This Is The One Place Where We Actually Need More Taxes

I’m all for radical tax reform: getting rid of tax deductions, ending estate taxes, and most of all, drastically lowering income and corporate tax rates. Read this if you don’t believe me.

But there’s one section of the economy where we need more taxes.

This is it.

We Need A “Sin Tax”…On Derivatives

Toward the end of 2009, proposals were floated in Congress to impose a modest tax on certain types of securities transactions. One proposed piece of legislation, titled “Let Wall Street Pay for the Restoration of Main Street,” would have imposed a 0.25 percent tax on the sale and purchase of stocks, options, derivatives, and futures contracts. Wall Street is unalterably opposed to any such tax, but it is a good idea for a number of reasons:

  • Tax policy should be used to create the proper types of economic incentives, and to discourage types of behavior that damage the economic system and society at large. One of the indisputable lessons of the 2008 financial crisis is that far too much capital is being devoted to speculation and far too little is being channeled to productive investments. Increasing the cost of speculation is a logical and economically efficient way of discouraging unproductive activities.
  • The U.S. government is running unsustainable deficits and is desperately in need of revenues. In addition to ending egregious tax breaks for financial interests such as the “carried interest tax” on private equity profits and permitting hedge fund billionaires to defer their taxes for periods of as long as 10 years (a boondoggle that was finally terminated), the government should be raising revenue from socially unproductive activities. The financial industry can easily afford to pay a tax on its speculative activities. Moreover, a significant amount of securities trading today is not for the purpose of providing growth capital for corporations but is merely done to churn financial profits. By 2015, approximately 75 percent of daily trading activity had nothing to do with fundamental investing but was instead tied to high frequency trading and ETF trading strategies that contribute little to capital formation or the productive capacity of the economy. Accordingly, a tax on these activities would be a perfectly reasonable and economically harmless way to raise revenues.

Transactions such as credit default swaps and leveraged buyouts and recapitalizations have extremely wide profit margins built into them by Wall Street dealers and can easily bear the type of tax proposed here. As someone who has worked in these markets for more than two decades, I can assure readers that Wall Street arguments to the contrary are both self-serving and false. One of the points of such a tax would be to make Wall Street firms and their clients think twice about engaging in speculative activities that contribute nothing positive to society, and force them to give something back economically if they are hell-bent on engaging in such activities.

Rather than a flat 0.25 percent tax on securities trading, I would propose a sliding scale tax rate applied to the face amount of the following types of transactions:

  • Naked credit default swaps if they are not banned entirely (1.25 percent tax).
  • Debt and preferred stock issued in leveraged buyouts, leveraged recapitalizations, or debt financings used to pay dividends to leveraged buyout sponsors (0.60 percent).
  • Quantitative trading strategies (0.35 percent).
  • Equity derivatives (options, futures contracts) (0.25 percent).
  • Large block trades (0.25 percent).
  • All other stock, bond, and bank loan trades (0.15 percent).

Coupled with other measures aimed at reducing systemic risk (i.e., increasing capital adequacy at financial institutions, increasing collateral requirements, and imposing listing requirements for credit default swap trades, and so on), such a tax would impose a cost on activities that add little in the way of productive capacity to the economy and increase systemic instability. Obviously any such tax would have to include provisions to prevent forum shopping so investors and traders could not avoid the tax by moving their activities abroad.

Such a tax regime would also contribute to the progressivity of our tax system by asking those who benefit the most from our economy to pay a little more in the way of taxes. The tax should not be imposed on stock, bond, and bank loan investments in retirement accounts under $1 million in size (IRAs, 401ks, etc.)

Sincerely,

Michael

24 Responses to “This Is The One Place Where We Actually Need More Taxes”

  1. James C Mynatt- retired banker

    I agree, great idea, we all ought to talk about the need to incentivize productive uses of capital that actually have a multiplier effect on growth of our economy and get away from all these short term rate driven engineered transactions that benefi no one except the speculators and Cronies trying to make a fast buck or deceive the public about true values!

  2. Only issue is if the tax is started all transactions will be taxed and as sales tax and soc sec tax has gone up ten fold watch for a 5 percent tax, become a user fee that is not deductible in your life time. Spending within the govt must be cut. No amount of money thrown out the way it is can ever be enough. Pres. goes tO Asia and gives away 90 million to a country we were dumb enough to try and protect. And so on and so on.

  3. For thirty years I observed the behavior of public-policy makers as a banking industry lobbyist, and what I usually saw was increased spending whenever tax revenues were increased. Unless there is correspondingly increased discipline on the spending side of the equation by legislators, increasing revenues will not reduce deficit spending habits. The proposed new tax scheme might change the behavior of investors to some degree, but the new revenues will simply be seen as more tax money to spend by most legislators.

  4. For 50 years I observed the behavior of all power brokers in Washington DC, and yes, if you give politicians money they will spend it. The majority are brainwashed to spend all money before the next fiscal year. The way are political departments are financed needs to be radically changed if we ever want to decrease the national DEBT.
    Get rid of the mindset of: “If you don’t use it, you lose it.”

