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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region Forums5 Reasons It's Just Absurd That America Doesn't Tax Wall St's Transactions
July 22, 2013 | By Paul Buchheit
The logic for the tax is indisputable:
-- 1. Financial industry speculation devastated middle-class homeowner wealth.
-- 2. U.S. investors pay zero tax on their speculative transactions.
-- 3. The tax is easy to implement, and is very successful in other countries.
The emotional appeal reaches most of America:
-- Why should the rest of us pay up to 10% on the necessities of life while risky derivative purchases aren't taxed at all?
-- Why should kids around the country lose their arts programs while trillions of dollars flow, untaxed, to Wall Street?
....
The Tax Works in Countries with the 'Freest' Economies
A good place to start is Singapore. Or Hong Kong or Switzerland. These are three of the top five countries on the Heritage Foundation's Index of Economic Freedom, and they all have FTTs. Critics who might argue that non-FTT taxes are lower in Singapore and Hong Kong should look at World Bank and CIA World Factbook datasets, both of which show the U.S. with lower tax revenues as a percentage of GDP. The U.S. is clearly undertaxed across a wide range of taxes.
....
Unimaginable Amounts are being Traded in the U.S., with zero tax
Unfortunately, in our country, discussions about pension reform and education and infrastructure usually lead to talk about further cutbacks, as if that were the only solution. But pension funds and schools lost money because of financial industry malfeasance. And yet the financial industry keeps surging ahead. The 2012 trading volume for the Chicago Mercantile Group (CME) alone was $806 trillion, about 12 times more than the entire world GDP. In 2011 it was over $1,000 trillion -- that's a mind-dizzying $1 quadrillion.
....
http://www.alternet.org/economy/5-reasons-its-just-absurd-america-doesnt-tax-wall-sts-transactions?paging=off
Wall Street has become an end and not a means. If President Obama is serious about rebuilding a middle class, this is a necessary first step.
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East Coast Pirate
(775 posts)Stop it.
7962
(11,841 posts)
Bernardo de La Paz
(60,320 posts)As a pirate, you've hijacked this thread.
This thread is not about President Obama.
There are way too many posts and threads on DU these days clogging up the discussions with party line loyalty advocates waging war against critics and vice versa.
Egalitarian Thug
(12,448 posts)Bernardo de La Paz
(60,320 posts)I'm on the third side.
Egalitarian Thug
(12,448 posts)Tell you what, the first time I see you make an honest attempt to moderate your confederates position, I'll retract and amend my opinion of you.
We both know that's not going to happen, though.
Bernardo de La Paz
(60,320 posts)Message me which side you think I am on.
Recursion
(56,582 posts)7962
(11,841 posts)HFT- High Frequency Trading. I dont think individuals should be taxed just for buying a share of stock. No money is made in that transaction, something that point #2 is wrong about. You dont make money till you complete the transaction and sell the share for a profit. THAT is already taxed based on how long you held the stock. 1 yr or longer is at capital gains rate, under a yr is taxed at your income tax rate. HFT companies manipulate prices and are not individuals.
I also think short selling should be outlawed. If you think a company is overpriced, then buy put options. Short sellers also manipulate prices. You shouldnt be able to sell shares you dont own.
My 2 cents.
Bernardo de La Paz
(60,320 posts)High Frequency trading does not add extra liquidity to the market, or if it does, it is not necessary in an age of electronic trading. Electronic trading by brokers, institutional investors, and individuals does a very good job of providing liquidity: it is plenty fast enough without adding computer driven HFT.
You correctly identify the role of capital gains tax.
Short selling is a very good market brake. It helps avoid speculative bubbles because the short seller's offer increases supply and drives prices down or slows down a price rise.
Market manipulation is a crime that is independent of short selling. Manipulators tend to buy more than they sell short. They tend to buy up a stock to get momentum going, perhaps with email spam pumping, and then after suckers have bought in, the manipulators dump it by selling shares they actually own.
Junkdrawer
(27,993 posts)Middle class traders could be excluded.
We have to get back to incentivizing the extremely wealthy to make money by making things and hiring people not by manipulating markets.
