Democrats push 150B stock tax to "create" jobs

A House bill still being drafted aims to raise $150 billion each year to pay for new jobs.

Under a bill being drafted by Democratic Reps. Peter DeFazio (Ore.) and Ed Perlmutter (Colo.), the sale and purchase of financial instruments such as stocks, options, derivatives and futures would face a 0.25 percent tax.

The bill, a copy of which was obtained by The Hill, is titled the “Let Wall Street Pay for the Restoration of Main Street Act of 2009.”

Half of the $150 billion in tax revenue would go toward reducing the deficit, while the other half would be deposited in a “Job Creation Reserve” to support new jobs.

The job fund would be available to offset the additional costs of the 2009 highway bill and other legislation that creates jobs.

For those of you who think $3 is too much for a stock trade.. Wait till this tax hit.. It would be $25 per 10k each way..

welookgoodcom said: For those of you who think $3 is too much for a stock trade.. Wait till this tax hit.. It would be $25 per 10k each way..

And my mutual fund - Total Stock Market Fund that buys 5000 different stocks. That ER goes up to 15% per year. The outcome would be no one invests in TSM anymore and instead hand selects the top 20 companies to invest in and the other 4980 companies on the NYSE go bankrupt from not being able to obtain equity financing during a credit crunch.

welookgoodcom said: For those of you who think $3 is too much for a stock trade.. Wait till this tax hit.. It would be $25 per 10k each way..I can't help to suspect that the people who pay the $3 per trade are ripped off in the execution.

tripleB said: welookgoodcom said:
The bill, a copy of which was obtained by The Hill, is titled the “Let Wall Street Pay for the Restoration of Main Street Act of 2009.”

I would propose we retitle the bill to: "Let Middle Class America Pay Out Of Their 401ks And Savings Act of 2009."

I don't see this affecting me or joe six-pack to any great degree, because I don't sit in front of my screen making trades all day, and I don't think most normal people do either. How many trades do most people actually make each year? Honest question, I don't know.

Won't work... any additional taxes on stocks will cause capital to flow out to countries with lower tax burders and that will reduce the number of jobs. Employees require significant capital and tools to work productively (office space, desks, computers, etc).

tripleB said: naas said:
I don't see this affecting me or joe six-pack to any great degree, because I don't sit in front of my screen making trades all day, and I don't think most normal people do either. How many trades do most people actually make each year? Honest question, I don't know.

Mutual Funds have a tax-pass thru structure such that if you invest in an SP500 index mutual fund, and they have to make trades throughout the year at a 0.25% tax, then expect to lose 10% of the value of your mutual fund to taxes each year. Joe Six Pack might not be doing stock day trading but if he has ANY stock mutual fund ANYWHERE then he will be effected.

That being said, this will never pass.
What are you talking about? If anything, this would push more people into index funds, which IMHO would be a good thing. VTSMX has a 5% turnover rate. 0.5% tax (0.25% for each buy and sell) of 5% is an increase of 0.025% in expenses each year. On a fund with 100% annual turnover, it would be an additional 0.5% in expenses each year.

Not that I think it will pass.

nycll said: Relax, boys. NOT going to happen.It's indicative of the bigger problem, which is the persistent and pervasive attitude that even puts things like this on the table.

JTFH said: nycll said: Relax, boys. NOT going to happen. I hope you're right, but I've heard "not going to happen" on to many things that happened recently.I hope I am right too. But I have not been wrong much (or ever??) in the "not going to happen" department lately.

Xnarg said: It's indicative of the bigger problem, which is the persistent and pervasive attitude that even puts things like this on the table.There are bound to be some nutty ones among the several hundred law makers in congress. Remember the ex-realtor guy Isakson who always pushs for doubling of the house buying credit? That one actually has way more chance of succeeding than this stock tax.

Of course, if you make me the supreme leader, you know that I won't tax stock transactions or offer a tax credit for house purchases. The questions is if you want to give up democracy.

jdmetz said:
What are you talking about? If anything, this would push more people into index funds, which IMHO would be a good thing. VTSMX has a 5% turnover rate. 0.5% tax (0.25% for each buy and sell) of 5% is an increase of 0.025% in expenses each year. On a fund with 100% annual turnover, it would be an additional 0.5% in expenses each year.

My interpretaton of this tax that won't pass is that is would charge a 0.25% per transaction. So every time the mutual fund created new shares, by purchasing new underlying equities, it would face this tax. Then everytime someone redeems their mutual funds, and the fund must sell underlying equities, it gets hit with the tax again.

