The economist Dean Baker is a strong advocate of a financial transactions tax. This would impose a small fee — ranging up to, say, 0.25 percent — on the sale or transfer of stocks, bonds and other financial assets, including the seemingly endless variety of exotic financial instruments that have been in the news so much lately.Not a bad idea, but Herbert chooses to spend more time explaining to us (as if we didn't already know) that we have large deficits and aren't likely to slow our spending in the near future, than going over the details of how this plan would work. Still not a bad idea all in all.
According to Mr. Baker, the co-director of the Center for Economic and Policy Research in Washington, the fees would raise a ton of money, perhaps $100 billion or more annually — money that the government sorely needs.
But there’s another intriguing element to the proposal. While the fees would be a trivial expense for what the general public tends to think of as ordinary traders — people investing in stocks, bonds or other assets for some reasonable period of time — they would amount to a much heavier lift for speculators, the folks who bring a manic quality to the markets, who treat it like a casino.
“Well, I've been in the city for 30 years and I've never once regretted being a nasty, greedy, cold-hearted, avaricious money-grubber... er, Conservative!” - Monty Python's Flying Circus, Season 2, Episode 11, How Not To Be Seen
Tuesday, January 13, 2009
The Investor Tax
Bob Herbert's latest article is inconsistent but contains the germ of a good idea. Specifically he proposes placing a small tax the buying and selling of investments.
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Traders provide liquidity to the markets. Basically, they are market makers. Without liquidity, who will buy all those millions of shares of stock when the mutual fund that has YOUR money tries to sell the stock? Not only will all investors (401K accounts) lose money from this tax, but they will also lose even more money as stocks will drop significantly more when investors want to sell but there are few buyers.
Not only that, but with the Madoff scandal in December, many investors already don't trust nor want to invest in the markets. This tax would only make this worse. U.S. more than any other country relies on capital.
How many jobs were lost in the last four months of last year? Do you know how many jobs would be affected when hundreds of thousands of traders suddenly stopped trading?
What about hedge funds? They are speculators, but they also invest for longer term. Hedge funds would go out of business overnight. Wealthy americans have huge investments in hedge funds.
It's a shame that some people are not able to gauge risk vs. reward. Is $100 billion per year really worth potentially large market disruption, in addition to job losses, and investment capital leaving U.S. markets?
Why not just raise short term capital gains tax? Traders would have to pay more taxes, but they would still provide liquidity and would not be standing in unemployment lines
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