Bernardo de La Paz
(60,320 posts)7962
(11,841 posts)And the "pump and dump" scheme is more prevalent. I have seen shorts manipulate a stock that I'm involved with; hence my disdain for them. The stock doesnt have a very high volume so they just put a big number out there on the bid side knowing full well that it wont be taken, but it suppresses the price without having to actually short that many shares. they do it every time news is announced too. they will post a large block for sale, giving the impression that the news wasnt as good as it should have been. They will lose in the long run though, because the stocks fundamentals are sound.
But I'd like your opinion; wouldnt a large number of PUT purchases also put the brakes on a share price? Showing that a lot of people think the price will be lower in a couple months would make me take notice. And it wouldnt require the borrowing of shares.
michigandem58
(1,044 posts)The stock purchase tax would be a very progressive one at that.
Bernardo de La Paz
(60,320 posts)When you reduce liquidity of stock and real estate markets, you make it hard or very hard to sell and that brings prices down, which devalues wealth. Most middle class families have most of their net worth tied up in their home and mutual funds and retirement accounts.
If you start taxing transactions instead of capital gains, then you dramatically reduce middle class wealth but the 1 % will be less affected because they own income producing properties like commercial real estate and rental units.
michigandem58
(1,044 posts)Wealth based in the stock market is dramatically weighted toward wealthier Americans. To conclude rich people own real estate and the middle class owns stock is sloppy, and just wrong.
Bernardo de La Paz
(60,320 posts)The middle class doesn't generally indulge in day trading or flipping stocks 20 times a minute.
The point is to promote buy-to-hold, like the better mutual funds and Warren Buffet (Democratic party supporter) without reducing liquidity. Taxing High Frequency Trading would do that.
toby jo
(1,269 posts)OP states the tax is easy to implement and very successful in other countries. In other words, it will create middle class wealth. You state that it will only reduce liquidity and therefor devalue wealth.
OP states that the wealth being traded untaxed is 12 times our GDP, a quadrillion dollars.
I'd say an instrument is needed to transform that wealth into a vehicle that the middle class can utilize for its' own wealth creation.
A hot fire carries alot of potential, but a slow-burning one exacts that potential over time.
Bernardo de La Paz
(60,320 posts)That is not wealth, because it is being counted many times over per day because it is traded at such a high frequency. It is much more liquidity than is necessary. It represents transactions worthy of being taxed; probably a majority of those transactions.
The total national wealth of the USA is about 58 trillion dollars. (http://www.federalreserve.gov/releases/z1/current/z1.pdf)
The article quite clearly calls it "trading volume" on the Chicago Mercantile Exchange. You are very confused to call it "wealth".
7962
(11,841 posts)Thanks Bernardo for your great info on how they work.
To think that taxing ANYTHING would create wealth is wrong to start with. The markets main problem right now ( to me) is that most retail investors (avg joe) think its rigged and dont trust it. So many stay on the sidelines with their personal cash. But many people ARE invested in the market with their retirement plans or 401K plans. Most people are shocked to learn that half the population is invested in some way. Add in pension plans and the number is higher.
Bunnahabhain
(857 posts)So many people fail to realize when concepts are being conflated or misrepresented to arrive at a predetermined conclusion that will seem reasonable to people that do not understand. A tax like this, placed on every financial transaction, will do nothing but create dead weight loss, reduce liquidity (which will then actually increase risk), and will hurt the middle class too. Use the tax to control behaviors that tend to have negative externalities. The general public needs to learn that financial instruments are not inherently evil and actually benefit more than the 1%.
Rex
(65,616 posts)Not a very effective argument.
7962
(11,841 posts)You dont buy stock at a garage sale either. The profit on the sale of clothes is taxed once. And unless you're using a consignment shop as an example, thats the only tax paid.
There is no profit made until a stock is sold. Until then its just a number on a page. And dont count your chickens before they hatch definitely applies to stocks. Dont count your profits till you SELL. But the same shares can be sold many times, creating many taxable gains if its moving higher.
Bernardo de La Paz
(60,320 posts)In principle, jeans for school could be sold a dozen times in a dozen years. In practice (get real), it is lucky if they are ever resold. It's even lucky if they are given to charity or a friend.
