Financial Transaction Tax, Anyone?
 

Since the Occupation movement started, there has been some suggestions floating around the country (U.S.) about either a Financial Transaction Tax, or a "Tobin Tax".

Apparently, the idea was proposed in Europe back in September, and today, two Democratic Senators plan to introduce the measure in the U.S.

Just want to know what everyone thinks about this. I'm on the fence, still. It sounds like a great idea in principle, but I suspect, as with every other tax, and considering the nature of business, it will only get passed on to consumers in the end.

So, whatcha think?

Why does it sound like a great idea in principle?

It's the worst possible financial idea - history shows that financial transaction taxes simply drive business elsewhere. The only people who end up paying are those who are captive to the county in question - those too poor or financially unsophisticated to take their business overseas. AKA the lower and middle class.

So if you want to stick it to middle class investors, a financial transaction tax is great. Otherwise, it's a bad idea.

The failure of the Swedish transaction tax is a perfect case study.

I see the point, although I think there's a difference between investors and speculators. But, thanks for noting the Swedish experiment.

There is certainly a difference - speculators are interested in price while investors are interested in yield.

That said, you can't have efficient investment without the availability of speculation on both sides with inventory in order to make a market. And since market making speculators will not take a loss in the long run, any taxes levied on them with manifest either as wider bid/offer spreads or via them exiting (and thus closing down) the market. In the case of Sweden you got the later.

In general I am against new taxes, whatever form they may take.

IMO, if the government can't spend within its means while taking in 2.6 trillion dollars a year in revenue, then giving them more money is not going to fix the problem.

One other interesting note from Sweden is that the revenue lost from capital gains and income taxes on their stock market was orders of magnitude bigger than what they took in on their financial transaction tax. It was an obvious case of killing the goose that laid the golden egg.

The US is in a very very deep debt problem. You have 2 possible solutions, either you increase revenue or you cut expenses. I think it needs to do both at this time honestly. Cutting government expenses is very difficult to do however. It's not popular when put in practice.

In this particular instance I think this is a good idea. Europe is doing it as well, so there will be less incentive for the upper classes to go elsewhere. They should do it wherever possible ideally speaking. I don't see why investors and speculators should be exempt from paying taxes when buying and selling products. Everyone else does it why not them?

Study the Swedish example - a transaction tax will cause a loss of tax revenue, not an increase. Not only does it hurt the middle class (and lower-middle class pensions) first and foremost, but it will actually make the debt worse.

I don't think Sweden is a good example to study. All of Europe and now the US is preparing to do the same. Very different from a single nation doing it. I think the increased difficulty in finding places and ways to avoid the new tax will deter many, unlike the Swedish example.

That's not true. Two countries in Europe (France and Germany) are trying to push it and are repeatedly being told no by the rest. Merkel and Sarkozy need it because they know putting France and Germany in hock to bail out the PIIGS is politically untenable, and they're stuck.

The bill frequently is authored in the US, but rarely even has the support to come up for discussion in committee. It certainly can't pass a floor vote in either chamber. If Europe does a tax, it will be only 4-5 countries at most, the US will skip it, and the US will be thrilled to take all that EuroSTOXX and Bund business. It'll be like Christmas :)

For reasons I don't fully understand, the financial transaction tax seems attached at the hip to people who don't know basic facts about its history and the politics around it. That's probably because anyone who did know those facts would realize how bad an idea it is.

Right. You're that guy who's convinced that the US is in deflation. That's all I need to know to make an opinion on your predictions.

EDIT I think it's cute how you try and label anyone whose view oppose yours as ignorant.

When they're incorrect on basic facts, the label is appropriate.

There are only 2 G20 countries that unconditionally support a transaction tax. There are a few more smaller European ones who are undecided and who could probably be bullied by Germany. The rest of the world opposes it, and for good reason.

Ok. The US isn't in deflation so you're ignorant on that point. You've shown no evidence of having a better grasp of history or politics than anyone else in here for that matter. Just empty rhetoric.

In any event I'd love to hear what others have to say on the idea.

More like you utterly failed to grasp what was being said. That's OK - there's no real requirement that you understand. But if you do want to understand, go pull the CPI data for this summer (about which I made the deflation statement). You'll see it's net deflationary with energy folded in May-June, slightly positive ex-energy, and then returns to mild inflation on the most recent reading. prices are still broadly below 2007, so the last 3-4 years would have to be termed net deflationary as well.

