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A financial transaction tax is a terrible idea. I own a 100 shares of Apple. Tim Cook goes on CNBC and says he’s all in on printers. So I want to sell my Apple
by twoodfin 3y ago
A financial transaction tax is a terrible idea.
I own a 100 shares of Apple. Tim Cook goes on CNBC and says he’s all in on printers. So I want to sell my Apple shares and buy Microsoft, where Satya Nadella is pushing Cloud and AI.
I’m being a smart investor, moving a small bit of capital allocation intelligently.
Taxing this decision discourages making it—even if only marginally—and makes capital markets dumber and less efficient.
- yurishimo 3y agoYou can have transaction taxes without penalizing small/micro investors. It’s criminal how the people who trade stocks for a living get away with paying less taxes as a percentage than their janitors.
- polygamous_bat 3y ago> Taxing this decision discourages making it—even if only marginally—and makes capital markets dumber and less efficient. Or it encourages making longer term investment decisions rather than trading like a jittery cocaine addict (which by no small amount of irony a nonnegligible number of traders are already.)
- twoodfin 3y agoWhat you’re suggesting is that markets are more efficient when they’re less liquid. That’s both intuitively and empirically wrong.
- polygamous_bat 3y agoWhy? We already have regulations such as circuit breakers in our markets because unlike what you are claiming, absolute liquidity is not the god you think it is. There can absolutely be such a thing as over-optimization.
- stouset 3y agoThey are likely suggesting that incremental, hypothetical increases in market efficiency appear to come at increasingly steep costs which primarily borne by the rest of society at large.
- twoodfin 3y agoAnd the evidence for this is … ?
- polygamous_bat 3y agoFront-running is an easy example.
- lotsofpulp 3y agoSo place a limit order.
- polygamous_bat 3y agoDo you also preach everyone to learn self-defense when they propose making mugging illegal? No, in the best world we do both.
- lotsofpulp 3y agoClicking radio button on a website is not at all comparable to learning self defense. Also, front running is already illegal. https://www.investopedia.com/terms/f/frontrunning.asp https://www.investopedia.com/terms/f/frontrunning.asp
- stouset 3y ago> I own 100 shares of Apple… Tim Cook goes on CNBC and says he’s all in on printers. So I want to sell my Apple shares and buy Microsoft. I’m being a smart investor. No, you’re being a schmuck. The market moved on that information well before you saw it on the news, loaded up your web browser, and executed the transaction. Time and time and time again it has been demonstrated that actively trading is negatively correlated with performance. The more frequent you trade, the statistically worse you do. Besides being empirically true, it makes intuitive sense. Every time you trade you’re engaging with a counter party on the other side of the transaction. With overwhelming likelihood, that counterparty has disproportionately greater (and timelier) access to information and market analysis than you. So every time you trade, you do so at a steep disadvantage. Invest in the market. Buy and hold. Sell to finance your retirement. Save the gambling for your Vegas fund, not your life savings.
- twoodfin 3y agoSorry a colorful example seems to have gone over your head: A financial transaction tax dulls the market response to new information. The primary purpose of markets is to translate information into prices. Markets that are less efficient in that task hurt long-term retirement investors and day-traders alike.
- avs733 3y agoI would caution you against assuming disagreement is misunderstanding, A spring only suspension system responds quickly to a bump in the road. If that’s your only metric, it’s good. But a car without a damper is going to be hella uncomfortable. The shock makes it respond slower - it doesn’t mean it doesn’t respond.
- MoreSEMI 3y agoUuuu, While the analogy is nice, I doubt that taxes are decided upon like an engineer deciding on damping coefficients. An engineer has a specification and tries to hit that spec. I have a hard time believing that’s how taxes are set. I would like carbon taxs/credits to be decided upon that way. But if you look at the real systems it’s obvious they weren’t designed that way. Finally, you are correct that you need to be careful in choosing the metric. I think I would also question the desirability of dampinh, which it seems like the other poster was trying to say. The market being dumber is a slower response in your analogy. They want a sports car, not a rolls.
- rcme 3y agoYou already are taxed for this decision via capital gains taxes.
- twoodfin 3y agoNot really. I can make a million trades or one to gain $X and pay the same capital gains tax. A financial transaction tax makes me much worse off in the former case. It disincentivizes trading volume by raising transaction costs, which have been on a long-term trend downward as markets have adopted technology and brokers have engaged in cutthroat competition. I believe that trend has been positive for markets, investors, and the economy as a whole.
- rcme 3y agoOnly within one calendar year. In your original AAPL / MSFT example, you’d need to pay taxes at the end of the year on any gains from your AAPL sale assuming that’s as your only trading activity in the year.