Tax on Trades Should Be Part of Rescue Plan, Some Democrats Say

[brownsfan019 17]

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a5UhcbI4jecU

 

 

Tax on Trades Should Be Part of Rescue Plan, Some Democrats Say

 

By Laura Litvan

 

Sept. 25 (Bloomberg) -- A group of House Democrats is proposing to make Wall Street companies and investors pay more of the cost of any financial rescue plan through a new tax.

 

In a letter sent late yesterday to House Speaker Nancy Pelosi, 16 Democrats asked her to ensure any rescue legislation include a ``transaction tax'' on all U.S. stock trades and on other types of trades, such as credit default swaps, options and futures. They are proposing the tax would be at a rate of one quarter of one percent on all trades.

 

``The same Wall Street speculators and investors who are principally responsible for having caused this avoidable financial crisis and profited from it must now be required to pay for it, not U.S. taxpayers,'' according to the letter, which was signed by Representative Peter DeFazio, an Oregon Democrat, and Representative Pete Stark, a California Democrat.

 

In a news conference today, House Speaker Nancy Pelosi said she would support some mechanism that could return more funds to Treasury coffers if the $700 billion to be spent to acquire troubled investments isn't later recouped. She didn't endorse any specific proposal and suggested it is likely to be explored later.

 

``You might make a judgment down the road that there is a shortfall and it should be covered,'' Pelosi said.

 

President George W. Bush in a televised address last night urged swift action on the $700 billion rescue plan to help avert ``a long and painful'' recession.

 

The $700 billion proposal would allow the Treasury to buy troubled assets to restore financial stability, Fed Chairman Ben S. Bernanke said yesterday.

[brownsfan019 17]

Gotta love the blame being passed around here. Time for any trader to pay for it. Guilty by association at it's finest.

[james_gsx 16]

Pretty stupid if you ask me. But whatever, if I have to pay a slightly higher tax on trades so the financial industry doesn't explode then so be it. I don't agree with it, but theres nothing I can really do about it.

 

Or every trader could just stop trading for a week. Then there'd be no market. Would they tax me for not trading?

[Soultrader 12]

A few more interesting articles:

 

Why European banks will not be bailed out

 

Japan offers solution to financial crisis

[fifty2aces 10]

0.25% transaction cost would kill the markets.

 

Let's say ES is trading at 1200: value of one contract would be $50 * 1200, so $60000.

 

Every time you buy 1 ES contract you'd pay 0.25%, or 60000/400 = $150 in tax! And if you had to pay the tax on closing trades as well, that would be $300 in total, per trade, meaning you'd need to make 6 points to break even.

[smwinc 20]

It would never happen.

 

Too many big, important people make too much money from the markets to change it drastically.

 

A 'public solution' of some form might emerge, but it will be just that - a public solution. Behind the scenes, things will continue on business as usual.

 

My comment might sound a little "brief" but it's the blunt truth. Market crashes & turmoil has been going on for 100 years now. The markets are still here.

[DbPhoenix 42]

0.25% transaction cost would kill the markets.

 

I doubt it will have any effect at all. There is, always has been, and always will be a never-ending and infinite supply of people eager to lose money in the markets, and a li'l ol' transaction tax isn't going to stop them.

 

What I love about all of this is how badly Bush and his posse bungled the whole thing and how it's all playing out to the full benefit of the Democrats without their having to lift a finger.

[RobinHood 10]

This is just something I noted while reading "Trading & Exchanges" (Larry Harris) which reminded me of this thread:

 

UNINTENDED CONSEQUENCES

"In 1997, the Brazilian government imposed a 0.38 percent tax on all financial transactions in order to raise revenue. The unintended consequences of this tax was to cause institutional traders to trade Brazilian stocks as American depository receipts (ADRs) in New York to avoid the tax. The tax therefore raised less revenue than expected, and the Brazilian equity markets dropped from 1.2 billion reais (1.08 billion dollars) a day in 1997 to 350 million reais (136 million dollars) a day in 2001. Although some of the drop-off undoubtedly was due to the Brazilian financial crisis of 2001, many of the 32 Brazilian ADRs trade more volume in New York than in Sao Paulo. The Brazilian government announced in September 2001 that stock transactions would be exempt from the tax in late 2001"

[OAC 10]

Through this crucial weekend where they are trying to finalize the rescue plan, I don't hear them mentioning this point anymore. I guess they realized this was a silly idea to begin with, because all the business would simply move oversea.