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Bernie Sanders Wants to Tax Stock Trades. That’s a Non-Starter.

Bernie Sanders Wants to Tax Stock Trades. That’s a Non-Starter.

Postby smix » Wed May 29, 2019 7:15 am

Bernie Sanders Wants to Tax Stock Trades. That’s a Non-Starter.
Barron's

URL: https://www.barrons.com/articles/senato ... 1558631938
Category: Politics
Published: May 24, 2019

Description: The financial-transaction tax is a still bad idea whose time probably hasn’t come. Sen. Bernie Sanders, the Vermont socialist seeking the Democratic presidential nomination, is reviving an idea he’s flogged since his failed 2016 bid, a tax on financial transactions. It’s the latest iteration of a trading levy introduced by Congressional Democrats a couple of months ago. As with the previous proposal, Sanders’ version has zero chance of passage by Congress and getting the president’s signature. It serves mainly to buff Bernie’s bona fides in the Democratic left wing in the party’s crowded presidential field. Sanders’ proposal would levy a 0.5% tax on stock trades, a 0.1% tax on bond trades, and a 0.005% fee on derivatives trades, according to Bloomberg. The senator claims his proposal would raise up to $2.4 trillion, which he says could go toward paying for tuition-free college and the reduction of student debt. That’s far more than an analysis by the Congressional Budget Office has determined. A 0.1% levy on stock, bond, and derivative transactions would raise $777 billion between 2019 and 2028, it found. But the aim of Sanders’ transaction tax seems aimed at more than raising revenue. “While millions of American suffered from the Great Recession, Wall Street received the largest taxpayer bailout in the history of the world, with no strings attached,” he asserted. What he fails to mention is that the federal government has earned a profit of $107 billion for taxpayers from the bailout, according to ProPublica’s tally. Sanders asserted that the major banks and other financial institutions have recovered and are doing “phenomenally well.” But he doesn’t mention the downsides of the transaction-tax scheme beyond Wall Street. The CBO analysis said there were a number of negative side effects, notably reduced market liquidity and higher capital costs for companies as a result of a reduced asset prices. Household wealth would be reduced while the cost of financing Uncle Sam’s debt would be increased. Even for small investors, Sanders’ tax would be onerous. A $10,000 stock or exchange-traded-fund trade would incur a fee of $50—more than 10 times the $4.95 commission charged by leading online discount brokers. It could also be the death knell for the fledging app-based trading platforms offering free stock trades to lure millennials, just the cohort whose support Sanders seeks. More than a serious proposal to raise revenue, the financial transaction tax is the latest in the series of proposals aimed at taxing the rich, including a wealth tax and a 70% marginal tax rate on the “tippy-top” earners. Curiously missing are proposals to end loopholes such as the carried-interest break enjoyed by private-equity and hedge funds, as well as so-called Section 1031 exchanges, which allow deferral of capital gains on property, a big break enjoyed by commercial real-estate investors, one of whose numbers now occupy the Oval Office. The proposal to tax financial transactions is an old one. James Tobin, the late Yale University economist and Nobel Laureate, suggested a tax on currency transactions in 1972 to counter allegedly destabilizing hot-money trading after the collapse of the Bretton Woods fixed-exchange-rate regime. More recently, such a levy has gained backers to counter the impacts of high-frequency trading. Ironically, U.S. financial markets provide America with a key comparative advantage at a time when the trade war on goods is escalating. The U.S. financial-services industry provides significant earnings that offset the negative balance on merchandise trade. A U.S. transaction tax could shift those trades offshore. Finally, U.S. capital markets help to make the dollar the world’s main reserve currency and medium of exchange, which could be undermined by a transaction tax. There is little chance of one being enacted unless Democrats take the White House and both houses of Congress with a 60-seat majority in the Senate. And unless other major nations enact the same levy, a transaction tax could be easily avoided by trading in untaxed jurisdictions. But a financial-transaction tax could be just the thing to make crytpocurrencies go mainstream as traders seek to avoid the levy. Governments should be careful of what they wish for.
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