Five Tax Fallacies Invented by the 1%

[eridani]

http://www.commondreams.org/view/2012/04/30

1. The Rich Pay Almost All the Taxes
2. Tax Rates Are Too High
3. Tax Cuts Boost the Economy
4. Eliminating Tax Breaks for the Rich Wouldn't Significantly Reduce the Deficit
5. A Financial Transaction Tax (FTT) Would Hurt the Economy

This fallacy would have us believe that a tiny tax on financial transactions is going to hurt the economy, even though the underlying reason for our economic collapse was the excessive, reckless, unrestrained, free-for-all trading of trillions of dollars of speculative derivatives.

The inventiveness of this fallacy is impressive, with claims of lost jobs, harm to ordinary investors, and the threat of exchanges moving overseas. The Wall Street Journal calls the FTT a "sin tax."

An FTT isn't likely to interrupt the global trading frenzy or cause any sudden defections from financial megacenters. The United Kingdom has had a tax on stock trades for decades, and the London Stock Exchange is humming along as the third largest exchange in the world. The CME Group, made up of the Chicago Mercantile Exchange and the Chicago Board of Trade, had a profit margin higher than any of the top 100 companies in the nation from 2008 to 2010.

[dkf]

1. Are derivatives even subject to a financial transaction tax when they aren't securities?

Is this guy confusing mortgage backed securities with derivatives? I don't think he has the cause of the collapse correct, and I don't see how his solution of a Financial transaction tax fixes anything. Trading didn't cause the problem, the creation of a bubble did. How do you keep bubbles from forming? That is probably more connected to the Fed than to trading. The bubble was in the real estate market, not the stock market.

And what does paying payroll taxes, local taxes, and excise taxes do to reduce the federal deficit? Nothing. I've never understood why these taxes are dragged into the debate on federal tax policy.

I don't know why it is necessary to debunk the supposed downside of taxing wealth. People want to tax the top because they don't want any more of their funds going to pay for their government. The populace is conditioned to avoid and detest paying taxes. I guess this type of article is the excuse they use to justify their lack of interest in helping to reduce the deficit.

[Shagman]

2. Not sure where to start ...

Around 80% of trades these days are "flash" trades, that is, done by supercomputer to get a fraction of a cent out of a miniscule market movement. Maybe you don't see a problem with that. An FTT, for one thing, would stop most, if not all, of the flash trading and put some stability back into the market.

What the original article seems to be saying is that putting a tax on every stage of a derivative would make them more expensive as they got more complicated. In that sense a CDO and a derivative would be treated similarly.

The bubble was in real estate, true, but most of the damage came about because a) mortgage underwriting became irresponsibly under-regulated and b) the resulting bad mortgage debt was irresponsibly sold in unregulated instruments to people who didn't know what they were buying. There was a long chain of irresponsible financial deregulation that led to the bubble, not some nebulous collection of market forces.

Edit: and oh yeah, the banks are fighting like hell to keep all that irresponsible deregulation in place.

I've maintained for years that tax breaks for the wealthy are double dipping. They've received handsome rewards from the economic system--that's how they got wealthy. Why should they get rewards from the political system as well? Quite the opposite, they should give back some of those rewards to help those less fortunate.