It’s not just Joe Biden’s crazy idea. Other Democratic candidates have endorsed the idea, as has Nancy Pelosi, and CNBC reports that legislation has been introduced in the House and the Senate.
House Democrats are reintroducing their proposal of a financial transaction tax on stock, bond and derivative deals, and this time they’ve signed on a key new supporter: left-wing firebrand Rep. Alexandria Ocasio-Cortez. …“This option would increase revenues by $777 billion from 2019 through 2028, according to an estimate by the staff of the Joint Committee on Taxation,” the Congressional Budget Office’s website says. …The House bill comes on the heels of its companion legislation introduced by Sen. Brian Schatz, D-Hawaii, in the other chamber. Republicans have a 53-47 majority in the Senate.
Needless to say, I’m not surprised to see that AOC is on board. I don’t think there’s a tax she doesn’t want to impose and/or increase.
By the way, I should note that she and other advocates generally are looking at more limited FTTs that would tax transactions only in financial markets, so there wouldn’t necessarily be any direct burden when we write a check or visit the ATM.
But even this more restrained FTT would be very bad news, with significant indirect costs on ordinary people.
Some analysis from the Tax Foundation highlights some of the drawbacks from this tax.
Policymakers should be wary about adopting a financial transactions tax. Like a gross receipts tax, a financial transactions tax results in tax pyramiding. The same economic activity is taxed multiple times. For example, an individual might sell a stock worth $100 to diversify her portfolio and then purchase stock in a new company with that same $100. The $100 is being taxed twice: first, when the individual sells the stock, and then again when the money is used to buy the new security. Imagine this happening thousands of times a day. …That is why this tax would generate nearly $770 billion over a decade. …Supporters, however, argue that the Wall Street Tax Act is needed, because it would reduce volatility in financial markets. It’s not clear that it would reduce volatility. In 2012, the Bank of Canada studied the issue and concluded that “little evidence is found to suggest that an FTT [financial transactions tax] would reduce speculative trading or volatility. In fact, several studies conclude that an FTT increases volatility and bid-ask spreads and decreases trading volume.” …Sweden’s imposition of a financial transactions tax in the 1980s illustrates the challenges perfectly. The country experienced a 60 percent decrease in trading volume as it moved to other markets, as well as a decrease in revenue.
Another report from the Tax Foundation notes the tax can increase volatility and cause direct and indirect revenue losses.
A financial transactions tax would distort asset markets, as types of securities traded more frequently would be taxed much more than assets traded less frequently. This distortion would lead to investors holding certain assets longer than they should in order to avoid the tax. The tax also decreases liquidity and increases transaction costs. …it will also discourage transactions between well-informed investors; furthermore, much of the research on the issue of volatility suggests that higher transaction costs correlate with more volatility, not less. Financial transactions taxes are also not surefire revenue generators. In the 1980s, Sweden imposed a financial transactions tax, and, thanks to the relative mobility of capital markets, 60 percent of trades moved to different markets. Not only did this behavior mean that the financial transactions tax raised little revenue, it also drove down revenue for the capital gains tax, ultimately lowering total government receipts.
A column in the Wall Street Journal notes that such a levy would directly and indirectly hurt ordinary people.
The proposed 0.1% tax on all financial transactions—trades in stocks, bonds, derivatives—may sound small, but it could make markets less stable and hurt small investors. …advocates overlook the breadth of smaller investors… Each day, more than $1 trillion in securities are traded in the U.S., mostly by large investment managers that represent not only wealthy investors, but also 401(k) plans, public pensions and middle-income families. …even a small tax is significant enough to affect trading strategy and raise costs. Such firms…use the minimal cost of automated, high-frequency trading to reduce the need for paid traders, generating savings for investors. …high-frequency traders provide liquidity and have reduced the gap between bid and ask rates in almost every asset class. The disruptive effect of transaction taxes is more than theoretical. The Chinese government has taxed trades since the early 1990s, and its gradual reduction of the tax on certain types of stocks offers an occasion to measure the tax’s effects. A 2014 study by University of Southern California finance professor Yongxiang Wang found that as the tax decreased, affected companies saw corresponding increases in capital investment, innovation and equity financing. …Sweden and France similarly have introduced financial-transactions taxes over the past few decades, resulting in heightened market volatility and declining liquidity, respectively. …Even at a 0.1% rate, the Joint Committee on Taxation estimates the proposed tax would raise $777 billion over 10 years—all taken out of potentially productive private investment. …financial transactions are highly mobile and easy to move to another jurisdiction. Two parties to a financial contract settled in New York can just as easily sign and enforce the contract in the Cayman Islands, for instance, avoiding the tax.
