Chief Justice John Marshall, in 1819, once described policymakers' great influence, remarking, "The power to tax involves the power to destroy."
-Frank Holmes, CEO and chief investment officer, U.S. Global Investors
Chief Justice John Marshall, in 1819, once described policymakers' great influence, remarking, "The power to tax involves the power to destroy." With rising fiscal deficits and a desperate need to raise revenue, many nations have come up with various tax solutions to raise billions of dollars.
One hotly contested idea in the U.S. and Europe lately, and once advocated by John Maynard Keynes during the Great Depression, is a financial transactions tax imposing a cost on buys and sells of stocks or bonds.
The latest proposal in the U.S. was introduced by Congressman Keith Ellison. His bill would add a tax of 0.5 percent onto the sale of stocks, 0.1 percent on bonds and 0.005 percent on derivatives or other investments. To put this in a buyer's frame of mind, when an investor purchased $10,000 in stock shares, the financial transactions tax would tack on an additional $50.
Last year Congressman Peter DeFazio proposed a similar act, suggesting a tax imposition of 0.03 percent on financial transactions. The new tax was touted in its ability to raise $350 billion in new revenue over the next nine years, without acknowledgement of the drawbacks it might place on the economic system.
Proponents say a transaction tax would discourage short-term trading, with little effect on long-term investors. Keynes once argued that it would improve market quality by curtailing short-term speculation, according to Daniel Weaver, a professor of finance at Rutgers Business School.
Opposition to a financial transaction tax says the extra cost would undermine liquidity, adversely affect market quality and distort the value of a security. Whereas incentives act as a dose of Lipitor to today's weak monetary system, unnecessary taxes add cholesterol, delaying a smooth economic recovery, or worse, causing the economic equivalent of a heart attack. In some cases, the Robin Hood deed of "stealing from the rich to help the poor" backfires and ends up negatively affecting all investors. ...Read the Full Report