Announcement

Collapse
No announcement yet.

Fat in the FIRE?

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Fat in the FIRE?

    or all sizzle, no bacon . . .

    The unwritten rule of Washington debates about taxing and spending is to never consider anything new. But wouldn't it be wonderful if the pressure of the next few months' debate changed that?

    Last month, 11 European countries, including France and Germany, moved forward on introducing a minuscule taxon trades in stocks, bonds and derivatives. The tax goes by many names. It's often called a Tobin tax, after the economist James Tobin. In Europe it goes by the more pedestrian financial transaction tax. In Britain, it goes by the wonderful Robin Hood tax, and is supported in an often clever campaign.

    On this side of the Atlantic, there is a ghostly silence on a transaction tax in respectable political quarters. But that might change. This month, Senator Tom Harkin, Democrat of Iowa, and Representative Peter DeFazio, Democrat of Oregon, plan to reintroduce their bill calling for just such a tax.

    A transaction tax could raise a huge amount of money and cause less pain than many alternatives. It could offset the need for cuts to the social safety net or tax increases that damage consumer demand. How huge a sum? Mr. Harkin and Mr. DeFazio got an estimate from the bipartisan Joint Committee on Taxation, which scores tax plans. It's a hearty one: $352 billion over 10 years.

    The money would come from a tiny levy. The bill calls for a three-basis-point charge on most trades. A basis point is one-hundredth of a percentage point. So it amounts to 3 cents on every $100 traded.

    And the bill contains some exemptions intended to make the tax more politically palatable. The first sales of stocks (initial public offerings) and bonds are exempted, so that the markets' capital-raising function isn't harmed. Initial investments and withdrawals from tax-protected accounts, like retirement or education funds, also have a measure of protection.

    Critics of such a tax cavil that it will harm our capital markets and won't raise that much money. They argue that such a tax cannot be enforced; that it will depress trading, leading to lower asset prices; and that it will ultimately be passed on to retail investors.

    These are anemic arguments, and are completely destroyed in anexcellent piece of myth-busting by a group in Britain called Stamp Out Poverty.

    Lots of taxes are hard to collect, but this doesn't seem like one of them. Sales taxes have decent compliance, and they are often collected by small businesses conducting commerce in cash. Trading, on the other hand, is conducted by large businesses on computers. This tax would be collected by the exchanges. If there's no exchange involved, the buyer owes it. It would be paid on any trade carried out in the United States or by any American entity or individual (a corporation's offshore subsidiaries can't get around it).

    If there is truly a concern, then the tax could be modified so that if it hadn't been paid, neither the transaction nor any legal action arising from it would be enforceable in the United States judicial system. Voilà! Plenty of compliance.

    But those who argue against the tax are blind to a sea change in the way society sees the financial sector. They should be asked to make an affirmative case for more frenzied capital markets activity, rather than just assume that tamping it down is malign.

    Yes, trading costs have come down and trading has skyrocketed in the last decade and a half. What have we gotten for it? Bubbles, crashes, volatile asset prices and an outsize financial sector that extracts rents from the rest of the economy. Rising volumes and tighter spreads haven't delivered good economic growth, broad-based wage growth or good jobs.

    Nor have they even helped the stock market. Where is the boom in newly public companies? The Standard & Poor's 500-stock index is only just now getting back to its peak before the financial crisis. The Nasdaq isn't close to the peak achieved in the year 2000. Stock market valuations are depressed.

    So let trading costs rise again, if the Tobin tax would really lead to that. (Other factors, like brutal competition, might still keep them just as low.) Much of the trading that occurs in the market is socially useless. It might narrow slightly the spread between the prices at which securities and derivatives are bought and sold, but the minute there's a crisis, the traders flee. They provide the kind of liquidity that is available only when it is not needed.

    The average American, who has limited exposure to the stock market, has little to fear from the tax and much to gain. And if some of the high-frequency trading flees offshore? Good riddance.

    Alternatively, let's suppose that a transaction tax succeeds beyond expectations in bringing down excessive trading and doesn't raise as much as projected. Fine. The American capital markets will become less volatile and more connected to fundamentals.

    Pension fund and mutual fund managers will have an incentive to hold stocks longer and adjust their investing expectations. There is a scourge of short-term thinking in American business; a transaction tax leans against this malign influence.

    But what if the tide of technology and investor attention-deficit disorder continues apace, and trading does not decline as much as the securities industry and its paid academic shills claim? That's fine, too. We'll take the revenue.

    The politics of a transaction tax are fascinating. Mr. Harkin doesn't have the juice to get it done on his own, several Senate staff members and Washington observers explained to me. The transaction tax would need to be embraced by some senators on the relevant committees, like finance or banking. The Senate Finance Committee is a problem because Charles Schumer of New York, the heavyweight Democrat who serves on it, often acts as if his main constituency is Wall Street.

