Crash after 1/4% transaction tax? Don't bet on it!

[Banff01]

Why does everyone here seem to think that there would be a market crash if the 1/4% crash tax got introduced? Daytraders and system traders that would be the most affected should have just about zero effect on the long-term price movement. Shouldn't we see some decline in the indecies but nothing major as a result, huge decrease in volume and significant increase in volatility? Aren't we seeing some revenge mentality here instead of clear reasoning about the effects of this tax?
Don't be mistaken, I hate the idea of this idiotic tax just as almost everyone here.

 

[bears21]

Quote from Banff01:

Why does everyone here seem to think that there would be a market crash if the 1/4% crash tax got introduced? Daytraders and system traders that would be the most affected should have just about zero effect on the long-term price movement. Shouldn't we see some decline in the indecies but nothing major as a result, huge decrease in volume and significant increase in volatility? Aren't we seeing some revenge mentality here instead of clear reasoning about the effects of this tax?
Don't be mistaken, I hate the idea of this idiotic tax just as almost everyone here.

all i can say on this is the U.S. is turning into a 3rd world country. we cannot think for oursevles anymore. we are very lazy and just give breaks to the immigrants and the poor and expect the rich to just keep paying higher taxes. that is the answer to everything now tax tax tax. a compitent american would favor tax cuts not increases. this is the world we live in now unfortunately. all the reports going back to what kind of effect this tax would have states that if imposed volume goes down volatility goes up and the expected revenues fall way short. thats the facts but hey if its what the american people want than thats what they should get. my only wish now would be for canada to invade the U.S. and take us over and put the U.S. out of its misery.

 

[AAA30]

Quote from Banff01:

Why does everyone here seem to think that there would be a market crash if the 1/4% crash tax got introduced? Daytraders and system traders that would be the most affected should have just about zero effect on the long-term price movement. Shouldn't we see some decline in the indecies but nothing major as a result, huge decrease in volume and significant increase in volatility? Aren't we seeing some revenge mentality here instead of clear reasoning about the effects of this tax?
Don't be mistaken, I hate the idea of this idiotic tax just as almost everyone here.

Prices would go down. Even for long term investors the tax would raise the required return which would make current prices less attractive.

 

[Mike805]

Quote from Banff01:

Why does everyone here seem to think that there would be a market crash if the 1/4% crash tax got introduced? Daytraders and system traders that would be the most affected should have just about zero effect on the long-term price movement. Shouldn't we see some decline in the indecies but nothing major as a result, huge decrease in volume and significant increase in volatility? Aren't we seeing some revenge mentality here instead of clear reasoning about the effects of this tax?
Don't be mistaken, I hate the idea of this idiotic tax just as almost everyone here.

This tax would discourage further investment. Hence, your claim about long-term effects are questionable.

Case in point, this tax would kill profit margins for many financial services firms as well as for mutual funds, pension funds, investment firms, brokerages etc. The economy would lose many jobs as well as the revenue from these businesses. Net effect would be lesser overall growth in the economy over the long haul combined with less active investment. That's just the investment industry. Think of the secondary effects on public companies that require active market participation... Such companies might consider listing in countries that do not charge a fee for every dollar that should be going to them.

By enacting such a tax you would metaphorically throw a "wrench" into the machine that allows for efficient money flow.

Think of it this way - why is the treasury intent on adding liquidity at what seems like any cost? When you answer that question you will see the longer term effects of ANY type of proposed roadblock to efficient capital transfer.

Mike

 

[piggie2000]

Why do people keep bringing this 1/4% tax up? not one main stream senator or congressman has even mentioned this in months yet people keep beating this into the ground. it has zero chance of passing as millions of jobs dealing with vol will be affected. forget day traders what about the 500k stockbrokers? the 200k people employed by online brokers? the 50 mil people that have mutual funds? time to put this subject to sleep for now

 

[FightTheFuture]

Quote from Banff01:

Why does everyone here seem to think that there would be a market crash if the 1/4% crash tax got introduced? Daytraders and system traders that would be the most affected should have just about zero effect on the long-term price movement. Shouldn't we see some decline in the indecies but nothing major as a result, huge decrease in volume and significant increase in volatility? Aren't we seeing some revenge mentality here instead of clear reasoning about the effects of this tax?
Don't be mistaken, I hate the idea of this idiotic tax just as almost everyone here.

