Proponents of a transactions tax misunderstand the way markets work. The bubble in home prices in the United States was not caused by the rapid buying and selling of individual family homes. The financial crisis was primarily a liquidity crisis and a credit crunch, and the major problem with collateralized mortgage-backed bonds was that they declined significantly in value and became illiquid. A transactions tax that would have reduced trading and made repurchase agreements more costly, could have made the problem even worse.
Moreover, “Wall Street” would not foot the bill for the presumed $150 billion tax. In fact, the tax would simply be added to the cost of doing business, burdening all investors, including 401(k) plans, IRAs and mutual funds.
Kendall,
Thanks for posting this one. Burton Malkiel is a highly respected author and hopefully his opinion will carry some weight. Interestingly, while George Sauter is associated with Vanguard, John Bogle, Vanguard’s founder, is on record as supporting this tax.
An interesting twist on this tax which occurred to me is how it will adversely affect farmers. Farmers frequently trade commodity futures both to hedge the price they will receive for their crops and to gain some additional income ( we all know what rich, greedy speculators the American farmers are 🙂 ). I wonder if any of the know-it-alls in Congress have considered this effect.
When oil companies were judged to be excessively evil and profitable several decades back, a windfall profits tax was levied on them. Why not levy a windfall profits tax on the likes of Goldman Sachs and rich hedge fund people like George Soros instead of a transaction tax that hits everyone including the little guy just trying to earn a little extra which gets taxed already?