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The Transaction Tax Is Harmful
Submitted by Zero Hedge on 12/07/2009 00:03 -0400
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Great post, nothing else needs to be added.
ZHers are better at summarizing. This is like giving in to coloring with the grand-kids when you've had 6 glasses of scotch.
Market liquidity. Bingo.
A transaction tax will kill it.
Dammit. My bookmark fell out again.
the transaction tax is idiotic. counter-productive. everyone knows it except some congress criters who don't care. we need to find ways to lower taxes, such as the cap gains tax and the ss tax.
while we may debate this issue and the ramifications of dubai defaulting, the biggest story of the week doesn't even get an honorable mention on this site.
i'm talking about barbie and ken who strut in to the west wing and chill with the prez and vice prez while thousands of holiday travelers take off their shoes and go through x ray machines at the local airport. what is the significance? the emperor has no clothes. the emperor is INCOMPETENT. think about the ramifications of that.
There wasn't much said about "balloon boy" here either. The financial angle just wasn't there. Your hot topic doesn't carry much weight here. Nor would the topic of this post be a popular hit at the USA Today site. It would leave the lumpenproletariat scratching their empty little heads.
History tells us that when the total tax rate on people exceeds 60% a revolution follows!
Unless a case can be made for what HFT actually produces, of any tangible value, it is NO LESS WORTHY of being taxed than, say taxing the shit out of a small business owner, who takes risks, produces jobs, and actually CREATES stuff. The fairest tax of all is the Estate Tax. The people who win the genetic lottery didn't earn it, and at the very minimum ought to be taxed as ordinary income on every dime. Stop taxing productivity and tax it when the producer dies, as it's being distributed to the Paris Hilton's of the world....
A liquid market is certainly not a "tangible"but all will agree it is very, very valuable.
Tangible does not = valuable. Tangible means it can be counted. Tons of tangible, but useless, crap gets produced every day.
How liquid were markets before computerized HFT trading? The "value" of HFT is a Red Herring thrown out by only those who profit from it. Having an auction with an audience of auctioneers who plan to have an auction to other auctioneers provudes lots of liquidity, but true price discovery gets more jaded towards what the auctioneer will pay, vs what the actiual worth is to the end market. The liquidity argument is bullshit, plain and simple...
Did I say tax? I meant axe. We should axe off the heads of all investment bank maggots.
Take the Fifth, Buzz.
Do it legally. Pass a law first, the maggot decrapitation and relocation act.
Marla will get ya for that!
The Fifth Rule Of Zero Hedge Is...
Transaction tax is the Stamp Act II.
A very small transaction tax sufficient to deter HFT churning, along with a 1 second minimum before a bid or offer can be withdrawn would do a lot to help the market return to health. There must be no exceptions, discounts or government paid offsets, even for true market makers, and no trading "liquidity" incentive from any exchange that would more than offset. Lastly, Congress should make it clear that it is illegal for the Fed, Treasury and government insured financial institutions to own stocks. It should allso be illegal for stocks to be bought by any institution with money borrowed from the Fed or government (taxpayers). Along with actual enforcement of existing regulations by the SEC, the stock markets should then return to normal.
I can only support such a tax if it has ZERO exceptions, discounts or government paid offsets.
Call me a dreamer...
The few exemptions that Tyler presents in the nay case are acceptable and probably even beneficial. My vote is now a stronger nay.
A transaction tax at a high rate--like .25%, will kill off HFT, a lot of stat arb players, long/ short preferred stock funds, quant rebalance programs--a lot of other plays. If we say Great, let them die, then please know the unintended consequences of this decision. The arbitrary ban on shorting bank and financial stocks late last year by the SEC (per Paulson per John Mack): a complete disaster--for investors and the banks.
The "wash sale" rule doesn't stop operators from walking a stock price higher. Does anyone think a transaction tax will stop that anymore than the wash sale rule? I'm with Marla...