Interestingly, the Washington Post‘s editorial on the topic back in 2016 noted some significant downsides.
It’s worth noting that the United States had a 0.02 percent tax on stock trades in force during the 1920s, and the market still crashed in 1929. If the tax is too high, however, you could stamp out needed price-discovery, hedging and liquidity, thus destroying efficiency and economic growth. Oh, and you also could end up collecting no revenue, or less than you expected, as market activity dried up or fled to more lightly taxed jurisdictions overseas. For these and other reasons, in 1991 Sweden had to repeal a financial transaction tax it had imposed just seven years earlier. An analysis of financial transaction taxes, both actual and proposed, by the nonpartisan Tax Policy Center…shows rapidly diminishing returns once the tax rate exceeds a certain level; a 0.5 percent tax brings in about the same amount of revenue as a 0.1 percent rate.
For what it’s worth, I expect that the Post will do an about-face and embrace the tax as we get closer to the 2020 election.
Though I hope I’m wrong about that.
Let’s close with some excerpts from three substantive studies.
Tim Worstall, in a report for London’s Institute for Economic Affairs, analyzes the harmful effect of a proposed European-wide FTT.
The Robin Hood Tax campaign seems to think that hundreds of billions of dollars can be extracted from the financial markets without anyone really noticing very much: a rather naïve if cute idea. The European Commission is continuing its decades-long campaign to have its ‘own resources’. Under its proposal, FTT revenue would be sent to the Commission, which would thus become less dependent on national governments for its budget. This is neither unusual nor reprehensible in a bureaucracy. It is the nature of the beast that it would like to have its own money to spend without being beholden. …The first and great lesson of tax incidence is that taxes on companies are not paid by companies. …The importance of this effect is still argued over. Various reports from various people with different assumptions about capital openness and so on lead to estimates of 30-70% of corporation tax really being paid by the workers, the rest by the shareholders. One study, Atkinson and Stiglitz (1980), points to the at least theoretical possibility that the incidence on the workers’ wages can be over 100%. That is, that the employees lose in wages more than the revenue raised by the tax. So what will be the incidence of an FTT? … the incidence of the FTT will be upon workers in the form of lower wages, upon consumers of financial products in higher prices and that the incidence, the loss of income resulting from the tax, will be over 100%. The loss will be greater than the revenues raised.
here’s some research from the Committee for Capital Markets Regulation.
For over 300 years, financial transaction taxes (“FTTs”) have been proposed, discussed, and implemented in various forms across global financial markets. And for over 300 years, FTTs have been a failure wherever imposed, frequently failing to raise the promised revenues, while simultaneously damaging the efficiency of the affected markets. Recent proposals for an FTT in the United States would likely have a similar result. …FTT proponents also ignore the empirical evidence from other countries that have imposed FTTs that universally demonstrates that (i) FTTs fall far short of revenue expectations and (ii) securities markets – and by extension the real economy as well as all investors and taxpayers – are significantly harmed by FTTs due to the wide array of beneficial trading activity that is indiscriminately targeted. In fact, many of the G20 countries that have experimented with FTTs in the past, including Germany, Italy, Japan, the Netherlands, Portugal and Sweden, ultimately repealed such taxes due to the damage that they caused.
Last but not least, a study from the Center for Capital Markets Competitiveness has lots of valuable information.
Lower stock prices make it harder for growing businesses to sell stock to raise the capital they need to grow their businesses. At the same time, business borrowing costs through the corporate bond market will go up for the same reason. Lenders will require a higher pre-tax return in order to retain the same after-tax return. …This increase in the cost of capital due to higher interest rates means that businesses will have to spend more in order to raise capital, resulting in less capital investment and fewer jobs. …For example, economists for the European Union conducted a 1,223-page study on the impact of a proposed 0.10% transaction tax under consideration, the same tax rate as that proposed by Sen. Schatz. They found that such a tax would lower GDP by 1.76% while raising revenue of only 0.08% of GDP.26 In other words, the cost to the economy is far more than the revenue raised. …We can learn from U.S. history how little revenue an FTT would raise. When the last FTT was abolished, the rate was approximately 0.4% with a limit of 8 cents per share. Congress estimated that the tax would raise a mere $195 million in 1966. This represents 0.0285% of 1966’s $813 billion GDP. Applying the same percentage to today’s $21 trillion GDP yields an annual revenue of less than $6 billon—less than one-tenth of Sen. Schatz’s projections for such a tax today.