  5. wrong! there is no stable money. without stability, liquidity is the next best thing. that’s why the speculation. patches upon shoddy fixes. fix the money, its broken. taxes are stealing. supposed to give 10% to church/god, but the state is god now & its 50%.

  6. Absolutely tax speculative transactions. Something similar to what we used to call the Tobin Tax. Would put a pause on some of the more speculative transactions AND provide much needed revenue. For those who don’t want the government spending I would ask if you want your highways and bridges safe; do you want a decent education for your children/grandchildren, an, yes, what about a secure health care system.

  7. Good idea. These additional taxes should be designated to reduce the deficit with enforcement to include sequester of the money raised if the deficit increases. Details of how and where the impounded funds would be dispersed, returned or credited to individual tax payers via reduced tax rates would need to be carefully proscribed.

  8. Our original Constitution protected us from government and tax tyranny! The 16th Amendment enabled direct taxation and needs to be repealed …Stop direct taxation on our jobs and our income…End the IRS… End tax withholding. Increase “spendable income” by ending tax withholding and adding the Prebate. Renew our lost Freedom, Liberty and Civil Rights. Do what is best for more jobs and economic growth. America’s Big Solution is the FairTax® bill HR25 / S155 and not a flat tax that still needs the IRS, pay roll taxes, tax withholding and the 16th Amendment. Learn more, join the tax reform cause and contribute at bigsolution.org.

  9. Taxation is theft. As the saying goes, “we do not have a revenue problem, we have a spending problem.” We have to stop working for the government and return to a time when the government worked for us. We need to get rid of the federal Reserve, repeal the 16th amendment, return to a modified gold standard and return the government focus to the mission the Founders gave it in the Constitution. One thing we do not, should not and cannot do is give politicians any more sources of revenue.

  10. Most of the commenters here are obviously a lot smarter than the author of this misguided article. Some recognize that taxation is merely a euphemism for theft by extortion–a crime–and most are smart enough to understand that politicians never have enough and that any money given to the state will be misspent. Taxation introduces distortions to the free market and therefore is always negative to the overall economy regardless of how spent or how collected. Nice to stumble upon a website where most of the readers identify the problem as spending, not collecting.

  11. Many others know and have written accordingly… government can’t cure anything. They are just a parasite. Parasites are out for themselves and nothing else. Sure they’ll throw a few crumb here and there, but everything is for government. 0.35% this year and 25% next year… Government can no longer be trusted to do the right thing. Have them put Glass Stegal back in and disallow the banks from speculating. Speculators are a necessary part of the market. Imagine if everyone bought and held for a year. How would anyone ever want to invest in a market that barely ever moved??

  12. The problem with new taxes/different taxes and new laws/different laws is the opportunity to create a new/different way of avoiding said tax or law.

    When the People stop paying for such waste, it will stop. Unfortunately, this appears only likely when the People stop fretting about the Sixteenth Amendment and start enforcing the Second. In the meantime, we will have nonstop tapping away on keyboards from the comfort of one’s padded chair and no change happens, save the passage of Time.

  13. Dope P "Brothers"

    You idiot anti taxers are in la L.A. land. You are using money built by taxes. you are not christ s disciples because you like the second constitutional command/me/mint. You get very touchy feely philosophical and Sophocles when it comes to your taxation induced speculation money *gains*, while you heartily embrace your flaming dismissal of your hippocratic oath to your admitted hypocrisy:its all broken no matter what, so let me keep all my ill Conceived speculative profit. What you can do easily: is let the exact portion taxed, be speculated with for the gain of people mass voted on to specifically be in most need of remuneration being proven personally/familially bankrupted by out & out Wall Fraud. So the incentive combines lower rates on sliding scales matched to outperformance. This incentivizes ownership of original capital being stewarded by those who earned the ownership of said stewardship, albeit tax-‘thefted’… in a spirit of voluntary aquiescence to the imperfect, in service of the inevitable sense of fairness and sense of Society/nationhood [Boundaries anyone? all you Trumpeteers out there love boundaries and having a country right?] Do be a brother from time to time, even when your “precious” phony moneyTarry profiteering is involved. Dont let the only good time & thing to tax be the enemy of perfect liberty. You guys need to embrace the hypocrisy that has ripened within and relax so you can clean it out and hear better. Do B Broham

