A few months ago, the possibility of a tax on investment transactions was floated.
It didn't go too far then. Treasury Secretary Timothy Geithner even noted that he "hadn't seen a version of the tax that'd make much sense"
Now, however, with ballooning deficits, war costs to pay and health care financing about to dominate the waning days of this Congressional session, the transaction tax idea has resurfaced.
The levy often is referred to as a Tobin Tax after James Tobin, the late American economist and Nobel laureate. In 1972, Tobin was the first to suggest a securities transfer tax as a way to discourage currency speculation and penalize short-term trading. Over the last 37 years, the concept has been gaining support as a way to pay for projects and avoid adding to the federal deficit.
The latest iteration, according to the Capitol Hill newspaper The Hill, is still being drafted, but preliminary word is that it would raise $150 billion each year to pay for new jobs. That's become a political and economic hot potato since the U.S. unemployment rate hit 10.2 percent in October and job losses are expected to rise even as the economy technically is improving.
A quarter percent tax for jobs: Leading the latest Tobin Tax charge, which is being formulated under the working title of Let Wall Street Pay for the Restoration of Main Street Act of 2009, are Democratic Reps. Peter DeFazio of Oregon and Ed Perlmutter of Colorado.
Their bill would tax would add a 0.25 percent tax to the sale and purchase of stocks, options, derivatives and futures. The proposal reportedly would exempt retirement accounts from the tax.
There's no word as to whether an income threshold also might be considered so that middle-income investors wouldn't have to worry about added costs when they bought and sold investments.
The Hill says that half of the projected $150 billion that the transaction tax would raise would go toward reducing the deficit. The other half would be deposited in a "Job Creation Reserve" to support new employment opportunities.
For and against: Among the groups supporting a transaction tax are Americans for Financial Reform, Public Citizen, the Service Employees International Union (SEIU) and the AFL-CIO.
The TaxProf also has compiled a list of folks who have some thoughts on a Tobin Tax.
How would your investments be affected? Are most in retirement accounts that wouldn't face the transaction tax? Or do you have significant non-retirement funds that would cost you when you made any reallocation moves?
Related posts:
- Investment transaction tax on table
- Geithner talks (a little) about taxes
- Legislative naming legerdemain
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Brook
The proponents of this tax have no idea what they are advocating. Liquidity would dry up, volatility would increase dramatically, transaction volume would decrease to a point where the tax wouldn’t even be collected. In the end our financial exchanges, which are the best in the world, would become the equivalent of the Zimbabwe Stock Exchange. Truly one of the dumbest ideas ever floated.
Evan
While .25 isn’t going to hurt me or my strategy, my question is about all those day trader jobs and investment house jobs that will be LOST when that tax starts to add up?
Is that taken into account when pundits start spewing a net increase in jobs?
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