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A per-share tax makes no sense, because a share is an arbitrary measurement. This would effectively be a regressive tax on small-time investors. As Cuban himse

A per-share tax makes no sense, because a share is an arbitrary measurement. This would effectively be a regressive tax on small-time investors. As Cuban himself mentions, it would put pressure on companies to do reverse splits. But I believe he underestimates how much pressure. You'd see stratification, with most companies issuing the A-class big investor shares with prices in the $10s of thousands ($100s?) and B-class cheap shares. Middle class people buying small amounts of cheap shares in retirement plans would pay the bulk of this tax.

kqr2 16y ago
You could limit this tax to short term trades so it wouldn't penalize long term buy and hold investors.
- jsyedidia 16y ago
  Yes, the simplest solution is a 0.1 % tax on short-term trades. It's actually pretty strange that practically everything else one buys is taxed by the government but not shares. No surprise that we get all this useless and dangerous high frequency trading, and an obscenely large financial sector.
  - yummyfajitas 16y ago
    Capital gains on shares are taxed. Short term capital gains are taxed at a higher rate.
- tansey 16y ago
  Futures contracts are considered long-term capital gains, even if held for short periods of time.
- deleted 16y ago
  [deleted]
tansey 16y ago
I was thinking the same thing. Wouldn't a percentage tax make more sense? If you just require a 1% tax on all transactions, it would basically be equivalent to what Cuban was saying (he mentioned a $0.05 tax for shares under $5), and it wouldn't pressure companies to do reverse splits. Even people who trade frequently (e.g. 1-2 times a day) wouldn't likely see much cost associated with this. This would have to be accompanied by new regulations on derivatives and dark pools, but on the surface it doesn't seem like a bad idea. Currently, all major banks have: 1) Shadow markets setup (dark pools) to allow big investors to take positions without anyone knowing. 2) Servers sitting beside the exchange that get to see all trades before the public does. Neither of these things should be legal. I don't know if I believe that high-frequency traders provide a necessary liquidity. I can see both sides on that, but I think we will never know until we impose a tax like Cuban is suggesting. If we don't like the results, we can always repeal the tax.
- nandemo 16y ago
  A 1% tax would still be huge. Traders measure trading cost in basis points (100ths of 1%). Such a tax would affect not only high-frequency traders, but also all market makers and even long-term investors like pension funds and mutual funds. To operate an index fund, for instance, you have to buy and sell millions of shares everyday. A 1% tax would make impossible to operate an index fund cheaply. Cuban's proposal is not serious. Yeah, I know he's rich and all, but he doesn't understand how the stock market works.
  - sgk284 16y ago
    I think he understands it just fine. Implement a tax that requires people to actually buy stock for reasons other than its price. Make it too expensive to trade millions of shares every second to make small fractions of a return. Make people buy shares because they want to see the company succeed, not to make a quick buck. Back to basics. I kind of like the idea.
    - sitmaster 16y ago
      More like back to the stone age. Look at the Indian stock market: they have transaction taxes on the order of .01-0.1% and the bid-ask spreads are huge. A tax like this would make it even more difficult for average people to get a fair price.
rdtsc 16y ago
Why not do it per transaction then per value of transaction. Individual transactions are around $5-$8 for non-day traders. So there is already a flat fee to buy or sell. It is very inefficient to issue a lot of small buy/sell orders. So this would discourage the high frequency of trading. Then there is an additional price based fee. The higher the value the higher the fee. The size of the individual share would make no difference then.
mark_l_watson 16y ago
I totally agree with you. It would be better to charge a flat rate, perhaps 0.5% Cuban's basic idea is good though. That said, the chances of Congress passing legislation that would limit Wall Street profits is very low. And, neither a democrat or republican president would sign such a bill if by some small chance Congress passed it.

kqr2 16y ago

You could limit this tax to short term trades so it wouldn't penalize long term buy and hold investors.

jsyedidia 16y ago
Yes, the simplest solution is a 0.1 % tax on short-term trades. It's actually pretty strange that practically everything else one buys is taxed by the government but not shares. No surprise that we get all this useless and dangerous high frequency trading, and an obscenely large financial sector.
- yummyfajitas 16y ago
  Capital gains on shares are taxed. Short term capital gains are taxed at a higher rate.
tansey 16y ago
Futures contracts are considered long-term capital gains, even if held for short periods of time.
deleted 16y ago
[deleted]

tansey 16y ago

I was thinking the same thing. Wouldn't a percentage tax make more sense? If you just require a 1% tax on all transactions, it would basically be equivalent to what Cuban was saying (he mentioned a $0.05 tax for shares under $5), and it wouldn't pressure companies to do reverse splits. Even people who trade frequently (e.g. 1-2 times a day) wouldn't likely see much cost associated with this. This would have to be accompanied by new regulations on derivatives and dark pools, but on the surface it doesn't seem like a bad idea. Currently, all major banks have: 1) Shadow markets setup (dark pools) to allow big investors to take positions without anyone knowing. 2) Servers sitting beside the exchange that get to see all trades before the public does. Neither of these things should be legal. I don't know if I believe that high-frequency traders provide a necessary liquidity. I can see both sides on that, but I think we will never know until we impose a tax like Cuban is suggesting. If we don't like the results, we can always repeal the tax.

nandemo 16y ago
A 1% tax would still be huge. Traders measure trading cost in basis points (100ths of 1%). Such a tax would affect not only high-frequency traders, but also all market makers and even long-term investors like pension funds and mutual funds. To operate an index fund, for instance, you have to buy and sell millions of shares everyday. A 1% tax would make impossible to operate an index fund cheaply. Cuban's proposal is not serious. Yeah, I know he's rich and all, but he doesn't understand how the stock market works.
- sgk284 16y ago
  I think he understands it just fine. Implement a tax that requires people to actually buy stock for reasons other than its price. Make it too expensive to trade millions of shares every second to make small fractions of a return. Make people buy shares because they want to see the company succeed, not to make a quick buck. Back to basics. I kind of like the idea.
  - sitmaster 16y ago
    More like back to the stone age. Look at the Indian stock market: they have transaction taxes on the order of .01-0.1% and the bid-ask spreads are huge. A tax like this would make it even more difficult for average people to get a fair price.

rdtsc 16y ago

Why not do it per transaction then per value of transaction. Individual transactions are around $5-$8 for non-day traders. So there is already a flat fee to buy or sell. It is very inefficient to issue a lot of small buy/sell orders. So this would discourage the high frequency of trading. Then there is an additional price based fee. The higher the value the higher the fee. The size of the individual share would make no difference then.

mark_l_watson 16y ago

I totally agree with you. It would be better to charge a flat rate, perhaps 0.5% Cuban's basic idea is good though. That said, the chances of Congress passing legislation that would limit Wall Street profits is very low. And, neither a democrat or republican president would sign such a bill if by some small chance Congress passed it.