This map from the study is especially helpful.
Just as is the case for wealth taxes, governments have not had positive experiences when they impose this levy.
P.P.S. If I’m a judge in the Class Warfare Olympics, I’m giving the Gold Medal to Bernie Sanders, the Silver Medal to Elizabeth Warren, and the Bronze Medal to Kamala Harris.
P.P.P.P.S. I goofed in the interview when I identified Larry Summers as Obama’s Treasury Secretary. He was Treasury Secretary for Bill Clinton and head of the National Economic Council for Barack Obama.
I wrote last month about a group of leftist millionaires who said they should pay more in taxes.
My response was to ask why they aren’t taking advantage of the existing process that allows them to send extra money to the federal government? There’s even a special website that facilitates payments from people who want to voluntarily pay more tax.
Yet, in a glaring example of hypocrisy, these rich statists won’t “put their money where their mouths are.”
Now we have a new example of a rich leftist who says one thing and does another.
And he happens to be a former Vice President of the United States. Tax Notesreports that Joe Biden, who says he wants higher taxes if he wins the 2020 presidential election, has been very aggressive about minimizing the amount of his money that is taken by the IRS.
Former Vice President Joe Biden’s tax returns show he took advantage of a planning strategy that the Obama administration tried to shut down. The planning technique involves the use of an S corporation to allow only a small portion of an individual’s earnings to be subject to self-employment tax. On the portion that isn’t on the hook for self-employment taxes, in some cases it can also escape the 3.8 percent net investment income tax for high-income earners enacted into law during the Obama administration. “It’s truly astounding to me that Biden would take such an aggressive position while contemplating a run for president,” Steven Rosenthal of the Urban-Brookings Tax Policy Center said. “I don’t get it,” he added. …Biden, who is now a Democratic presidential candidate for 2020, released federal and state tax information on June 9 showing he and his wife, Jill, earned millions from speaking and writing engagements since leaving office.
Interesting, there are some Democrats who have chosen not to take advantage of this strategy.
…before becoming president, Barack Obama earned income as an author but listed it on Schedule C, subjecting it to self-employment tax. Sen. Elizabeth Warren, D-Mass., similarly earned income as author and listed the amounts on Schedule C.
What makes Biden’s hypocrisy so remarkable is that the Obama-Biden Administration proposed to make this type of avoidanceillegal.
In its proposed fiscal 2017 budget, the Obama administration would’ve expanded the 3.8 investment to passthrough income so it wouldn’t escape the 3.8 percent tax based on a technicality. The provision, included in a section entitled “loophole closers,” would have raised $271.7 billion over 10 years, according to the Treasury Department’s analysis of the proposal.
So Biden wanted to take away the right of other people to protect their money, yet he is perfectly happy to copy their tax-minimization tactics.
By the way, I should say, quite emphatically, that Biden made the right choice for his family.
Voluntarily giving more money to Washington would be wasteful and reckless. I’m not going to claim that politicians in D.C. are the worst people in the country. But I will assert that they’re the ones with the worst incentive to use money wisely.
In any event, there’s definitely something distasteful about a rich leftist politician behaving like a “greedy capitalist” in his private life. Especially since this politician in the past has asserted that it’s patriotic to pay more tax!
Does this make him a fiscal draft dodger? Is there smoke coming out of the Hypocrisy Meter?
Here’s an amusing joke (with the naughty word redacted), and the late-night talk shows have produced some good one liners about the Veep here, here, here, and here.
This video, which has been a viral phenomenon, looks at the practical implications of arming some people with 12-gauge shotguns.
This is amusing, though it’s actually not that funny when you realize that this clown is in charge of the task force putting together gun control proposals for the Obama Administration.
By the way, if you like humorous videos dealing with gun control, here are my favorites.
I talked a couple of days ago to Neil Cavuto about whether the Obama Administration is slightly modifying its class-warfare tax policy.
As you can see, I’m not overly fixated on the parsing of Biden’s comments since I’m against higher tax rates for anyone.