    There have been hints of a possible anti-Wall Street/Big Bank coalition between Midwestern and Western Democrats and Republicans. The Ohio Democrat Sherrod Brown and the Louisiana Republican David Vitter don't agree on much, but they co-sponsored a bill calling for more bank capital. Charles E. Grassley, the Iowa Republican famous for skewering vested interests, serves on the Senate Finance Committee. Of course, Republicans have taken blood oaths never to support higher revenue.

    If some kind of increase in taxes is inevitable, one that takes aim at high-frequency traders probably hits few Iowans and average Americans in general, while doing much good.

    http://dealbook.nytimes.com/2013/02/.../?ref=business

  • #2
    Re: Fat in the FIRE?

    The financial sector isn't going to pay this tax. It'll come out of your retirement pension and other savings.

    The politicians might make it look like they are beating on the bankers, but there is no possibility of a bi-partisan bite-the-hand-that-feeds-you movement on the Hill.

    I love how this author can state that "A transaction tax could raise a huge amount of money..." and then in the very next paragraph make it sound like it's really nothing: "The money would come from a tiny levy...".

    There's virtually never a government policy that doesn't have some negative consequences, sometime unintended, often hidden out of sight for long periods of time. So what's the downside here? Might be helpful if the author spent a bit of time considering that question...

    Comment


    • #3
      Re: Fat in the FIRE?

      I cannot think of any downsides, except that some shitty, rent extracting b.s. "businesses" might suffer a profit decline.

      If you have an alternate view, then I am curious. I can see nothing but good coming from this. I am sure active traders have a different view, but hey, you've had 30 years of fun and have known it could not last forever.

      Comment


      • #4
        Re: Fat in the FIRE?

        Originally posted by aaron View Post
        I cannot think of any downsides, except that some shitty, rent extracting b.s. "businesses" might suffer a profit decline.

        If you have an alternate view, then I am curious. I can see nothing but good coming from this. I am sure active traders have a different view, but hey, you've had 30 years of fun and have known it could not last forever.
        My goodness. The Holy Grail of tax policies. It's a wonder it's taken mankind so long to discover it. But then perfection never happens quickly, eh...

        Comment


        • #5
          Re: Fat in the FIRE?

          the real target is hft, a target worth hitting imo.

          Comment


          • #6
            Re: Fat in the FIRE?

            Originally posted by jk View Post
            the real target is hft, a target worth hitting imo.
            Agree completely. But a shotgun when a rifle is needed usually results in more collateral damage...so I think the target is much broader than hft. And even that is fine imo. What isn't so good is the difference between the targets and who actually ends up paying the freight. I remain firmly convinced this is mostly going to be passed on to the end consumer, will be buried in ever rising bank fees, and will probably apply every time someone uses their card or the internet to make a withdrawal, transfer or utility bill payment from their chequing account...

            Comment


            • #7
              Re: Fat in the FIRE?

              on to the end consumer, will be buried in ever rising bank fees, and will probably apply every time someone uses their card or the internet to make a withdrawal, transfer or utility bill payment from their checking account...
              does anybody here doubt this was the ultimate goal of "online convenient bill paying"

              Comment


              • #8
                Re: Fat in the FIRE?

                Originally posted by GRG55 View Post
                Agree completely. But a shotgun when a rifle is needed usually results in more collateral damage...so I think the target is much broader than hft. And even that is fine imo. What isn't so good is the difference between the targets and who actually ends up paying the freight. I remain firmly convinced this is mostly going to be passed on to the end consumer, will be buried in ever rising bank fees, and will probably apply every time someone uses their card or the internet to make a withdrawal, transfer or utility bill payment from their chequing account...
                yes, it will be the customer who pays the fee. but if it's really just 3bps, it's insignificant. the only kind of traders who will be really affected are those doing hft. this tax won't raise much revenue- it will just destroy hft.

                Comment


                • #9
                  Re: Fat in the FIRE?

                  Originally posted by jk View Post
                  the real target is hft, a target worth hitting imo.
                  And I for one would not shed a tear...

                  Comment


                  • #10
                    Re: Fat in the FIRE?

                    Originally posted by don View Post
                    or all sizzle, no bacon . . .

                    (methinks there's lots of sizzlin bacon on this,
                    potentially anyway ;)

                    Pension fund and mutual fund managers will have an incentive to hold stocks longer and adjust their investing expectations. There is a scourge of short-term thinking in American business; a transaction tax leans against this malign influence.

                    But what if the tide of technology and investor attention-deficit disorder continues apace, and trading does not decline as much as the securities industry and its paid academic shills claim? That's fine, too. We'll take the revenue.

                    The politics of a transaction tax are fascinating. Mr. Harkin doesn't have the juice to get it done on his own, several Senate staff members and Washington observers explained to me. The transaction tax would need to be embraced by some senators on the relevant committees, like finance or banking.

                    The Senate Finance Committee is a problem because
                    Charles Schumer of New York, the heavyweight Democrat who serves on it, often acts as if his main constituency is Wall Street.

