Dear Sir,

If you're referring to Securities Transaction Tax in Japan, the tax raised only JPY 173 billion in 1999 (its final year), compared to gov't revenue of JPY 49 trillion that year. So, it should be 0.4% (instead of 4%)?

Yoshi

Brazil has used a bank transactions tax for 14 years, with enormous success (1993-2007. An in-depth analysis of this experience can be found in a book I published recently BANK TRANSACTIONS: A PATHWAY TO THE SINGLE TAX IDEAL, found at www.amazon.com.

There has not yet been a single valid economic argument for not implementing a Tobin Tax worldwide. It's true that in several countries there are different taxes on different finacial transactions without harmonization or clear criteria as they range from stamps to tax on trades to tax on speculative transactions.
http://mgiannini.blogspot.com/2009/09/g20-summit-2009-odyssey-dawn-of-man.html

Once a bubble is underway, even fairly large incremental expenses do not prevent speculation. The main problem in modern asset bubbles has not been transaction volume, but leverage. This is what causes rapid expansion and instant collapse, as for example margin stock buying in the crash of 1929 or minimal or no-down housing purchases in the recent bubble. How about a progressive tax on leveraged transactions? In the case of private housing, speculation should probably be quashed entirely, meaning a reasonable minimum on initial equity (down payment).

Hey, Dean, you know as well as anyone that UK financial firms and traders are exempt from paying that trans tax. Only the ignorant poor and middle class pay that tax over there and it would be the same here if implemented. NY City was looking for more revenue: The Independent Budget Office of NYC found that such a tax on just the NYSE and AMEX exchanges would result in Net Negative Revenue with hundreds of thousands of jobs lost, most not related to finance, much worse if all US exchanges were taxed. The long-term investor will lose about one quarter of their retirement from reduced compounding because of this antiquated tax.

Here's what happened when they implemented a transaction tax in Sweden:

The tax lasted about 6 years (implemented 1984, doubled in 1986, abolished 1991). The tax started at 0.5% on equity trades and was doubled to 1% in 1986:

Despite the lower tax on fixed-income securities, the impact on market trading was much more dramatic. During the first week of the tax, the volume of bond trading fell by 85%. The volume of futures trading fell by 98% and the options trading market disappeared. Trading in money market securities, which faced a tax as low as 0.2 basis points, fell by 20%. This reaction was due in large part to the existence of a wide variety of non-taxed substitutes. Once the taxes were eliminated, trading volumes returned and grew substantially in the 1990s.
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The revenues from taxes were disappointing; for example, revenues from the tax on fixed-income securities was a dismal 50-80 million Kroner per year compared to the initially expected to amount of 1,500 million Swedish Kroner per year.

The effect of passing something like this would be catastrophic. Other jurisdictions (Singapore, HK, the more capitalist European countries) would fall over themselves to attract a share of the gigantic US trading volume.

I just don't like this tax at all. The most fair way to tax is to increase the income tax. If you earn more, you pay more. This tax will kill a lot of small time day traders, most of them don't make much money and won't have the luxury like the big funds to shift oversees or find some other ways to evade it.

In the end just like a sales tax this tax will be passed on and the cost will be borne by your average Joe.

Also there is no good economic argument for this tax, as Dean himself says this tax was there in Japan, it did not prevent the Japanese bubble. This bubble was also cause by longer term assets like housing and credit default swaps.

Skeptonimist nails it on the head that the issue is leverage, not transactions.
Taxing leverage will be a better check on Wall Street. Leverage is really how wall street makes money. Even in their high frequency transaction they make money through leverage. Otherwise you cannot make a lot of money on 1 penny profits. I think there will be challenges in implementation but this will have a lot more benefit than transaction taxes.

This is really a prediction rather than a comment, but this tax is going to happen, and it won't affect the individual investor a whit, because its aim will be to kill HFT, not to raise revenue, so it will be minimal. Whatever burden that will be pushed onto the consumer will be balanced by the removal of the HFT arbitrage tax from the market.

My bet is that trading volume will take a massive drop (HFT accounts for 73% of trading volume, and I've read a speculation that 50% of volume is HFT firms trading against other HFT firms), and a trivial amount of revenue will be raised.

Of course, trivial in this case probably means that 50,000 extra kids will be able to go to college each year...

My prediction is if this tax's aim is to kill HFT it will never be implemented. HF traders will assure it never becomes law by buying off all the congressional votes as well as public opinion.

This proposed stock transaction tax is nothing more than intentional wealth destruction of the middle class and poor. Investments are the only way the poor can accumulate any bit of wealth. 10-14-09: Taiwan tax commission, for example, wants to introduce for a 3rd time a stock transaction tax, I guess because it failed so well the first two times. 1973 was the first time they introduced the tax, result: the market fell 63% within a year. In 1988 they reintroduced the tax for a second time, result: 19 consecutive losing days, down 43% in less than 3 months. Fortunately there are 120 million Investor Class Voters ready to purge US Congress.

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