Best Case scenario, it reduces the amount of equity financing that a company can receive by 0.25% because an investor will only have 99.75% of his investment capital available to invest. Worst Case Scenario, people start investing overseas where these taxes dont exist, or if they do, qualify for a foreign tax credit by the US government (loophole?)

Let wall Street Pay??

Wouldn't the traders (like us) be paying the tax?

And how would it punish the firms that needed bailed out? They wont be paying...?

nycll said: It punishes (or more precisely, eliminates) the high frequency trading business. And should greatly reduce trading and management all around. A lot of wall streeters would pay for this with their jobs or in pay as they compete with those who did lose their jobs. Some may move to foreign exchanges, which should have an influx of volume.

rikerseye said: newlin99 said: Let wall Street Pay??

Wouldn't the traders (like us) be paying the tax?

And how would it punish the firms that needed bailed out? They wont be paying...?

Likely you are mistaken. Very few people are "traders". More likely you are an investor or have an interest in something like a pension fund or 401k plan. "High-frequency trading" makes its money by ripping off those entities, which in turn rips you off. If you would like the long explanation, see here.

And yes, the firms which needed bailing out do a lot of trading. This eminently reasonable tax will not pass because those firms own the United States Congress, which is the same reason they got bailed out.


P.S. That "trades will go to other countries" argument is a red herring. We can tax U.S. corporations and U.S. nationals wherever in the world they choose to trade, we simply choose not to.

Anyways, this argument relies on the "But what about Outer Mongolia?" fallacy.

The "But what about Outer Mongolia?" fallacy is: Whenever someone tells you that the United States cannot do something because Outer Mongolia won't cooperate, you are being taken for a ride.

Nothing says they have to stay a U.S. corporation--and the amount of retained earnings that is expropriated into foreign entities should be quite telling of this.

I think there's a big difference between investing in a fund and day trading. Day traders have to fear this the most.

We need to find alternate ways to come up with revenue. It needs to come from the people who evade taxes, such as internet purchasing...

newyork4me said:
Nothing says they have to stay a U.S. corporation--and the amount of retained earnings that is expropriated into foreign entities should be quite telling of this.

Um, if they want to do business in the U.S., they have to.

So this will eliminate "high frequency trading" in the U.S. Excellent. "High frequency trading" is basically nothing but ripping off people with less technology and information than you. That's where all of the "earnings" come from. Most people get confused with the technical details, but that's all it really is.

People who are employed to do "high frequency trading" will lose their jobs. Excellent. They can use their considerable technical skills to do something which makes a positive rather than negative contribution to society.

Perhaps other countries will continue to allow their citizens to be taken advantage of by "high frequency trading". Fine by me. Their loss, our gain.

rikerseye said: newyork4me said:
Nothing says they have to stay a U.S. corporation--and the amount of retained earnings that is expropriated into foreign entities should be quite telling of this.

Um, if they want to do business in the U.S., they have to.

So this will eliminate "high frequency trading" in the U.S. Excellent. "High frequency trading" is basically nothing but ripping off people with less technology and information than you. That's where all of the "earnings" come from. Most people get confused with the technical details, but that's all it really is.

People who are employed to do "high frequency trading" will lose their jobs. Excellent. They can use their considerable technical skills to do something which makes a positive rather than negative contribution to society.

Perhaps other countries will continue to allow their citizens to be taken advantage of by "high frequency trading". Fine by me. Their loss, our gain.

Umm.. no. You do not have to be a US corporation to do business here.

tripleB said: welookgoodcom said:
The bill, a copy of which was obtained by The Hill, is titled the “Let Wall Street Pay for the Restoration of Main Street Act of 2009.”

I would propose we retitle the bill to: "Let Middle Class America Pay Out Of Their 401ks And Savings Act of 2009."

Actually, a tax like this would be great for investors but horrible for day-traders. High-frequency trading, which swipes nickels and dimes from real investors while they buy and sell stocks would go kaplooey, putting billions of dollars a year back in peoples' 401ks. Complicated stock scams would fall over. Day traders would go away.

Actual investors, who might trade stocks a couple of times a year, would only notice the value of their portfolio rise and become more stable.

Heck, even Warren Buffett has recommended this sort of approach to limit the ability of high-risk derivatives schemes (like the ones that crashed our economy) to temporarily affect equity prices.

Of course, I recognize that there is no chance of this bill being passed.

NO MORE taxes (or fees or whatever Washington is calling them these days. Period. Taxes and fees create bigger government and more waste that requires more taxes and fees. It's an endless cycle...

Let's bring back the chain gang instead.

If higher taxes always created more jobs, then Europe's unemployment would be lower.

RushnRockt said: And since things like this work (by that I mean the laws get passed) in Alaska, why not try them on a national level?What passed in Alaska?