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

Quote from ZeroSigma:

After receiving plenty of feedback from the trading community (thank you all), and having finally located the primary source of the $150bn figure (Dean Baker's 2000 self-published article entitled "Taxing Financial Speculation - Shifting the Tax Burden from Wages to Wagers") I was able to make some interesting changes to the article.

While it has to be admitted that Mr. Baker did not assume 'static' tax income (assuming instead a 1/3 volume declines across asset classes, which at least for stocks would be consistent with the Chinese rate increase from 0.2% to 0.5%), a more serious mistake has instead emerged: as much as 2/3 of the $150 billion figure widely quoted in the media is obviously missing from the current bill proposed by Rep. DeFazio, simply due to the exemption for government bonds, corporate bonds and currencies, all of which were assumed by Mr. Baker to be taxed at a 0.1% rate, and all of which have been omitted from the current legislative proposal (see section 4475 of the HR 4191 Act, which should have enumerated them explicitly - correct me if I'm wrong!)

So the article concludes now as follows:

These three asset classes missing from the DeFazio proposal are: Government Bonds, Corporate Bonds, and Currencies, which by Mr. Baker's own estimate should have been responsible for almost 2/3 of the overall $120 billion tax revenue, i.e. around $95 billion ($27.7bn, $14.7bn, and $33.3bn, in total $75.7 billion in 2000, so using Mr. Baker's 1.25 adjustment factor, in "current money" the missing revenue would amount to $94.6 billion).

Even Mr. Baker's estimate made for stocks ($36.5 billion) looks like taken from an entirely different tax, because it is based on a higher tax rate of 0.5%, not 0.25%. This two-fold increase in the tax rate for equities can be possibly justified by an optimistic assumption that both sides of every transaction can be always taxed, without any customer-firm transactions in which only one side is taxed, and the other (market-making firm) is exempt. The missing 95 billion dollars annually cannot be so readily justified though.
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You are correct about 4191. However, 2927 does tax non-governmental debt: maturities of less than 1 year at 0.02% and above this at 0.25%. Currencies are not taxed.

Interesting point about his article being self-published. That explains a lot. I doubt it would have survived if it had gone through peer review.
 
Quote from rsikit:

Maybe, but not a real big deal for him to weigh in on it, its a big deal to us , sure. I am sure he will not state any position on it unless specifiacally asked or if it ever came to vote in senate. He stated on the bank tax because thats looming but if you look at his other articles, he opposes taxes and any taxes on banks So we can assume against it.
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That seems reasonable. It doesn't make sense for him to oppose a bank tax and support the FTT.

Thanks for posting the links.
 
Not sure if this was posted before. There is now a House bill for a 50% tax on bonuses of TARP recipients:

ww.opencongress.org/bill/111-h4426/show
 
Quote from Shreddog:

I am always surprised to see people who have to maintain a public image voice their political (or religious) views in public. It would seem to be bad for business. What if one of your clients who didn't share your political views were to read this?
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Considering this is a thread against the transaction tax, how do you avoid it? It is no secret what party is pushing this tax. Breaking up their filibuster proof super majority in the Senate is a win for those fighting this tax.

However, I agree that other political ideology should be left out of the discussion.
 
Quote from TPCS: S. 2927 does tax non-governmental debt: maturities of less than 1 year at 0.02% and above this at 0.25%. Currencies are not taxed.
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Thank you! Indeed corporates are also taxed. So for currencies we subtract Mr. Baker's estimated revenue of $33.3bn (not questioning the assumed U.S. 1/4 share in that market), and for government bonds, we subtract $27.7bn, giving around $60bn in total, or - after the 1.25x 'current money' adjustment - giving around $75bn a year of missing tax revenue, which is exactly half of the $150 billion figure with which the tax is being sold to the public by Mr. Baker.

That's just arithmetic necessity, on top of some more subtle, economic overestimates:

1) the 0.5% tax rate used by Mr. Baker for stocks, which is based on an optimistic assumption that both sides of every transaction can be always taxed, without any customer-firm transactions in which only one side is taxed, and the other (market-making firm) is exempt; in the worst-case scenario (of no customer-customer trades), that problem alone could reduce tax revenues by as much as $23bn a year in current money terms (36.5*0.5*1.25),

2) the assumption that the reduction in volume in case of stocks would not exceed 1/3, which may be justified only if we assume that a 66% rise of the tax rate from 0.3% to 0.5% (as in the Chinese case analyzed by Baltagi et al., 2006) causes the same market reaction (a mere 1/3 decline in volume) as a newly introduced tax, i.e. a nearly 1900% rise in transaction costs (from their current level of 0.014% to the post-tax level of 0.250%+0.014%),

3) the assumption that the reductions in volume in case of bonds, futures and options would not exceed 1/3, very optimistic given the 85%, 98% and 100% reductions observed actually in Sweden for these instruments, with tax rates on futures 10 times lower than the US ones (see Umlauf, 1993 or Wrobel, 1996),

4) no market-maker and other institutional exemptions, which can reduce tax revenues for all instruments by as much as 70% (judging by the stock market volume exempt from the UK stamp duty, according to the 2007 Oxera report).

The only revenue underestimate to be found in Baker (2000) are the tax revenues for options, which have been assumed to be zero due to lack of appropriate market volume data.
 
Quote from Midas:

Considering this is a thread against the transaction tax, how do you avoid it? It is no secret what party is pushing this tax. Breaking up their filibuster proof super majority in the Senate is a win for those fighting this tax.

However, I agree that other political ideology should be left out of the discussion.
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agree fully. My strategy has been to support Secretary Geithner and the President in their preference for a bank levy and now fee over a FTT. I've also supported center leaders over the sponsors of the FTT bills.

We have also weighed in with UK political-tax issues and in Germany too.

As stated on an earlier post, taxes are fiscal policies coming from government and it can be very political as some pundits say the bank tax timing is.

We need to make friends in government for our cause - no FTT and the needs of active traders - so we should not alienate either political party.
 
We know Europe and the G20 want long-term global cooperation on a financial crisis fix, which includes taxes or fees or levies. The UK one time banker bonus was a local short term move, not leadership on the long-term fix.

Rather than let FTT forces gather momentum the US acted first to fill the leadership void and pre-empt the IMF April report with their bank liabilities tax. FTT would have to be global to prevent leaks but it's harder to move liabilities and bankers.

The politics are global with Obama leadership now. The G-20 may wind up with a plan similar to Obama's plan and the US may modify that plan to accomodate bank complaints and global suggestions for improvement. The plans can vary by country.

Republicans may prefer no bank tax and no global cooperation on bank or financial transaction taxes. Let's see if the tax dynamics change much over the next few weeks. Bankers are ramping up their fight against the bank fee.
 
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