1/4% Tax on all stock trades pushed in NY Times today

Quote from rsikit:

We as traders
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Wrong approach. Use:

"We as investors"

You do not want the media to start throwing darts at daytraders/traders. We already have a bad rep. Most Americans do not understand what we do everyday in the markets and see us as a bunch of gambling fools causing havoc in the markets (i.e. visions of Enron traders).

Again, you want to capture the entire body of investors in this and rally the entire demographics to vote against this bill. You have to present the ramifications to the typical joe so he/she understands it and raises concern of how it affects his/her own portfolio and ability to invest.

There are more investors than there are traders in this world. Lump yourself in that demographics and start the campaign against it.
 
Quote from FutsTrader111:

Wrong approach. Use:

"We as investors"

You do not want the media to start throwing darts at daytraders/traders. We already have a bad rep. Most Americans do not understand what we do everyday in the markets and see us as a bunch of gambling fools causing havoc in the markets.

Again, you want to capture the entire body of investors in this and rally the entire demographics to vote against this bill. You have to present the ramifications to the typical joe so he/she understands it and raises concern.
More...

Good point.
 
Here's what I posted:

One thing I definitely agree with is that this tax would be a "major disincentive" for short-term active traders. In fact, using some of the popular rates proposed, such as .25%, this tax would drive all short term traders out of business. The question then becomes whether the traders activity was "socially useful".

Thousands of traders compete daily to buy or sell stocks for small profits. In their effort to do this, they tighten spreads. A spread is the difference between what you can buy for and what you can sell for. Currently, many of these spreads are .01. If this tax is enacted it will drive out the short-term traders who keep those spreads tight. The result will be lower volume, and wider spreads. My estimate is that spreads could easily widen to an average of $.50. This is a major unintended consequence that I have yet to see a single proponent of this tax address.

For instance when the small investor buys and sells $10,000 in stock, it will cost him $50 in transaction tax. A small fee is what it is described as. Sounds innocuous. But in this example if the investor were buying a $20 stock, he would also pay $500 total to buy and sell due to the spread in the stock. In other words, the cost of spreads widening between the bid and ask would cost the investor, 10X as much as the transaction tax itself. All of this is due to the lack of participation of those "socially useless" traders.

So is the short-term trader "socially useless"? Of course not. It's clear from my example above that they play an important part in our capital markets. Yes, the aim to make a profit. The profit motive is not evil. The combined effect of thousands of traders seeking to make a profit ends up saving society billions of dollars.

When a company raises capital, one of the benefits of a stock offering to the investor is that once he owns the stock, it is liquid. This liquidity is again due to the short-term traders who buy and sell for a profit. Force the short-term traders out of business with this tax, and you will reduce liquidity, and hence raise risk to the investor. If risk is increased, then the investor demands a higher potential return. This means that the company attempting to go public in order to exand, increse jobs, buy equipment will pay a higher cost through is stock offering (or bond offering) because the investors will want to buy cheaper than previously. Again, at every level of the capital markets the short-term trader provides the socially useful function of liquidity, which lowers costs.

Pass this tax and not only will short-term traders be forced out of business, but certainly volume will decrease substantially in all markets. The effect of this will be devastating to brokerage firms for example who currently cater to short-term traders. Many will go out of business, creating more job loss. Further, the few survivors will be forced to raise commission in an effort to replace lost revenues. More costs for the average Joe. Many industries have grown up to support short term traders. Software companies for example that provide charting software will be major losers if this tax passes. More job loss.

Not to mention the government who will loose the tax revenue on all of the short term traders who will have been forced out of business. This loss of revenue will clearly offset some of the revenues of the transaction tax.

And finally, there is the old saying that capital goes where it is treated well. This tax may well cause capital to flee this country to one which does not tax transactions, thus permanently damaging America's capital markets. Is this really what we want for America? One more industry destroyed by government edict and populism?

Today it is popular to point the finger at Wall Street, and blame them for all of our ills. Certainly Wall Street played a part in our problems. So did government. Bad laws, bad regulation bad politicians. People lacking in personal responsibility buying houses they could ill afford. Loan officers making loans on unsound underwriting criteria. The idea here should not be to tax those responsible, but to create policies which lead to future growth and prosperity. A transaction tax will clearly devastate our capital markets, sending them back in time several decades. This is clearly not growth and prosperity. To the extent that Secretary Geithner and the Obama administration have opposed this tax is the wisest possible course.
 
Quote from OldTrader:

I posted an article there. It looks like they did not moderate it. Hmmm...or did they? Anyone see it?

OldTrader
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You can see it because you're still logged in. Try a different browser. I still have zero comments showing.
 
