Wall Street Pushes Back on Trading Tax

“Wall Street is mobilizing against proposals to tax financial transactions as the idea gains attention on the campaign trail and in Congress,” The Hill reports.

“The idea already has one high-profile supporter, Democratic presidential candidate Bernie Sanders, who has proposed legislation in the Senate for a tax on the trade of stocks and other securities.”

“Supporters say a financial transaction tax (FTT) would deter market speculation. But the industry and other critics are expanding efforts to stop the proposal, saying it would weaken markets and hurt small investors, especially Americans trying to save for retirement. Retirement money is often invested in mutual funds that trade frequently to maximize returns.”

11 Comments

  1. So we write it into the law that trades relating directly to IRA’s are exempt from the trading tax.

    I’m sure there are problems with that too, but this is why saying things on the campaign trail is always easier than writing actual laws and passing them.

  2. Until 1966 the US had a transfer tax on all stock sales. Originally 20 basis points, it was raised to 40 basis points during the Depression, most probably due to the influence of Keynes, who argued that financial transaction taxes would curb the type of speculation widely blamed for the stock market crash that led to the Depression.

    In other words, the current proposal isn’t new, and prior FTT didn’t cause any of the problems that Wall Street now contends it would cause.

  3. In many cases stocks in mutual funds trade frequently to increase the remuneration of the mutual fund managers and not to increase returns to the owners of the funds.

    After all, unless the managers have inside information (which is illegal to trade on) they are no better at timing the market than anybody else is.

  4. Any investment stock should NOT be traded frequently; all that does is spend money executing trades. If you’re investing in stock, whether an individual or a large organization, the best option statistically is to buy and hold. Warren Buffet tested that – he bought shares in several different mutual funds and hedge funds, and then put a similar share directly into an index fund based on the DJIA. After factoring in the costs from the funds, just buying and holding the basket won handily. (I don’t have the link at hand to where he did that, but here’s a link to him recommending it – http://www.marketwatch.com/story/warren-buffett-to-heirs-put-my-estate-in-index-funds-2014-03-13)

    1. I think traders just like to trade. It’s what they do. It’s what they’re paid to do. They want to believe in their own instincts and skills to shape the market, when in fact the market may be something too large and complex for anyone to control, which is a revelation most of them shy from.

      A long time ago, I was working a variety of temp jobs, and one day I got assigned to a brokerage of some kind, forget exactly what they did (it was in midtown, not Wall St.), but it was trade-related. And the market was unstable at the time, as is so often is. Everybody was hustling around, very intent on doing stuff, getting things back under control, acting like they knew what was wrong and how to fix it. But this one guy said to me “We don’t really know what’s happening.” They really don’t. But very few of them can admit it. And few of them have the cushion Warren Buffet has–or the confidence.

      1. There was an old Canadian television program called ‘Traders’ that dealt with this. Like a lot of t.v shows it went off the rails in it’s last few years, but in one of the earlier episodes this young woman who was a secretary at the firm said that she had been learning about stocks and she wanted to be considered for a job in ‘the pit.’

        So, the manager of the pit gave her something like $1,000 computer money to trade with and said “if you can make a profit on the $1,000 within a week I’ll hire you.” So, she buys into some stock that she mistakenly believes she thought she overheard some insider information on, and the stock ends up tanking. And so at the end of the week the manager says to her “All I said was that you had to make a profit, it could have been a $1. All you had to do was put the money into a hypothetical low yielding investment where you’re guaranteed that you won’t lose any of your initial investment.”

        1. I’m actually enjoying “Billions”, on Showtime (and I normally don’t like any of their shows), but it does fall prey to the myth of the Genius Trader–the Trader as Visionary. Personally, I’m rooting for Paul Giamatti’s U.S. Attorney (I think the point is going to be that they’re both right and they’re both wrong). But anyway, it’s not like I wouldn’t watch anything with Maggie Siff in it, so if the scripts are okay, it’s a nice bonus. 😉

    2. I think traders just like to trade. It’s what they do. It’s what they’re paid to do. They want to believe in their own instincts and skills to shape the market, when in fact the market may be something too large and complex for anyone to control, which is a revelation most of them shy from.

      A long time ago, I was working a variety of temp jobs, and one day I got assigned to a brokerage of some kind, forget exactly what they did (it was in midtown, not Wall St.), but it was trade-related. And the market was unstable at the time, as is so often is. Everybody was hustling around, very intent on doing stuff, getting things back under control, acting like they knew what was wrong and how to fix it. But this one guy said to me “We don’t really know what’s happening.” They really don’t. But very few of them can admit it. And few of them have the cushion Warren Buffet has–or the confidence.

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