Thursday, May 26, 2011

Some old issues reviewed

Of course, Medicare is the real problem. Nevertheless, it's still good to remember that Social Security is quite easy to fix: raise the cap on wages subject to the FICA (Social Security) Tax. This would create a mild tax increase on high-income Americans, but they would still be in much better shape, taxwise, than they were a mere two decades ago (before they were helped so disproportionately by the Bush tax cuts).

The facts and figures can be found here: Dollars and Sense.

Meanwhile, why not ask your Senator or Representative why people who buy and sell stocks don't have to pay any sales tax. Such a Financial Services Tax (FST) of a mere 1/2% on buyer and seller, could generate $100 billion a year, and would have a negligible (1/2%, after all!) effect on only massive speculators -- not on investors or pension funds etc. These massive speculators are social parasites, so I call this tax the Parasite Tax. Any plan for a national sales or Consumption Tax which doesn't contain an FST (and none of them do) is a total fraud and a regressive attack on all middle-class and poor Americans.


  1. Why haven't the Democrats offered a program for cutting the deficit utilizing such taxes as the one you are suggesting, a sales tax on stock purchases, as well as places where we could save money by doing away with or modifying oil and farm subsidies? Instead they're all sitting there with their thumbs up their mouths waiting to be over-run by the Republicans.

    Obviously Democrats get campaign contributions from Wall Street, the oil companies, etal. Our government has become so corrupt that some of us are ashamed to claim them as ours. And the Supreme Court is no better with declaring that corporations are people. Do they think they're fooling us? We're not fooled. We need campaign finance reform and the elimination of lobbying groups giving benefits to elected officials -- it's total bribery.

  2. You don't think that a stock transaction tax would impact the average long-term investor? That's crazy. It will punish everybody. For an example, look at the Vanguard 500 Index Fund. That fund is probably owned by many many individuals and institutions including maybe even you. A 0.25% tax on this Vanguard fund, which trades tens of billions in securities every year, would be a material increase in the expenses of that fund which only charges around .15% in fees.

    You and I fork over sales taxes when we buy back-to-school supplies and lawnmowers. And that person who trades stocks for a living also buys school supplies and lawnmowers and pays sales tax on those purchases. That's a pretty silly example. And the trader already pays capital gains taxes on his/her stock transactions. Just like us. So please don't say that it somehow won't affect the average investor. It would certainly impact investors and pension funds.

  3. This is a tax that is easy on investors and tough on speculators. If you invest in companies because you think they will increase in value, then you keep the stock for a while and the 1/4% tax you pay is really very small. Sales taxes on school supplies and lawnmowers, even food in some states, is often more than 5%.

    It is not logical to say that the tax is significant simply because some companies trade billions of shares. The tax is paid by buyers and sellers, and would, of course, be passed on to clients. Yes, 1/4% or 1/2% is a lot of money if you multiply by billions; nevertheless, on each stock it is still only 1/4 or 1/2%: say 25 or 50 CENTS on a $100 stock.

    This tax is a drag on speculators, day-traders and arbitrageurs -- people who buy and sell stocks solely to take advantage of tiny and transcient wiggles in the market. This serves no useful social function, so why not tax such purchases the same way we tax cigarettes (albeit at a far lower rate)? We can use the money to help solve some of the pressing problems our country faces.

    We have many important things to do, and we use taxes to pay for doing them. There simply is no alternative. Sometimes the same money is taxed several times, in several different ways (income tax, sales tax, excise tax, property tax etc.) As I've said before, there is no great moral principle that makes this a sin. What is morally wrong, in my opinion, is the vast and unfair economic inequality that seems to characterize 21st-century America. I'm all for using tax policy to help correct this.

  4. I didn't say it was significant for Vanguard simply because they trade billions of shares. But the incremental expenses that they would incur as a percentage of their current expenses would be very significant. And the people who are invested in Vanguard funds are not speculators. It's illogical on your part to think that this would only be a drag on speculators or day-traders.

    In addition, more taxes means less volumes and less liquidity which will lead to lower asset prices. And everybody will suffer from this, not just those paying the taxes. Look what happened when Sweden did this - they lost business to London and eventually abolished the tax. Japan also tried this and failed.

    You may not like the income inequality but this tax won't help that. It will just hurt the markets. And it may even result in lower revenues if people trade less and the government gets less money from capital gains taxes because people hold on to things longer.

    There are lots of alternatives, you just don't like them.

  5. Here's an excellent analysis by the Kansas City Fed of the pros and cons of a securities transaction tax. Their conclusion states that "serious questions remain about whether the benefits would be achieved" and "the benefits would not necessarily exceed the cost." The report also states that a tax would not necessarily reduce volatility.