate the trade. In terms of academic, it is call providing liquidity.
The main problem is that their investment horizon is so much shorter. The best thing that the markets can do for the economy is to direct capital to businesses who present the best plan for economic growth.
That requires a sort of collective intelligence that looks down the road and says "yes, this is a good product that will grow the economy" and putting money toward it that may take a couple of years to pay off.
If you think what somebody else does is bad trading according to you, then I have long list of things what i consider are bad and should be taxed. Let me start with people buying things which they cant afford and they later claim credit card companies duped them. I have a huge list...
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.
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.
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.
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