There won't be a one day 25% crash.

Studies show that individual stock prices are reduced and held down from what they would be without the tax. A decade+ of no market gains plus an extra tax added to no or negative gains. To be taxed on losses is totally nuts. How about paying income taxes with no income?

The tax revenues will overall decrease. The tax is totally illogical.

The tax on the average long term investor will cost that individual roughly 10-12 percentage points by the time of retirement.

Why do you say, revenge mentality? We just want to be left alone. The tax hurts everyone no matter how they trade or invest.

Only about 12 countries still have the tax and they are reducing the rate. Those that still have the tax and those that have gotten rid of the tax are finding and have found that the tax is BAD in all ways.

The tax does not do what the economists such as Dean Baker says. It does sell his books though.

 

[Banff01]

Quote from FightTheFuture:

There won't be a one day 25% crash.

Studies show that individual stock prices are reduced and held down from what they would be without the tax. A decade+ of no market gains plus an extra tax added to no or negative gains. To be taxed on losses is totally nuts. How about paying income taxes with no income?

The tax revenues will overall decrease. The tax is totally illogical.

The tax on the average long term investor will cost that individual roughly 10-12 percentage points by the time of retirement.

Why do you say, revenge mentality? We just want to be left alone. The tax hurts everyone no matter how they trade or invest.

Only about 12 countries still have the tax and they are reducing the rate. Those that still have the tax and those that have gotten rid of the tax are finding and have found that the tax is BAD in all ways.

The tax does not do what the economists such as Dean Baker says. It does sell his books though.

Great post. I agree that we would see a gradual medium-term decrease in prices but nothing very big and a limited growth as we go forward. The tax would have a strong dampening effect on the markets.
When I mentioned "revevenge mentality" I meant that a lot of people wish that the market crashed as a result of this tax because they are angry about it instead of really thinking about the long-term consequences.

Quote from Mike805:

This tax would discourage further investment. Hence, your claim about long-term effects are questionable.

Case in point, this tax would kill profit margins for many financial services firms as well as for mutual funds, pension funds, investment firms, brokerages etc. The economy would lose many jobs as well as the revenue from these businesses. Net effect would be lesser overall growth in the economy over the long haul combined with less active investment. That's just the investment industry. Think of the secondary effects on public companies that require active market participation... Such companies might consider listing in countries that do not charge a fee for every dollar that should be going to them.

By enacting such a tax you would metaphorically throw a "wrench" into the machine that allows for efficient money flow.

Think of it this way - why is the treasury intent on adding liquidity at what seems like any cost? When you answer that question you will see the longer term effects of ANY type of proposed roadblock to efficient capital transfer.

Mike

Mike805, great metaphore and ideas. The US would most likely lose their market leadeship because the volume together with company listings would move elsewhere. There are many places that would gladly take over if they could.

 

[GTS]

Quote from piggie2000:

Why do people keep bringing this 1/4% tax up? not one main stream senator or congressman has even mentioned this in months yet people keep beating this into the ground. it has zero chance of passing as millions of jobs dealing with vol will be affected.

I wondered the same thing - guess there aren't enough real topics to discuss so we need to have some made-up controversies to argue about.

 

[Landis82]

Quote from FightTheFuture:

There won't be a one day 25% crash.

Reading Comprehension 101 anyone?

 

[Mike805]

Quote from piggie2000:

Why do people keep bringing this 1/4% tax up? not one main stream senator or congressman has even mentioned this in months yet people keep beating this into the ground.

My wife asked me the same thing the other day. My answer: the idea that an uniformed public - via the use of political capital - can cause me to go out of business is just plain scary.

Also the fact that this tax proposal is the result of a moral judgment upon speculation shows how ignorant the public and certain government officials are of basic finance. Ignorance scares me as well.

So yeah - I'm scared of this thing for reasons beyond simply my staying in business. Passing judgment is one thing - but, enacting a law from such ignorant judgment which has so many potentially adverse ramifications.... well, if it happens I might just leave this country for good.

Mike