Tyler speaks (for a really, really long time....pick it up at around the 18min mark)
http://www.thedisciplinedinvestor.com/blog/2009/11/22/tdi-podcast-136-zero-hedge-2010-an-economic-odyssey/#idc-container
HFT is queue jumping- it should be illegal, plain and simple. Tax all stock and debt transactions by the GS/JPM cartel. And eliminate all derivatives- what the hell do they do for the economy and the country ? Nothing. It is just another way to skim. It makes Tony Soprano look like a choir boy.
Weren't we told that all of this was a "zero sum" game ? Oh yeah, when one of the counterparties can't pay their bet in the "zero sum" game the taxpayer gets wiped out, but everyone else at the crooked casino is made whole by their inside men at the Fed and the Treasury.
So call their fricking bluff; if these crooked parasites don't like it, then let them move to Dubai- there is some cheap real estate coming up and I hear the neighbors are friendly.
P.S. JamesBrrando- your girlfriend says, if the truth be told, you could qualify for a refund of the penis tax....
17 “Yet your people say, ‘The way of the Lord is not just,’ when it is their own way that is not just. 18 When the righteous turns from his righteousness and does injustice, he shall die for it. 19 And when the wicked turns from his wickedness and does what is just and right, he shall live by this. 20 Yet you say, ‘The way of the Lord is not just.’ O house of Israel, I will judge each of you according to his ways.” just a little food for thought. don't forget this... 10 “And you, son of man, say to the house of Israel, Thus have you said: ‘Surely our transgressions and our sins are upon us, and we rot away because of them. How then can we live?’ 11 Say to them, As I live, declares the Lord God, I have no pleasure in the death of the wicked, but that the wicked turn from his way and live; turn back, turn back from your evil ways, for why will you die, O house of Israel?
Arnoldsimage,
You are a trip when you do the biblical thing while using that image. I picture her saying it to us, in this forum, and giggle. I bet she could save some souls. Fascinating juxtapositioning.
but the words are the lords' and it's not about my avatar. it's about you and god.
Oh I love Bible study. This is for Jamie and Warren, bankstas that charge way too much interest on credit cards:
If you lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer, neither shalt thou lay upon him usury.
Exodus 22:25
A gross receipts tax on anything is not optimal. We should tax consumption not investments. A security transaction tax cascades and in many cases will tax the same transaction multiple times. Anything close to .25 percent is a volume, and liquidity killer. Look out below. Spreads will widen.
The section 31 fees used to fund the SEC is a form of a securities transfer tax: however the rate is around $22 per million--a far cry from what DeFazio and the House Dems are proposing.
Very dangerous in the current uncertain environment.
Right now I say no no no. Not until the boneheads in Washington learn to stop spending. No more bailouts.
My vote is for a $0.01 or $0.05 or $0.25 tax on each transaction, NOT a % based transaction. Percentage base would hurt the small trader and either approach would terminate the HFT.
I think any percentage that is worth applying would be significantly larger than a small nominal fee.
Small trader, by definition, does small trades. Wouldn't a % based system be beneficial to the small fry?
I think transaction tax is the need of the hour for US debt. How else would USA pay interest from 2011?
As for the application of the rule to GS etc.. this country as become so third world that no rules apply to Richie rich.
http://www.bloomberg.com/apps/news?pid=20601087&sid=abNkskpey.4I&refer=home
March 4 (Bloomberg) -- The proposed tax increase on stocks and derivatives trading that is intended to help pay for the Wall Street bailout would hurt investors, NYSE Euronext Chief Executive Officer Duncan Niederauer said. “It would decimate liquidity in the market in an unprecedented way,” he said late yesterday at the Museum of American Finance in New York. “That would be about the worst thing that could happen, but I don’t believe it will get any traction.”
`The proposed tax increase on stocks and derivatives trading that is intended to help pay for the Wall Street bailout would hurt investors, NYSE Euronext Chief Executive Officer Duncan Niederauer said.'
They need a new excuse? How did those GM and Chrysler investors end up?
A national sales tax 6.5% that should slow down the trades and make everyone think twice before they launch into ownership of a company.
This tax is a terrible idea. It will do nothing to discourage the high-frequency traders and won't really punish Goldman Sachs.
There are far better ways to accomplish what this bill is trying to do.