When is the last time you paid sales tax on an item of clothing you purchased second hand from a friend? Probably never.
Rex
(65,616 posts)Am I paying taxes on those clothes? Honestly I never paid attention. I see now what you mean, stocks are in the virtual world and not tangible items like clothes or a car.
7962
(11,841 posts)because a share of stock IS tangible. You can hold the actual stock certificates if you want to. I imagine few people actually do that, but it is a possibility.
I guess the easy way to look at it is that youre taxed in reverse of how youre taxed at a store. You generate a taxable event when you SELL a stock (for a profit, that is) as opposed to when you BUY a pair of jeans.
Rex
(65,616 posts)in your hand. So if you are constantly selling the same stock and it gets taxes after each sale, it devalues the stock after time? That is interesting.
7962
(11,841 posts)If i buy a share for 50 and sell it to you for 100, i pay tax on the 50 profit. But that doesnt affect the value to you, which is 100. Then if you sell it for 150, you pay tax on your 50 profit and the value to the new owner is 150.
You do have to consider the impact of taxes on your buy/sell decisions, but the actual "value" technically is whatever someone will pay you for it.
Egalitarian Thug
(12,448 posts)back to investing, as opposed to gambling.
Institute the transaction tax and up the capital gains rate and time requirement, you will see improvement almost immediately.
whatchamacallit
(15,558 posts)the lack of will speaks volumes about who runs this country.
Rex
(65,616 posts)They will fuck us all over one day soon. Wall Street is in charge of this country, how fucking pathetic.
Bernardo de La Paz
(60,320 posts)It shows how clueless you are on the topic when you don't even know this very simple basic fundamental fact.
Doesn't stop you from having an opinion and selectively cherry picking facts to confirm your predetermined perceptions.
Rex
(65,616 posts)So don't pretend I am the only one making assumptions.
Bernardo de La Paz
(60,320 posts)Lots of people who don't invest are still knowledgeable about the basics. Especially if they post about it.
Bunnahabhain
(857 posts)
Piedras
(247 posts)I favor the idea of a financial transaction tax. Especially on high frequency trading.
My question is what financial transaction tax rate would be appropriate?
What tax rate do countries that have FTTs charge/collect?
If it is very small it seems to me it would not cost most middle class people much, if anything.
If a FTT helps moderate speculative and/or inflationary costs of energy, food, education, health care, housing, basic raw materials costs, it would seem to have a positive impact on middle class (the 99%) living standards...so that it'd be a net positive.
It could help fund much needed infrastructure too.
Egalitarian Thug
(12,448 posts)Low enough that it doesn't discourage actual investment, but enough to take a fair slice from the bankster's ongoing crime spree.
We should also double the time requirement to avoid the capital gains tax, which should also be doubled.
7962
(11,841 posts)Holding for a year is long enough to discourage day trading and the likes. And doubling the cap gain rate would discourage even MORE people from getting invested in the market, leaving the field even more open to only the rich.
I am not rich and I can tell you from experience that i've made decisions based on whether or not the tax would be 10% (which is gone now) or my regular rate. Doing that sometimes makes you make a wrong choice. In my case, I didnt make a trade in order to get the lower long-term rate and the govt had to wait to get a 6K tax payment. The higher tax discourages you from making the sale, and the govt gets nothing. We should set a rate that ENCOURAGES sales which in turn generates more total tax revenue to the govt. Its been shown to be true with regard to the stock market.
Compare it to a speeding ticket. If you only had to pay 10.00 if you got caught speeding, you wouldnt worry very much about it. But when the cops start charging 150.00 you pay a lot closer attention to how fast youre going.
Egalitarian Thug
(12,448 posts)Not to attack you in any way, but every word that you wrote demonstrates just how badly this kind of change is needed. The very concept of investing in a company has become an alien concept to the tiny minority that lives for Wall Street (or any of the markets).
Holding for a year is a long time to a gambler, it's a second date to an investor, and that there are so few left that understand that is indicative of how and why our economy is so badly screwed. The casino mentality has completely overtaken The Street and every American still able or willing to play the work-till-you're-almost-dead-then play-golf-until-you-are game is essentially forced to risk their future in a game of Roulette.