Maybe you expressed yourself poorly? Just now your argument is different from what it was in that thread.

I think I'm being perfectly clear. We (being the US) have been net deflationary over the last period of years, and just exited a deflationary period over the summer. As of the last time I posed on the subject I don't think the data yet showed we had exited, but that's to be expected - new data comes out every month and the old months are revised on a rolling schedule. I don't know why this is such a big issue for you since the data is a matter of public record. But if you really care all the info is there.

I don't care all that much. Just making an opinion on your arguments based on your posting history. Go back and read the thread. I think you'll agree your argumentation wasn't very solid or clear. If you can find a semblance of objectivity...

By the way, your first post in this thread was a very effective way of poisoning the well. I'm proud of you. :)

Can we get back on topic now? And can we avoid insulting other people's knowledge levels when their views don't fit our own?

You can avoid whatever you want. I'll keep stating the facts and we'll go from there.

I think if it happens it will end up being passed on to average Joe customer somehow or other.

This is my main concern. People involved in business usually do everything in their power to make sure they secure a profit, and if that means passing on expenses to the consumer, so be it.

Certainly it should be obvious that businesses will not operate at a loss. If they can't pass the cost on, they will exit the business.

I think this fear is greatly exaggerated. We're talking about 0.3% here. I don't think it would affect Joe customer. Much less than a direct tax anyway.

Why are these people being given a pass in the first place? Again, everyone else pays taxes on products and services bought and sold. Why the exception?

Right, MU, this is actually my contention. When I first even heard the idea, I was like, "oh, yeah. How is it that we don't have this happening, already?"

Although it's a fraction of a percent, I do think, though, the Swedish story is telling. I imagine myself a day trader (I once considered it), and as such, I would surely be more hesitant to trade for the short term. This would lower volumes dramatically, but in so doing, it would also reduce gains, upon which a LOT of people already pay a tax. Hence, the "killing the golden egg" idea makes sense to me.

It's actually much like socialism. It looks good on paper, but for all practical purposes, it would be a negative, I think.

There's a fair amount about this in the news in the UK at the moment. Unless it's applied worldwide then Britain will veto it as a European tax. I don't see the rest of the world going for it, from what I've read the US aren't having any of it.

Why do so many people have it in for short term traders anyway? We pay tax just like anyone else. If I am discouraged from making money then I'll make less money to pay tax on...

I agree with the principle of getting money out of the financial system and redistributing it to those who need it but this isn't the way to do it.

I would only support higher taxes if I actually believed that Congress and the President were going to put that money to good use, such as by paying down our debt with it.

Instead, historically they have shown that they always spend more money than they take in. Even the so-called "surpluses" in the Clinton administration were criticized by many as caused only by accounting tricks.

Save for those surpluses, the US Congresses have consistently spent more money than they have taken in for the last several decades. There is no reason to believe that they will magically become better-educated and more responsible with the money they receive in the future.

Every time Congress gets more money in tax revenue, they spend more than 100% of that money during the same year by going into further debt.

In my mind, the most likely scenario concerning any new tax is this:

1. Congress enacts new tax.
2. $100B in new tax revenue is raised.
3. Stupid, greedy Congressmen think "wow, we can now afford to spend another $140B!"
4. America goes into $40B more debt and its citizens are even further screwed.

0.3% is HUGE. That's 0.6% round trip, plus another 0.6% to cover the market maker's taxes too. So 1.2% round trip. Many standard instruments involve a large number of hidden round trips per year - for example, the single most popular broad-market investment vehicle in the US, the SPY S&P 500 index fund, is in reality a mechanism for the public to hold the front month of the ES futures contract. The ES front month rolls four times a year. So this tax would cost a basic index fund investor in the most popular index fund in the US 4.8% per year even if they never actually bought or sold a single share of the fund.

It's so far beyond out of line as to be ridiculous.

There goes Snerp, stating the facts, again :rolleyes:

You can't charge people who are holding the SPY for the 1.95% yield (as of today) 4.8% in taxes and expect this to somehow be feasible. It's the kind of idea that could only be suggested by someone who either

1) has absolutely no clue how the market works
or
2) simply wants to completely kill the market

So it's either malice or stupidity. Either way it's absurd.

Right. Another fact. Boggles the mind, your brilliance, Snerp.