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Taxing stock transactions

 
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swchandler



Joined: 08 Nov 1993
Posts: 5832

PostPosted: Sun Dec 02, 2012 3:56 pm    Post subject: Taxing stock transactions Reply with quote

I found the following commentary in the Washington Post by Ralph Nadar quite interesting. While I'm not savvy enough to understand all the ins and outs of such a tax strategy, I think that such a tax would undoubtedly generate significant revenue, and it would tend to curb the wild speculation and hedging that is so common with computer trading these days.

In reading many of the comments in response to the article, it's clearly not favored by those on the right, but I think that their arguments for the most part are without any real merit. Oh, and save the attacks on Nadar, and let's concentrate on the issue.

http://www.washingtonpost.com/opinions/ralph-nader-why-a-tax-on-stock-trades-should-be-part-of-a-fiscal-cliff-deal/2012/11/30/d6a1285e-3a38-11e2-8a97-363b0f9a0ab3_story.html?hpid=z3
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isobars



Joined: 12 Dec 1999
Posts: 14231

PostPosted: Sun Dec 02, 2012 5:10 pm    Post subject: Reply with quote

Just going by the topic of your post, I'm surprised and pleased to presume you know and care about the harm that would do to the economy. From the WSJ at
http://tinyurl.com/cu7g2yp , here's "Why Taxing Stock Trades Is a Really Bad Idea". It opens with "The Democrat-dominated Congress has come up with a new way for President Obama to violate his campaign pledge to not raise taxes on families earning less than $250,000 per year" and closes with "It's Economics 101 that the free actions of market participants cause supply and demand to reach equilibrium. And isn't that what investors—indeed, even speculators—do? Don't they try to buy things they think are cheap and sell things they think are expensive? Can they do it as well when facing the dead-weight costs of a transaction tax?

If not, then trading volume in our stock markets will fall. Beyond the tax, everyone—investor and speculator, great and small—who buys or sells stocks will pay more to transact in markets that are less liquid. And they will transact at prices that are not set as efficiently. In such a world, markets would necessarily be more risky, and the cost of capital for business would necessarily rise. The consequence of that is that innovation, growth and jobs would necessarily fall. That would be the full and true cost of the trading tax being proposed."

Even more alarming is this analysis:
http://www.ici.org/govaffairs/tax/stt/ci.faqs_stt.print .
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windoggie



Joined: 22 Feb 2002
Posts: 2399

PostPosted: Sun Dec 02, 2012 6:12 pm    Post subject: Reply with quote

isobars wrote:
Just going by the topic of your post
So, when you read the newspaper, you just read the headlines?
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keycocker



Joined: 10 Jul 2005
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PostPosted: Sun Dec 02, 2012 7:20 pm    Post subject: Reply with quote

At one time I tried be friends with iso before it became obvious to me why he has none. I would go to his references. They rarely supported his ideas, except by reading only the headline and twisting that. He clearly did not read the content much.
In many cases the content was stomach turning. Without him I would not have known there are conservatives who want all immigrants to go "home" or be slaughtered even if you are a fifth generation American whose ancestors came here a hundred years ago.
Nearly every American was on their genocide list.
Another was the site of those guys who were planning on killing cops, and then ambushing their families at the funeral.
That last one was the end of it for me and iso comments on heroes like himself.
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mac



Joined: 07 Mar 1999
Posts: 5256

PostPosted: Sun Dec 02, 2012 7:40 pm    Post subject: Reply with quote

Same same. Either misunderstands or misrepresents. Hates to be caught doing it--then the threats come out.
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DanWeiss



Joined: 24 Jun 2008
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Location: Connecticut, USA

PostPosted: Mon Dec 03, 2012 5:20 pm    Post subject: Reply with quote

windoggie wrote:
isobars wrote:
Just going by the topic of your post
So, when you read the newspaper, you just read the headlines?


