January 11, 2010
I’m writing to state the case against any US bill that includes a financial transaction tax. Two bills in particular have proposed this tax as a way to pay for job recovery programmes: ‘Let Wall Street Pay for the Restoration of Main Street Act of 2009’ and ‘Transparent Markets Act of 2009’.
Supporters view this tax as a way to generate tax revenue quickly. However, the tax’s negative impact will be widespread, it will cause job losses, and it ultimately won’t produce the tax revenue leaders are seeking.
A transaction tax will stifle market makers which includes speculators and small-business traders. Market makers will trade less, markets will become illiquid, and spreads will widen significantly. All investors and hedgers will face lower selling prices and higher purchase prices, costing everyone more money. US traders will seek better prices at financial centres abroad, and our financial exchanges will falter. As people trade less in the US, brokerages will be forced to close their doors. The technology sector, which services many exchanges, brokers and traders, will consequently take a hit.
It’s also interesting to note that Wall Street – the group sponsors are targeting – will most likely pass the cost on to Main Street. Average citizens who had nothing to do with the last financial crisis will end up bearing the brunt of this tax.
The tax revenue supporters predict the tax will generate is grossly inaccurate: as traders quit trading, there will be fewer transactions to tax, not to mention less capital gains tax garnered from these traders. One bill includes narrow exemptions for small retail investors (first 0,000 of transactions) and for retirement plans, but business traders will blow through that amount very quickly.
In addition to small investors, the technology industry and our financial exchanges, farmers will suffer at the hands of this tax. Speculators bid up prices when needed to give farmers an incentive to plant more crops. If speculators are trading less, farmers will plant less. The tax will hurt their ability to hedge their products at a fair price.
Sponsors claim it is a ‘tiny tax’, but farmers consider it large enough to wipe out their narrow profit margins. Farmers running out of profits can lead to food shortages; no one wants that to happen.
Some leaders have suggested this tax as a way to assist undeveloped countries in dealing with climate damage and for social causes. Those issues certainly need funding. However, the money should come from general contributions, not from a financial transaction tax that will hurt both developed and undeveloped economies.
The proposed financial transaction tax will be implemented on all transactions — profitable and unprofitable. Traders already pay capital gains when they make money; how can the US justify taxing traders when there’s no income or profit on a transaction?
The financial markets are one of our greatest assets and industries. It is clear this tax will cause an unpleasant chain of events that will negatively impact the economy; its effects will be felt everywhere. We can’t allow this tax to succeed. Please help us defeat it by saying ‘no’ to any legislation that includes this tax.
Robert A. Green, CPA