I vote no on the tax, on principal and for the obvious reasons stated above. Like the guy from Providian says in the Card Game on PBS, and I paraphrase: We, the banks, don't care what rules are implemented; just tell us what they are so we can come up with ways to get around them.
What I'd do if I was in charge.
Step #1: End the Fed and end personal income tax. That would end the Recession/Depression overnight as consumers would have about double the money to consume.
Step #2: Set up the Bank of the US and 49 'Bank of (insert State)' - ND already exists.
Step #3: End market manipulation by aggressively monitoring and policing all markets to ensure no frontrunning, HFT or flash trading occurs. End all volume rebates. Make all market order information transparent and available to all. Easier said than done, I know, but doable. Make it all open source.
Step #4: Start producing goods again.
And some other stuff. But since I'm not in charge and none of the above will ever happen I'm off to my offgrid retreat.
No subsidized, supported, 'state', 'national' banks, ever, for any reason. Free market decides interest rates - sharpen your pencils or die.
No monitoring. No protection. No regulating. No whining. No babies. If you defraud/deceive you are brought to trial by a jury of fully-informed peers http://fija.org/about/
Get sharp people on your team and invest at your own risk.
#1 and # 4 = awesome! But like you I have a plan X.
It will hurt the retail but not the HFT because they will get a waiver since they provide "Liquidity"
It sounds to me like an anti-capitolist, marxist populist has proposed a "sin" tax to discourage market trades, or at least "spread the wealth" around. He hopes to get the disenfranchised on board by promising that this'll hurt da man.
No thanks. If GS et al is able to game the system unfairly by comprising 50% of the trading volume, then they are in spirit a monopoly and different laws apply. Apply them.
You mean the Anti-trust act? Or RICO Act?
The real issue for me is things are like they are. If they can't change then taxing them is a short term fix (which will be an intervention which will inevitably lead to other crises which must be responded to).
If things were as they should be, the idea of this tax is absurd. That is how I voted, if things were as they should be. But they are not, so the short term fix looks tempting.
I doubt any tax would be short term. A tax on all trades because GS has a super computer and we don't.
Ahhh...RICO with a mess of unindicted co-conspirators...I can only dream for the day.
Did half o bamys cabinet pay their fair share? well guess wholl be a payin this tax?
I know that many of you will hate me for this, but it is good to have an antagonist.
Transactions should be taxed. The reasons are very simple:
1. There is no societal gain from trading. Nothing is produced, nothing is changed, and nothing is improved. Yet even with all of that nothing, money still leaves the system. Money that would either be used to pay wages or lower prices is instead removed from the system. To make a point, I will put it in this crass form: "You pay me so that you can work."
2. Trading isn't investment, it is gambling. All that is happening on an exchange is debt is being bought or sold. Stocks/bonds are all the same, debt, the difference is only the name. Before all of you fly off the handle, consider this: when a company needs more money, they issue stock. That is to say, they get a loan. This point shows the true essence of an exchange, which could be stated as "the provision of a venue and rule set for the gambling of the future value of debt/worth of a specific type of item", where worth is only valid for direct commodity exchanges.
3. Any money that is in the stock market is not money that is required to live. By this I mean that you aren't paying your mortgage with it, you aren't buying gas with it, and you aren't paying for food with it. This puts it in the same category as savings accounts and CD's. We tax interest, we tax capital gains, we should tax transactions.
The only reasons to not have a tax on transactions is the support of the status quo, and in particular, big business finance companies. I would gladly live without either.
Give me one second to get my asbestos long underwear on.....OK, flame on.
trading profits are already taxed via capital gains
"1. There is no societal gain from trading. Nothing is produced, nothing is changed, and nothing is improved"
So, your claim is there should only be buy-and-hold participants/investors (and basically get rid of market participants that establish prices and facilitate transactions/liquidity through competition)? So, when one investor wants to buy from another, what price do they transact at? It ends up being like the housing market, where there is no liquid market for a particular house, and this takes effort and research for all market participants to find an even half-way reasonable price.