Yes, I suspect, but only if they appear in little bubbles above each character. And usually only on Sundays.

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mac



Joined: 07 Mar 1999
Posts: 5256

PostPosted: Mon Dec 03, 2012 6:15 pm    Post subject: Reply with quote

It is sad that most of the right isn't capable of an actual discussion of this topic. There is merit in some of the ideas of conservative economists. But I get a better sense of the pros and cons from an article like this:


Quote:
Tax reform next test after 'fiscal cliff'

Laura D. Tyson

Published 4:35 p.m., Friday, November 30, 2012

America's recent presidential election answered the question of whether an increase in revenues will be part of the country's long-run deficit-reduction plan. The answer is yes: There is now bipartisan agreement on the need for a "balanced" approach that includes revenue increases and spending cuts.

But there are still deep political and ideological divisions about how additional revenues should be raised and who should pay higher taxes. If a preliminary agreement on these questions is not reached by the end of the year, the economy faces a "fiscal cliff" of $600 billion in automatic tax increases and spending cuts that will shave about 4 percent from gross domestic product and trigger a recession.

The majority of citizens agree with President Obama that tax increases for deficit reduction should fall on the top 2 to 3 percent of taxpayers, who have enjoyed the largest gains in income and wealth over the last 30 years. That is why he is proposing that the 2001 and 2003 rate cuts for these taxpayers be allowed to expire at the end of the year, while the rate cuts for other taxpayers are extended.

So far, Obama's Republican opponents are adamant that the cuts be extended for all taxpayers, arguing that increases in top rates would discourage job creation. This claim is not supported by the evidence. Recent research finds no link between tax cuts for top taxpayers and job creation. In contrast, tax cuts for the bottom 95 percent have a positive and significant effect on job growth.

During the past three decades, income inequality in the United States has increased significantly; indeed, the United States now has the fourth-highest level of income inequality in the Organisation for Economic Co-operation and Development, behind Chile, Mexico and Turkey.

At the same time, as the largest tax cuts have gone to high-income taxpayers, the U.S. tax system has become considerably less progressive. The United States needs fiscal measures that both curb the deficit and contain rising income inequality - and the inequality of opportunity that it begets.

But how should additional revenues be raised from top taxpayers to achieve these two goals? Most economists believe that increasing revenues by reforming the tax code and broadening the tax base is "probably" better for the economy's long-term growth than raising income-tax rates. The analytical case for this belief is strong, but the empirical evidence is weak.

In theory, higher marginal tax rates have well-known negative effects - they reduce private incentives to work, save and invest. Yet most empirical studies conclude that, at least within the range of income-tax rates in the United States during the last several decades, these effects are negligible.

A recent Congressional Research Service report, withdrawn under pressure from congressional Republicans, found that changes in the top income-tax rate and the rate on capital gains had no discernible effect on economic growth during the last half century. A recent review of the economic literature by three distinguished academics found no persuasive evidence that real economic activity responds materially to tax-rate changes on top income earners, although such changes do affect their tax-avoidance behavior.

So, Obama has evidence on his side when he says that allowing the tax cuts for high-income taxpayers to expire at the end of the year will not affect economic growth.

Republicans have proposed tax reforms in lieu of rate hikes on high-income taxpayers to raise revenues for deficit reduction. Obama has signaled that he is willing to consider this approach, provided it increases tax revenues from the top 2 to 3 percent by at least the same amount as higher rates while protecting other taxpayers.

The federal tax system is certainly in need of reform. Tax expenditures - which include all deductions, credits and loopholes - account for about 8 percent of GDP. Indeed, the U.S. tax code is riddled with special preferences and contains large differences in effective tax rates across individuals and economic activities. These differences distort decisions about investment allocation and financing. Reforms that made the tax system simpler, fairer and less distortionary would have a beneficial effect on economic growth, although economists concede that the size of this effect is uncertain and impossible to quantify.