And my takeaway message from the segment is that we need some discussion on the need to reduce the burden of government spending.
But the purpose of this post isn’t to share my appearance on the Fox Business Network. While I like to think that I offer coherent analysis and occasionally can be persuasive, I’m the first to admit that this second video is far more compelling. It features an old guy who escaped from Hungary after World War II and is now worried about creeping statism in the United States.
He does have a political message at the end, but ignore those final few seconds (after all, GOPers can be just as bad as Democrats).
Please share this post so more people are exposed to his message.
P.S. Since everyone is making fun of Biden, I may as well hop on the bandwagon. Here’s a joke about our feckless Vice President, and you can see a photoshop contest about “Lunchbucket Joe” by clicking here and here.
Joe Biden said Thursday that paying more in taxes is the patriotic thing to do for wealthier Americans. …Biden said: “It’s time to be patriotic … time to jump in, time to be part of the deal, time to help get America out of the rut.”
I’m not sure how America’s Founding Fathers would have reacted to that statement, but I suspect that Washington, Jefferson, Franklin, Mason, and Paine would have had a different perspective.
But I’m not surprised that the Socialist candidate for President in France has the same mentality (and I’m referring to the official candidate of the Socialist Party, not the socialist currently running the country). Here’s a blurb from the BBC.
The Socialist favourite in France’s presidential election, Francois Hollande, has said top earners should pay 75% of their income in tax. …Mr Hollande himself renewed his call on Tuesday, saying the 75% rate on people earning more than one million euros a year was “a patriotic act”. …”It is patriotic to agree to pay a supplementary tax to get the country back on its feet.”
Isn’t this wonderful that politicians of different nationalities and from different continents can be united in the idea that it is “patriotic” to give the world’s least competent people more money?
Even though he’s widely seen as a clown and a buffoon, I’ve only had one Joe Biden joke on this blog (a two-parter you can find here and here).
Though I hasten to add that Biden has been mentioned in a few of the joke collections from the late-night comics (here, here, here, and here) and played a supporting role in this joke.
But he deserves some more love and attention, so here’s something that arrived in my inbox yesterday.
I bought a new Ford F250 Tri-Flex Fuel Truck. Go figure. It runs on either hydrogen, gasoline, or E85.
I returned to the dealer yesterday because I couldn’t get the radio to work.
The service technician explained that the radio was “voice activated.”
“Nelson,” the technician said to the radio.
The radio replied, “Ricky or Willie?”
“Willie!” he said, and “On The Road Again” came from the speakers.
Then he said, “Ray Charles!,” and in an instant “Georgia On My Mind” replaced Willie Nelson.
I drove away happy, and for the next few days, every time I’d say, “Beethoven,” I’d get beautiful classical music, and if I said, “Beatles,” I’d get one of their awesome songs.
Yesterday, some guy ran a red light and nearly creamed my new truck, but I swerved in time to avoid him.
I yelled, “F-ing Idiot!” Immediately the radio responded with a Joe Biden speech.
I have no idea if this is a faked photo, but let’s have some fun with it. Whoever comes up with the funniest/most clever caption wins a very valuable prize.*
*Okay, there’s no real prize, but you’ll at least have the satisfaction of being…um…funny and clever.
…“This option would increase revenues by $777 billion from 2019 through 2028, according to an estimate by the staff of the Joint Committee on Taxation,” the Congressional Budget Office’s website says. …The House bill comes on the heels of its companion legislation introduced by Sen. Brian Schatz, D-Hawaii, in the other chamber. Republicans have a 53-47 majority in the Senate.
The $100 is being taxed twice: first, when the individual sells the stock, and then again when the money is used to buy the new security. Imagine this happening thousands of times a day. …That is why this tax would generate nearly $770 billion over a decade. …Supporters, however, argue that the Wall Street Tax Act is needed, because it would reduce volatility in financial markets. It’s not clear that it would reduce volatility. In 2012, the Bank of Canada studied the issue and concluded that “little evidence is found to suggest that an FTT [financial transactions tax] would reduce speculative trading or volatility. In fact, several studies conclude that an FTT increases volatility and bid-ask spreads and decreases trading volume.” …Sweden’s imposition of a financial transactions tax in the 1980s illustrates the challenges perfectly. The country experienced a 60 percent decrease in trading volume as it moved to other markets, as well as a decrease in revenue.
