3.22.16
Bernie Sanders is pushing an old idea who’s time may have returned, the Speculation Tax. His proposal would take a 50 cent tax for every $100 in value of stocks traded, and lesser amounts on other financial instruments such as bonds. This is not a new idea. From 1914 to 1966 the U.S. had a tax of 2 cents for every $100 of stock value traded. Two cents in 1914 probably bought more than 50 cents buys today.
According to a joint report from the Center for Economic and Policy Research and the Political Economy Research Institute, a speculation tax could raise as much as $350 billion annually. Bernie wants to use this to pay for free higher education for all. Well, it’s not enough, it will take a lot more than that, and i’m not sure that sending people to college who are not academically prepared or who do not have any way to use the education they do get in today’s job market is a good idea. I think that if some of the money went to education and was intelligently allocated it could be beneficial. The money could be put to a lot of other good uses too, such as balancing the social security budget, paying for badly needed health care, repairing our infrastructure or enhancing our national security.
This tax makes sense. Every time something is bought or sold or gifted in this country above a minimal value a tax is due on it. Why are stocks and other financial instruments exempt? Exempting financial tools from taxation primarily benefits the top wealth holders in this country. It seems not only unfair but outright wrong that the profit centers of the wealthy are tax exempt.
I personally would like to see commodity and stock options taxed at a much higher rate. They are both tools of the wealthy created primarily for speculation, and in the past have had very negative effects on the investment market. Stock options are one money vehicle that is pure speculation. Commodity options have some legitimate value in the business world for businesses trying to control future costs, but they are primarily used for speculation also. Options promote volatility in the markets, which is counter productive to the type of long term investing that the average American needs to do to reach financial security and a decent retirement.
We also need to consider minimal taxation on retirement funds, 401k’s, IRA’s, college funds and the like. These types of tax exempt/deferred investments, created to help working class Americans, could be exempt from the speculation tax or taxed at a lower rate (say 5 to 10 cents per $100). This would reduce the overall tax revenue but it would benefit those who invest instead of speculate the market.
it would seem logical that those who contribute to volatility and who make the most profits, should pay the most taxes for that privilege. The computerized high speed trading industry extracts wealth from the market and the economy without producing anything of value. They can surely afford to pay a small part of their profits in a tax that would benefit all Americans. I believe these high speed transactions could be taxed at some kind of maximum rate since they are strictly a tool of speculators and not long term investors.
Like all things, this tax could have some negative effects also. One problem that I can envision is that corporations will get pressure from the big spenders on the exchanges such as hedge funds and mutual funds to list their stock on foreign exchanges that do not charge this tax. Stocks, bonds, options and all other financial instruments are traded on a global basis one way or another. Any company can apply to list it’s stock on any exchange it chooses, anywhere on the planet. If a foreign exchange could steal some business form the NYSE or NASDAQ by not charging investors a tax I’m sure they would be happy to do it. This would unfortunately require some more government regulation to solve that issue. Perhaps rewarding companies in some way that trade on U.S. taxable exchanges, or in some way punishing those that trade on a foreign exchange. Foreign companies that now trade on our exchanges may leave if we use a punishment incentive. There is also an argument that it would affect the liquidity of the markets, and henceforth the safety and value of the investments bought and sold there. These and other arguments and would need to be addressed and dealt with, but the overall concept of a speculation tax still seems to have merit, and more up side than down side for the American people.