Because tax expenditures are so large, limiting them could raise a significant amount of additional revenue that could be used both for deficit reduction and to finance across-the-board cuts in income-tax rates. Analysis of the Simpson-Bowles and Domenici-Rivlin deficit-reduction plans by the nonpartisan Tax Policy Center confirms that this approach is arithmetically feasible.

Reducing large regressive tax expenditures such as preferential tax rates for capital gains and dividends and deductions for state and local taxes, and replacing deductions with progressive tax credits, could generate enough revenue to finance rate cuts for all taxpayers, increase the tax code's overall progressivity and contribute meaningfully to deficit reduction.

But the odds of such an outcome are very low. What is arithmetically feasible is unlikely to be politically possible. Efforts to cap popular tax expenditures will encounter strong opposition from Republicans and Democrats alike. Nonetheless, some tax reforms are likely to be a key component of a bipartisan deficit-reduction deal, because they provide Republicans, who oppose increases in tax rates for high-income taxpayers, with an ideologically preferable way to increase revenue from them.

Unfortunately, it will take time to negotiate tax reforms - more time than remains until the end of the year, when the 2001 and 2003 tax cuts are scheduled to expire for all taxpayers. But there is still time to negotiate an agreement that extends these cuts for the bottom 98 percent, and that contains temporary measures to cap deductions and credits for high-income taxpayers in 2013. Such an agreement could help to break the political impasse over whether and how much these taxpayers' rates should rise next year, thereby preventing the United States from falling over the fiscal cliff and back into recession.

© Project Syndicate, 2012. www.project-syndicate.org. Laura Tyson, a former chair of the U.S. President's Council of Economic Advisers, is a professor at the Haas School of Business at UC Berkeley.

Read more: http://www.sfgate.com/opinion/article/Tax-reform-next-test-after-fiscal-cliff-4082066.php#ixzz2E28D3OCE


Of course, the Republicans in the House could have introduced a bill to eliminate loopholes, and encourage (with continued low taxation rates) economic activities that generate jobs and have high job multipliers, and discourage financial transactions (with higher tax rates) that are gambling rather than investing in start-up industries or expansions that actually create jobs. They would have had a chance to hold hearings on what might work, get the House professional staff involved in analyzing the implications of different approaches--kind of acting like legislators. But they were too busy voting to repeal the ACA. They
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swchandler



Joined: 08 Nov 1993
Posts: 5832

PostPosted: Tue Dec 04, 2012 6:17 pm    Post subject: Reply with quote

boggsman, are you steering away from this one? Maybe it's a bit too close to home workwise. I have to say though, if you can, your opinion would be welcome, especially on how it might generally affect IRAs and mutual funds for a retired guy like myself.
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feuser



Joined: 29 Oct 2002
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PostPosted: Tue Dec 04, 2012 7:23 pm    Post subject: Reply with quote

I am not an expert by any means, but taxing transactions - be it a sales tax or the proposed stock transaction tax - does affect the volume of any trade much more than taxes levied against the resulting profits. I believe that the underlying problem is the lack of participation by consumers and investors, both of who are increasingly conservative; which would be a good thing in an up-market and if it didn't starve the economy at a time where Government investment is at a low. I would be surprised if this idea gained any traction now.
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boggsman1



Joined: 24 Jun 2002
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PostPosted: Wed Dec 05, 2012 10:51 am    Post subject: Reply with quote

swchandler wrote:
boggsman, are you steering away from this one? Maybe it's a bit too close to home workwise. I have to say though, if you can, your opinion would be welcome, especially on how it might generally affect IRAs and mutual funds for a retired guy like myself.

I think the net result of a transaction tax would be bad. I think the whole high frequency trading complex is a joke, and serves no one, except the prime brokers who clear the trades. But, if you tax trades, you will get less of them, if you get less trading, liquidity will dry up, if liquidity dries up, people will move to more liquid markets.
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