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Congress Proposing Transaction Tax On Stock Trades

 March 01, 2009 07:01 PM

Now how does instituting a tax on stock trading help and who does it really hurt? Congress and Obama have embarked down a very dangerous path.

Unintended Consequences of Levying a .25% Stock Transaction Tax
by Ron Rowland

Congress is considering legislation to impose a securities transaction tax of 0.25% on every stock trade, which of course is equivalent to 0.5% for each round trip. It's known as H.R. 1068: Let Wall Street Pay for Wall Street's Bailout Act of 2009.

As currently written, the bill amends the Internal Revenue Code of 1986 to impose a tax on certain securities transactions. The authors presume it will produce enough additional revenue over time to recover the cost of the $700 billion Troubled Asset Relief Program. Representative Peter DeFazio, D-Oregon, authored the bill.

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This bill takes the "law of unintended consequences" to new extremes. You and I did not create the problems of Wall Street. You and I did not receive any Bailout Dollars. As taxpayers, you and I are already paying for the TARP. To start charging us 0.5% for each round trip trade is only adding insult to injury.

If you have portfolio turnover of 100% per year, then this tax represents a 0.5% per year burden. If you are a more active trader, perhaps with an average holding time of 25 days, then it robs you of 5% per year. If you do multiple trades a day, then forget it - you are out of business.

If active traders are removed from the market, what happens to volume? It will dry up, of course. Then you and I will be paying more for each transaction in the form of an increased bid/ask spread. The bill claims to recoup the cost of TARP, but I bet they did not factor in the severe volume reduction that the bill would create.

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This proposal has a host of other problems, many of which are highlighted in a great article by James Ramage for Traders Magazine entitled Industry Fears Proposal in Congress Would Destroy High-Frequency Trading and Liquidity.

This bill will hurt too many people, and they won't be the people it is intended to hurt. A ground-swell of opposition is already forming, but with the public's current anti-Wall Street mood H.R. 1068 could still slip through. If you see the folly of this idea, let your Representative know how you feel.



3/3/2009 6:30:44 PM
Financial transactions tax by Philip
This man will ruin my business if this passes, but I suspect there are much larger interests than mine in this fight, and this would never pass.
Rating: (1) (0)
3/8/2009 10:52:04 AM
Re. Proposed Trader-Tax, HR 1068 by Jim
I have two questions regarding the proposed "Trader-Tax" HR 1068, which I cannot seem to find answers to.

My questions specifically pertain to how this proposed tax might apply to an individual who trades open-ended mutual funds:

1.  "Would an individual who daily trades open-ended mutual funds (such as Rydex, Profunds, or Direxion -- shares priced at 4pm daily) be subjected to this proposed tax?    And if so, what minimum holding period would be required to avoid this proposed tax."

2.  "Would trading open-ended mutual funds in a tax deferred account (IRA, 401k, or Variable Annuity) be subjected to, or exempt from,  the proposed trader tax?  (i.e. funds cannot be withdrawn from such tax-deferred accounts until age 59 1/2)."

Also, in general, I would appreciate your opinion on whether this proposed Trader-Tax HR 1068 legislation is likely to pass.  

Thanks very much.  Jim
Rating: (0) (0)
3/21/2009 9:50:18 PM
by Tim SeRine
I know if it passes, I'm done the same day.  I am a active day trader.  It's hard enough over time to turn a .50% profit much less give it away.  I can't waive a magic wand and increase my win %. 

This tax is unfair.  Some consider it a sin tax (In Congress) (according to active trader magazine).

I would like to know if it is going to become a reality.
Rating: (0) (0)

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