Current Blog Entries by Larry Fry, CCP, MBA

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The Proposed Financial-Transaction Tax Bill Issue!

with 2 comments

There is a financial-transaction tax bill being proposed by the U.S. Congress that intends to levy a 0.25% tax on all equity trading transactions.  The passing of this bill would severely marginalize the financial trading industry, making our financial markets even less efficient than they have already become.  The end result would be the loss of untold numbers of jobs, and financial markets would become even more susceptible to crashes due to the resulting lack of  liquidity. Obviously the passing of this absurd bill would negatively impact the financial trading (and related) industries; but it would also severely curtail a critical market capitalization vehicle used by small to medium sized companies, thus rendering them less able to compete and grow.  And with banks and other financial service entities either unable or unwilling to capitalize small to medium sized businesses these days (but able and willing to pay out absurd bonuses to undeserving executives), taxing financial trade transactions would only serve to make the current economic downturn more pronounced, possibly leading to even more disastrous consequences down the road. The resulting dissipation of market liquidity, trading volumes, and market price discovery, along with widened bid/ask price spreads, would destroy the positive aspects afforded by arbitrage and speculative trading.  Along with the addition of other possible government regulatory actions, this problem would then be further exacerbated by the resulting mass migration of American based trading volumes over to foreign (i.e., non-taxable) exchanges.

The one thing that really irks me about the proposed financial-transaction tax bill is that it is being framed as a so-called “sin” tax by its partisan proponents in order to appeal to the current populist mindset that the financial industry as a whole is guilty for the current state of the economy (i.e., high unemployment levels, etc.). Basically, the transgressions of a few that were enabled by the lack of understanding by government officials and regulators per the complex financial-engineering instruments being utilized are the primary culprits here. The imposing of a financial-transaction “sin” tax by the government is not a good substitute for developing an understanding of the new financial order and obtaining the level of competency necessary to effectively regulate the industry, thus establishing a stable (level) playing field for the economy as a whole.  So in my mind, this proposed financial-transaction “sin” tax is nothing more than an attempt to sweep a certain portion of the blame (or responsibility) for the current state of the economy under someone else’s rug.  In addition, the potentially negative impact of this “sin” tax would be exacerbated by the resulting changes in premium requirements by investors across the board due to the tax costs being passed on to them.  The potential drain on market liquidity and the resulting decrease in the capital available for struggling small-to-medium sized businesses would be hard to justify, especially for reasons of partisan politics.  So this proposed tax is not a viable solution or option in my mind, as it conceivably could lead to even more problems down the road as the state of our economy continues to evolve (or unwind). 

Finally, perhaps the biggest question in my mind is why do some of our elected government officials seem “hell bent” at times to make things worse for us rather than better (i.e., at both the micro and macro levels) in order to pursue partison based agendas?  This potentially dangerous bill needs to be dismissed (or vetoed) ASAP before it has a chance to cause serious long-term damage to our still frail (and unwinding) economy.  Click on the URL below to sign the revised “Financial-Transaction Tax is Detrimental to Many Industries” petition and have it forwarded to your representatives:

http://www.rallycongress.com/greentradertax-traders-association1/2720/a-financial-transaction-tax-is-detrimental-to-many-industries’

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