Quote from OldTrader:

I posted an article there. It looks like they did not moderate it. Hmmm...or did they? Anyone see it?

OldTrader
More...

Nope, it's not there. Maybe no one is there to moderate right now.

OldTrader
 
Quote from FutsTrader111:
$2.3 trillion dollars a day exchanged. [..]
times by 0.25%:
[..]
Nearly $6 billion dollars in daily taxes
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So after a 50-fold increase in price*, the quantity demanded stays the same? That is so new, man, you should publish immediately, the 'science' of microeconomics will never be the same again! Annualize this and you start being grateful that CEPR made this blunder with their measly sum of $100 billion, when they could go for as much as $1500 billion! And a simple trader's tool, the trusted MA(30) did the trick - man, they don't know a thing about trading, these economists!;)

But for the benefit of the tape and those working for the Robin Hood: the calculation above assumed of course that the demand curve for speculative goods is perfectly inelastic (the curve becoming in fact a vertical line). But if some market participants are less addicted to trading than intravenous drug users to heroin, then even a slightest downward slope in this demand curve will cause the quantity transacted to drop. If a good has plenty of substitutes (e.g. exchanges in other countries), demand for this good becomes very elastic indeed, and the drop will be a significant one (up to -100% for goods with perfect substitutes). Which is why only an *international* version of this tax would not marginalize US financial industry to the level of Sweden. In fact they assumed volume will decline very significantly, but perhaps not by -93% (not only a -93% fall in volume would reduce tax intake from the maximum possible 1500b to the projected 100b, because they must have made room for ample exemptions. e.g. for market making firms and banks, pension funds etc). Judging by other studies, volume would drop by 30-50%, depending on the price elasticity of demand and on whether the tax rate is tiered (computed as a proportion of the bid/ask spread for each market separately). But if done unilaterally... well, that -93% would indeed be a possiblity, especially without any exemptions for banks.

On the other hand, trying to impose an international tax would be a classic case of the prisoner's dilemma - incentives to break the ranks would be greater than in OPEC. The int. trans. tax would have to be combined with a ban on offshore market centers (including lower Earth orbit;) and subordination (invasion? ;) of all dissident countries (such as Switzerland).

OldTrader, I think you will find that representative US stocks (by volume) are priced slightly more expensively, at around 100, not 20. Zdgreg, thanks for your suggestion, I did send my little tax 'efficiency' analysis article to Mr Calabria (entitled 'Analysis shows that everyone will bear the cost of the 0.25% stock transaction tax';).

* i.e. a rise in the bid/ask spread (which is the real price in this market) from the current 0.01% to the post-tax level of at least 0.50% for representative stocks, i.e. ETFs priced at around $100
 
Here is the method I used to do the calculation.

1) Take all NYSE and Nasdaq stocks
2) Take their 30 day average volume
3) Take the closing price Wednesday

Agilent (A) $29.24 * 3,092,300 = $90,418,844
.
.
.
Sealy (ZZ) $2.64 * 576,130 = $1,532,505

I added all 6800+ stocks up and came up with the $2.3 trillion dollar a day figure.

Then times that by 0.25% to get the nearly $6 billion/day tax figure.

These are "hard" numbers. If the goal of the government is to generate $100 billion dollars a year to create new jobs, well its starting to look like they can do that in just 17 trading days.

Now imagine if stock prices started to rise. They would generate even more in taxes per day. And of course the opposite if prices started to fall they would generate less - you get the picture.

The point here is that there is a shitload of revenue being created a day for the government. Its as is they are in the new business of having a piece of all trades generated.

Asuming 220 trading days in a year and the assumption that stock prices stay where they are currently, the government will generate over $1.32 trillion dollars in revenue a year.

Amazing isn't it? That 0.25% is HUGE. Seems like a more fair assessment would be to generate 1/10th of that to align itself with $132 billion a year no?

That is, they should tax the transaction to be 0.025% and maybe all of us can swallow this better.

So for a $50,000 Microsoft trade, that would generate $22 in taxes for buying and $22 for selling. That at least is more acceptable.

HOWEVER, there should be a time limit in in how long this law will be in effect. Like most taxes, we know damn well that government rarely removes them. If the timeline is to generate $150 billion dollars then the time limit should be ONE YEAR THAT ALL TRADERS AND INSTITUTIONS ACCEPT THIS LAW.

I hope this makes sense.

Now, there should be public pressure in having the government detail how they are going to take OUR MONEY and create jobs with this tax. We should demand total transparency and all results posted on a government website. There needs to be a way to relate a job created by government to a government report released weekly. We should see our "tax dollars" at work rather than have some bs number thrown in and reported.

This money should be kept in a separate account with all transactions made available to the public to be scrutinized.
 
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