Also, what if when an investor that wants to buy, there are none or very few who want to sell at that time? Having traders who trade in and out of positions constantly helps bridge the gap between investors who want to buy and sell with eachother. Two investors can still transact with each other in the current marketplace, but the fact that they don't very often means they can do it at a given time and price easier with the existence of traders.
"2. Trading isn't investment, it is gambling."
I think this is oversimplified, but even assuming this statement is correct, this doesn't show that it should be taxed... Each gambling transaction isn't taxed, only the profits from it - just like the profits from trading.
"3. Any money that is in the stock market is not money that is required to live... This puts it in the same category as savings accounts and CD's. We tax interest, we tax capital gains, we should tax transactions."
This is a terrible analogy. Taxing trading transactions is more similar to taxing money that goes in and out of savings accounts. Taxing interest from savings accounts is more similar to taxing profits from trading - which they are.
1. Yes, I am advocating a "buy and hold" approach. I expect this to make the stock market very similar to houses, where someone has to research the company and actually find the value for a stock. Or conversely the stock could be bought by the company and then re-issued so that an efficient market is formed.
Also, contrary to popular belief, a scarcity of stocks/bonds is a good thing, as it ensures the availability of capital when it is needed. The fact that we now have to play hot potato with a stock before it finds a home only demonstrates the lack of actual investor interest.
2. & 3. I agree that three was a terrible analogy, but these points were based upon the fact that the government has increased the debt, and therefore carrying cost, by several percent of our national budget. This money must come from somewhere, which means new, or higher taxes. I am putting this particular part of society forward as a viable option because it can only be defined as a luxury. No one NEEDS access to the stock market, and retirement funds are mostly buy and hold already. Since a sales style tax would fix many of the woes that ail the stock market, it was the format that I put forward for consideration.
Please comment on this last point, I would very much like to know where others would like to get our extra funding from.
You are correct. We hate your arguments.
You make excellent points, thanks.
A few observations to add to the debate:
1. debate the merits of the concepts first, asssuming perfect implementation;
2. only then consider the feasibility of implementation (including the problems of loopholes and spread consolidation). Please people, don't run them together, then we get nowhere.
About the TTAX:
1. It provides a means to reduce unproductive churning;
2. It would encourage fewer transactions, better due diligence, and better decisions;
3. It provides monetary authorities (hopefully the Fed is transparent by then) with the ability to affect the velocity of money as well as its costs;
4. It could be used to replace income taxes and free up a huge amount of time and resources unproductively spent by millions of citizens when preparing tax returns;
5. It could place effective limits on government spending if that is all the government gets - higher TTAX reduces economic activity and lower TTAX permits increased activities but only so much is available (can't kill the goose that lays the golden eggs);
6. It is a progressive tax since those with more money are likely to execute more transactions;
7. It may be an effective way to tax the black economy and ensure everyone contributes to the common weal; since cash may be outside of this loop, I suggest taxing cash at a 100x higher rate.
8. Make the TTAX low enough to prevent serious discontent with the average user and high enough to have a meaningful effect, for example, tax at a mill rate: one thousandth of the transaction is taken as tax;
9. It may stabilize exchange rate fluctuations as well as interest rate fluctuations; and (I'll stop now...)
10 It may reduce price fluctuations.
Undecadent
1. Wrong. Society gains greatly from trading. You buy goods originally from China, from men with expertise in logistics. They perform a distance arbitrage, and you benefit. Traders on Wall Street are no different, they arbitrate prices... If they realize that the market is overvaluing one firm, due to their analysis, they buy it, and bring the price to a more rational level. If you own stock in that firm, they have helped you. If you are looking to buy a stock, you're more likely to get a reasonable price, due to traders.
2. For some it's gambling, for some it's not. Warren Buffett gambles too. He gambled that the system would support his "buy and hold" philosophy. Guess what? It didn't. What did he do? He ran to his buddies in Washington with his pants wet, and his hand out... My point is, you shouldn't make the mistake of trying to use legislation to encourage one type of behavior or another... let people, and companies make their own mistakes, and the market will reveal the truth.
3. This is just patently wrong... Many people hold savings in stocks. Also, arguing that since we do xyz, we should do abc... is flawed arguing - the government does a LOT of dumb things.