Taxing Rapid-Fire Trading
September 21st, 2011
A tax on trading would be a great jobs program…for Bermuda, the Cayman Islands and Liechtenstein. The EU wants to impose a tax starting in 2014, hoping to raise $57b. Some economists (following Nobel Laureate James Tobin) and pundits argue that we should punish hyperactive traders and get them to cough up revenues by slapping them with a trading tax. But unless the E.U. and U.S. strong-arm every country to follow, professional traders will just go elsewhere. All it takes these days to run any business is a smartphone and a single-serve coffeemaker.
Though I’m not a huge fan of high-frequency trading, more trading adds more liquidity. Bid-ask spreads narrow; commissions get squashed. Why do you think you can trade $50,000 worth of shares for $7.95 today, rather than paying your broker $300, as in the early 1980s? Here’s a fair-minded story on the trading tax. In the 1980s Sweden tried such a tax and then threw in the towel, as finance businesses fled to friendlier climes. Yes, there are friendlier than climes than Stockholm, though it’s a beautiful city. With unparalleled herring.