Trader60611

A Transaction Tax to Reduce Liquidity on U.S. Markets? Terrible Idea

Here’s what would happen if the “transaction tax “ succeeds. Remember: the goal was to stop all those “evil traders” who make “fast money” in the last hour, so that capital can be “more productive”.

1) The government immediately loses a years’ worth of short-term capital gains tax revues.
2) Any long-term capital gains revenue (if it happens at all) will be far less, because of a one-two punch of lower, less leveraged returns, and lower cap gains rates for long-term trades
3) For every “evil short-term trader” you successfully convert to a “good” long-term trader, you also, of course, lose the transaction tax on their trades, this reducing the very tax revenue you want to collect. You can’t assume the revenue will be steady. The horror would be “what happens to revenue if (heaven forbid) it succeeds?”. Furthermore, you are lopping off all of the tax money from the (now-nonexistent) high-volume trades that you wanted to tax! It’s like trying to get highway funds by taxing everyone driving over 85 mph. Of course…no highway funds!!
4) Also, plan for massive tax revenue reductions from the brokerage companies, data providers, investment services, mutual funds, business TV stations, etc.
5) Also, consider the “shift of assets to productive activities”. You’re saying a great short-term trader will make a great pharmacist? Landlord? Car salesman, maybe? You can’t be serious. The upshot? Misallocated resources lead again…to…you guessed it … LOWER TAX REVENUES.
6) Your 401-K will suffer for several reasons: there will be no short-term traders there to sell stock to your mutual fund when it needs to buy, and, the lower liquidity will make it more costly for your mutual fund to purchase shares and, of course, the transaction tax will eat away at your fund’s gains.
7) All those short-term traders who arbitrage the prices in the food chain will go way. That means a huge risk for the prices of all the grains, beef, oils, etc that you eat every day. Not to mention the fact that, with higher transaction costs, farmers may not be able to hedge their crops (remember, that’s a short term trade, not a long-term trade) . So, just maybe, there won’t be as much of a crop. That could lead to hyperinflation of food prices. Just what we need.
8) Most futures contracts expire, and have leverage. That means traders can make more short-term than they could, unleveraged, long-term, again, much less revenue for the government.
9) Our bond rates are already very low. With additional transaction taxes, foreigners just might stop buying our bonds, and head for higher, less-taxed returns abroad. Them we can’t finance all those nifty social programs.
10) Stock exchanges the world over are robust. The volume goes elsewhere.
11) Speaking of those “evil” last-hour traders: remember, the gains from those last-hour trades translate right into your 401-K. The close is the close. The market has to move sometime…usually whenever it wants to. It’s not a linear beast. If market-moving events can’t move the markets, investors may go on strike permanently.