The tax also decreases liquidity and increases transaction costs. …it will also discourage transactions between well-informed investors; furthermore, much of the research on the issue of volatility suggests that higher transaction costs correlate with more volatility, not less. Financial transactions taxes are also not surefire revenue generators. In the 1980s, Sweden imposed a financial transactions tax, and, thanks to the relative mobility of capital markets, 60 percent of trades moved to different markets. Not only did this behavior mean that the financial transactions tax raised little revenue, it also drove down revenue for the capital gains tax, ultimately lowering total government receipts.
Such firms…use the minimal cost of automated, high-frequency trading to reduce the need for paid traders, generating savings for investors. …high-frequency traders provide liquidity and have reduced the gap between bid and ask rates in almost every asset class. The disruptive effect of transaction taxes is more than theoretical. The Chinese government has taxed trades since the early 1990s, and its gradual reduction of the tax on certain types of stocks offers an occasion to measure the tax’s effects. A 2014 study by University of Southern California finance professor Yongxiang Wang found that as the tax decreased, affected companies saw corresponding increases in capital investment, innovation and equity financing. …Sweden and France similarly have introduced financial-transactions taxes over the past few decades, resulting in heightened market volatility and declining liquidity, respectively. …Even at a 0.1% rate, the Joint Committee on Taxation estimates the proposed tax would raise $777 billion over 10 years—all taken out of potentially productive private investment. …financial transactions are highly mobile and easy to move to another jurisdiction. Two parties to a financial contract settled in New York can just as easily sign and enforce the contract in the Cayman Islands, for instance, avoiding the tax.
Oh, and you also could end up collecting no revenue, or less than you expected, as market activity dried up or fled to more lightly taxed jurisdictions overseas. For these and other reasons, in 1991 Sweden had to repeal a financial transaction tax it had imposed just seven years earlier. An analysis of financial transaction taxes, both actual and proposed, by the nonpartisan Tax Policy Center…shows rapidly diminishing returns once the tax rate exceeds a certain level; a 0.5 percent tax brings in about the same amount of revenue as a 0.1 percent rate.
This is neither unusual nor reprehensible in a bureaucracy. It is the nature of the beast that it would like to have its own money to spend without being beholden. …The first and great lesson of tax incidence is that taxes on companies are not paid by companies. …The importance of this effect is still argued over. Various reports from various people with different assumptions about capital openness and so on lead to estimates of 30-70% of corporation tax really being paid by the workers, the rest by the shareholders. One study, Atkinson and Stiglitz (1980), points to the at least theoretical possibility that the incidence on the workers’ wages can be over 100%. That is, that the employees lose in wages more than the revenue raised by the tax. So what will be the incidence of an FTT? … the incidence of the FTT will be upon workers in the form of lower wages, upon consumers of financial products in higher prices and that the incidence, the loss of income resulting from the tax, will be over 100%. The loss will be greater than the revenues raised.
while simultaneously damaging the efficiency of the affected markets. Recent proposals for an FTT in the United States would likely have a similar result. …FTT proponents also ignore the empirical evidence from other countries that have imposed FTTs that universally demonstrates that (i) FTTs fall far short of revenue expectations and (ii) securities markets – and by extension the real economy as well as all investors and taxpayers – are significantly harmed by FTTs due to the wide array of beneficial trading activity that is indiscriminately targeted. In fact, many of the G20 countries that have experimented with FTTs in the past, including Germany, Italy, Japan, the Netherlands, Portugal and Sweden, ultimately repealed such taxes due to the damage that they caused.
means that businesses will have to spend more in order to raise capital, resulting in less capital investment and fewer jobs. …For example, economists for the European Union conducted a 1,223-page study on the impact of a proposed 0.10% transaction tax under consideration, the same tax rate as that proposed by Sen. Schatz. They found that such a tax would lower GDP by 1.76% while raising revenue of only 0.08% of GDP.26 In other words, the cost to the economy is far more than the revenue raised. …We can learn from U.S. history how little revenue an FTT would raise. When the last FTT was abolished, the rate was approximately 0.4% with a limit of 8 cents per share. Congress estimated that the tax would raise a mere $195 million in 1966. This represents 0.0285% of 1966’s $813 billion GDP. Applying the same percentage to today’s $21 trillion GDP yields an annual revenue of less than $6 billon—less than one-tenth of Sen. Schatz’s projections for such a tax today.
