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Transaction Taxes: Today’s Failing Grade
Alexander Wissel, Editor in Chief, Investment U
Editor’s Note: In perhaps one of this week’s “worst ideas ever” category, an Op-ed in The New York Times suggested we institute a transaction tax of .25% for every stock transaction. Our first thoughts were to suggest the authors do a little studying first, perhaps looking at some law books. We recommend “The Laws of Unintended Consequences.”
The simple fact of the matter is that these kinds of suggestions are going to impact the countless retired and soon-to-be retired Americans with a majority of their assets in the market. Remember the alternative minimum tax? It was supposed to just affect “the wealthy,” but instead impacts more of “middle-class-America” than the IRS would like to admit. More Americans invest in the stock market every year, and that isn’t going to stop.
It’s rather easy to state this kind of tax “would be a trivial expense for what the general public tends to think of as ordinary traders — people investing in stocks, bonds or other assets for some reasonable period of time — they would amount to a much heavier lift for speculators, the folks who bring a manic quality to the markets, who treat it like a casino.” And don’t think that’s not an unpopular viewpoint to criticize speculators and all of the other market “boogey men” that the media likes to blame when things go badly.
The other aspect that wasn’t brought up was the fact that employers and federal planners have enough trouble convincing Americans to invest and save for their future as it is. How does adding more tax onto their savings encourage them to put more of it away? They’ll put it away all right, except it will be under mattresses – instead of investments.
Depending upon your viewpoint, one trade a day could be active, or it could be lethargic. Some trading strategies used by the “general public” require more active trading. We all can’t have timelines of forever when trading stocks. Even Warren Buffett sells eventually. Maybe much less if he knew he was being taxed.
Finally, government officials handle taxes poorly. If you give them an inch, they end up taking several pounds of flesh. It’s not hard to see .25% creeping up to 2.5%. After all, (*snicker*) we are only taxing those that speculate. These taxes will invariably grow.
Transaction taxes, I’m sorry, you have failed to make the grade.
To read the Op-Ed article from The New York Times, go here.
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