Why a Financial Speculation Tax?
Over the last several of decades, the cost of trading has been lowered by increased competition between brokers and the use of technology to automate order processing. This has benefited all investors, but the lower trading costs have also opened the door to wide-spread speculative activity that erodes confidence in the stability of markets. Speculative trading now accounts for up to 70 percent of the trades in some markets. This is a threat to the interests of responsible investors.
A modest levy of 0.25 percent on stock trades and 0.02 on trades of future contracts, swaps and credit default swaps (options would also be taxed at the underlying rate governing the security on which the option is written) would dampen the incentive of short-term speculators, thereby protecting long-term investors.
Moreover, a small financial speculation tax would also raise over $150 billion annually in urgently needed revenue. The tax should leave middle class investors largely unaffected by exempting pension and individual retirement accounts, and the first $100,000 of trades made by an individual each year.
“At the heart of the financial crisis and the ills of our economic system is a malady known as ‘short-termism.’ We have lost the distinction between real investment in the real economy and short-term financial speculation.”
–John Fullerton, former JPMorgan Managing Director, President at Capital Institute
Who supports a Financial Speculation Tax?
A wide range of business and international government leaders have endorsed taxes on financial transactions, including British Prime Minister Gordon Brown, German Chancellor Angela Merkel, French Finance Minister Christine Lagarde and Chairman of the U.K. Financial Services Authority Lord Turner. More than 200 economists have issued a public letter supporting financial transactions taxes. The Aspen Institute, whose members include Warren Buffett, and former IBM Chairman Lou Gerstner, supports a financial transactions tax, as does the AFL-CIO.
“As long-term investors we’ve been hammered over the last few years by speculators looking for a quick profit. As a portfolio manager, I support a modest tax on financial transactions as one tool to protect the value of my clients assets. It’s low-cost insurance that protects responsible investors from the speculators.”
–Julie Goodridge, President and Founder, NorthStar Asset Management
For more information, visit our FAQ on the Financial Speculation Tax.