                    (like i've maintained since DAY 1, of the 'Great AFC' = its almost entirely the doings of the NE lib/dems!)

                    There have been hints of a possible anti-Wall Street/Big Bank coalition between Midwestern and Western Democrats and Republicans. The Ohio Democrat Sherrod Brown and the Louisiana Republican David Vitter don't agree on much, but they co-sponsored a bill calling for more bank capital. Charles E. Grassley, the Iowa Republican famous for skewering vested interests, serves on the Senate Finance Committee. Of course, Republicans have taken blood oaths never to support higher revenue.

                    If some kind of increase in taxes is inevitable, one that takes aim at high-frequency traders probably hits few Iowans and average Americans in general, while doing much good.

                    http://dealbook.nytimes.com/2013/02/.../?ref=business
                    +1
                    best news eye've read since 2007!

                    Comment


                    • #11
                      Re: Fat in the FIRE?

                      Originally Posted by jk the real target is hft, a target worth hitting imo.
                      Originally posted by doom&gloom View Post
                      And I for one would not shed a tear...
                      +2

                      Comment


                      • #12
                        Re: Fat in the FIRE?

                        Originally posted by GRG55 View Post
                        Agree completely. But a shotgun when a rifle is needed usually results in more collateral damage...so I think the target is much broader than hft. And even that is fine imo. What isn't so good is the difference between the targets and who actually ends up paying the freight. I remain firmly convinced this is mostly going to be passed on to the end consumer, will be buried in ever rising bank fees, and will probably apply every time someone uses their card or the internet to make a withdrawal, transfer or utility bill payment from their chequing account...
                        Well, the way I look at it, it's 3¢ on the $100. Or 30¢ on the $1,000. Or $3 on the $10,000. Or $30 on the $100,000.

                        $30. That's 3 trades in an E-Trade brokerage account. 3. And that's not counting what they skim for account maintenance and actively managed funds.

                        I don't think this will break the backs of private investors even if the banks shift the fees onto them.

                        It's already dwarfed by bank fees as it is.

                        I'd doubt anyone would even notice.

                        Comment


                        • #13
                          Re: Fat in the FIRE?

                          Originally posted by dcarrigg View Post
                          ...
                          ....
                          I'd doubt anyone would even notice.
                          methinks it will never see the light of day (in congress), but then - i do tend to be on the skeptical/cynical side, so....

                          but who knows, maybe the western/southern/bluedogs will finally come to their senses and discover they have more to gain than merely lapdog'n for the northeastern establishement?

                          Comment


                          • #14
                            Re: Fat in the FIRE?

                            Originally posted by lektrode View Post
                            methinks it will never see the light of day (in congress), but then - i do tend to be on the skeptical/cynical side, so....

                            but who knows, maybe the western/southern/bluedogs will finally come to their senses and discover they have more to gain than merely lapdog'n for the northeastern establishement?
                            Yeah, who knows. I don't think that NH, RI, VT or ME get very much out of Wall St. It's really NY, NJ and CT with smaller financial enclaves around Boston and DC (and the west coast can compete with them). That's it.

                            But finance donates to everyone, even if they're from the middle of the heartland.

                            Comment


                            • #15
                              Re: Fat in the FIRE?

                              Originally posted by dcarrigg View Post
                              Yeah, who knows. I don't think that NH, RI, VT or ME get very much out of Wall St. It's really NY, NJ and CT with smaller financial enclaves around Boston and DC (and the west coast can compete with them). That's it.

                              But finance donates to everyone, even if they're from the middle of the heartland.
                              tis true, that is, dc - but cant quite say that new england 'doesnt get very much' out of the FIREM (m 4 med) economy - i mean
                              Lake Winnipesaukee hasnt quite reached Tahoe's level, but they're workin on it - i'm still somewhat flabbergasted at what some of these lakefront places are going for these daze - and THEN there's Newport (the one on the right-coast)
                              with its collection of 'shabby seaside shacks' - never mind the fact thats where the manhattan crowd goes boating
                              when they arent playing in the snow up in Vermont

                              and never mind down east in Maine

                              so yeah, i definitely agree with you on the 'spreadin it' that the FiREm crowd does, its kinda like what dairy farmers do....

                              why i still say that nothing will change as long as the beltway feels like they somehow own their offices, and feel free to horsetrade with each other over their state's boondoggles: 'you vote for my scam and i'll cover yers'

                              and cant even come up with a 'measly 100bil' to cut - esp from 'defense' without it being a 'disaster' ?

                              O&BTW, i shouldve been clearer on my use of NE, when i was referring to the fact that 'the great AFC' was caused almost entirely by the politix/policies of the lib/dems from the NorthEast, with NY, NJ (and DC) being ground zero.
                              Last edited by lektrode; February 09, 2013, 02:06 PM.

                              Comment

                              Working...
                              X