When the European Commission looked at the issue, it found that a tax of 0.1% would reduce gross domestic product by 1.76% in the long run. Less frequently traded securities, like corporate bonds, would be expected to hold up better. So stocks that trade frequently would likely decline the most. When Sweden put in place a 1% tax on equity trades in 1983, the result was a 5.3% decline on the Stockholm Stock Exchange.Īccording to the IMF study, the impact on prices would depend on the average holding period for a particular asset class. But because investors value liquidity, anything that makes buying or selling more costly tends to push prices down. What would a tax do to stock and bond prices? It's impossible to know for sure, of course. Much of that reduction would likely come from discouraging high-frequency trading and "unproductive" speculation, according to the Tax Policy Center. An IMF study found that trading volume invariably fell when transaction taxes were imposed.Īccording to the nonpartisan Tax Policy Center, a 0.01% tax would reduce volume by 24% in the first year, with volume falling even further in the future. So trading volumes decline-sometimes sharply. Why would markets become more volatile when financial transactions are taxed? When an activity is taxed, people tend to do less of it. The majority of the academic research into transaction taxes has reached similar findings: Taxes either have no effect on volatility or they increase volatility. For example, when the tax was raised 25% in 1966, bid-ask spreads widened from 1.76% to 2.05%. They found that the tax made stocks more volatile, depressed stock prices, widened bid-ask spreads and made capital more expensive for businesses. ![]() The New York tax was the subject of a study by Bank of Canada economist Anna Pomeranets and Rutgers University economics professor Daniel Weaver. So investors are, in effect, giving Albany an interest-free loan. In fact, New York State still collects a stock transfer tax-and then refunds the money collected to the investors that paid it. New York State and New York City jointly had a tax on stock trades until 1981. Initially the tax was set at 0.02% but later ranged between 0.04% and 0.06% until its repeal in 1966. imposed a small tax on stock transactions beginning in 1914, to help raise funds to fight World War I. At least 40 countries currently or previously have had financial-transaction taxes of one sort or another. Similar taxes have been advocated by many prominent economists over the years, including John Maynard Keynes, Joseph Stiglitz and Lawrence Summers. Tobin said was destabilizing foreign-exchange markets. Rather, the point was to discourage speculation that Mr. ![]() ![]() Tobin's tax wasn't primarily aimed at raising revenue. It is often called a "Robin Hood Tax" or a "TobinTax," after Nobel laureate James Tobin, who proposed a tax on currency trading back in the 1970s. The idea of taxing financial transactions didn't originate with Mr. The bond market is even bigger, with nearly $730 billion trading on an average day last year. ![]() stocks is around $25 trillion and more than $300 billion in shares is traded on a typical day. Derivatives a 0.005% tax rate.Īlthough those tax rates seem quite small, in theory they could raise quite a lot of revenue for the government because of the size of U.S. Stock trades would incur a 0.5% tax rate, or $5 for every $1000 of stocks traded. Sanders introduced last May, investors would be required to pay an excise tax on any transfer of a stock, bond, partnership interest or derivative. Sanders's count-could be fully paid by the tax, according to Mr. The costs of these proposals-$75 billion per year by Mr. Sanders wants to use funds raised by this tax to pay for his college-education agenda, which includes making public colleges free, cutting interest rates on student loans and increasing financial aid.
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