  14. Dope P "Brothers"

    i want to make sure no one steals my thunder…this idea has been floated by many before…but i say again: let the person/s[corp entities/’personages’] who ‘created'(performed) the profits that are inevitably slated for thefttation, allow them their Earned Stewardship of their social interactions- that they having a schematic for an arbitrary time scale , showing profit..allow them follow through on the weighs& measures carry through their metrics for profitAbility to transform from personal capitalism to an Voluntarity-involved social-taxthefted Mutually-incentivised {Voluntary Compromise} continued follow thru Stewardship of “the Skim”[coming whether you hem or haw]. At least you keep the funds from flowing into the dark pool of the neverending slush refill hole. Demand that victims of misvestment Fraud RECEIVE the benefits based on Expected Life Expectancy…includes hospital meIf you ever demanded that knock out win< then you enjoy the beginning of a process that locks out Congress as the sole arbiters of budgeting funds to What. The people defrauded by anyone with any "Securities" credential who are : sick&dying, elderly, indigant or homeless, even proven narcotic addicted with mandatory serious program in place…no comfortable lump sums of cash to anyone. The elderly & dying who elect to should choose spend should get most so they can enjoy more comforts or trips up front…or may choose less overal to stay in longer for % LOSSES to leave in for auto-annuitized type trust for grandchildren or scholarship scheme over decades. . Point is, these monies should go to the heart of the point of collecting taxpoints for a more trusted stake in this union of money we are agreeing to participate and be taxed within. Keep it for the most fair payouts to payback the defrauded…not another caboose on the polity blowhard gravy train. Thats how you plant the seed for keeping some kind of public vote[maybe sliding scale based on % of lifetime average salary can be pre registered as being in markets over time gets more of an informed vote as to upper cap on tax rate. This is the age of X rays of kids underoos at airports and proven 'they' were keeping a file of 'everyone's privates with publicfunds for later reference by someone maybe doctors or someone special enough to know what to look for, in case they missed something? so they could llok again later to prove how badly that $11 hour TSA agent missed something maybe. the point being we have supercomputers compression files holding everything includg xrays of kids no one needs. So we can do weighted votings in deciding how high to cap trading taxrates based on informed experienced by all wealth levels per skin in the game Divided by %income in wages etc whatever. We dont have to let them suck it all up . Demand old ladies first BANKSTER INTERUPTED OLD LADIES & BANKSTERRUPTED DYING KIDS FIRST. SLICK WILLIES HANDS OFF THEIR *BET TAXES* ARE BETTER TAXES. DIRECT TAXES TO TRULY EARNED VICTIMS. DESERVEDLY HELPING TO TURN EX VICTIMS BACK TO EXCELLENT AFTER RAMPANT PREDATION BY THE WOLVES WEARING-OUT & RUINING WALL STREET FOR EVERYONE. SHARE BACK

  15. Dope P "Brothers"

    The higher the originally taxed managers’ performance of their portion of taxed pool of bets…in the ‘afterlif’e of their pre-owned funds. smh Jesus…then at least they have earned not only their rightful & voluntary stewardship but they are incentivised to apply their best performance as they maybe can compete to earn their combined firms or more individual as it were Tax Scale, as it would allow an end run around the management of funds issue…clearly made easy by keeping them in charge of bets that must mirror or match their real world real time bets to avoid the obvious conflicts which simply impose huge next year taxrate penalties by any firm gaming. Maybe this works to fire up the ‘crowded mobs’ the right way to keep these hot taxes out of the neverending account & force specific beneficiaries and voting and performance incentive feedback closed loop. Use the heat of the hotmass of the ‘fooled’ to press for this for the Bankrupted Dying Widowed Elderly Defrauded Sick Ladies & their future GreatGrandkids Remunerated Earned Equivalent paid because Earned in full Scholarships First before all official Blowhardy elected spenders

  16. Follow Up to Der Dooshes Blowhardways Bank’s “passion to perform” mighty Zeitgeist-heisted public relatives tv commerce stillborn.. I humbly suggest the ‘performance’ of 90%+ of all trading fees taxed from originating “Stewards” into any Securities Fraud Victims Fund will be so predictably poor that I wanted to return one more : Half the fees are held in Gold. Or 1/3 gold. Or all registered Certified Fraud Victims get to “voteTrade” ..every week. On how much of the fund to convert to gold. Only gets turned to cash as prioritized portion sharing hierarchy by Official Victim Registry votes to cashout Life-left Expectancy. Medical & Hospitalization Bills should be fund floated annuitized in some way…as well as longterm ‘trust’ type to be passed on for scholarship etc opt ins…as the fund should not collapse anytime soon with irreversible partial allocation to a unhypothical physical gold Trust. that stays as backstop. perhaps ongoing vote/trading by all registered primary Fraud victims could vote on Silver-to-Cash ratio. but the set gold allocation starts off as untouched to start until the Registry fulls out and Fund Voter Participants can referendum in the future in case silver begins to go extinct in ten years as Goldmen Sac’s had the gal’ls to say. Get the ball moving. This only hurts the scalping capabilities of the ghost bidAskers who pay nothing for beating us all in their HiFrequency WhipSaw$ for free. Costs us Systemic Risk in not being able to SEE if we have an illLiquid market until its Decimated by decimalization flash crash. Tax Bulk Load Bidding in order to evaporate ghost dime dropping..or dripping. Capture dimes for the widows & orphans of Derelict Fib’doushciaries. Direct Solution with the best mind & biggest balls on the subject. Me.

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