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Economy
In reply to the discussion: STOCK MARKET WATCH -- Monday, 17 September 2012 [View all]Demeter
(85,373 posts)21. Financial Transaction Taxes: Pros and Cons
http://businessfinancemag.com/article/financial-transaction-taxes-pros-and-cons-0912
With interest in a financial transactions tax (FTT) growing in many parts of the world, it seems like a reasonable time to look at some of the research thats been done on the impact of these taxes. Is it a reasonable way for governments to raise revenue and curb some of the high-frequency trading and speculation that can destabilize the financial systems? Or would such a tax make the financial markets less efficient and liquid, ultimately boosting volatility and cutting into investment returns for even small investors? Arguments have been made on both sides...Studies on the impact of other FTTs already in place around the world, as well as the potential impact of an FTT implemented in the U.S., have shown mixed results.
On the positive side at least, if youre Uncle Sam and trying to reduce the deficit the tax brings in cash. An analysis of the Harkin and DeFazio bill from the Joint Committee on Taxation calculated that it would raise $352 billion between January 2013 through 2021.
On the other hand, a 2012 study of the impact of an FTT by researchers at the Netherlands Bureau for Economic Policy Analysis, Financial transaction tax: review and assessment, found little evidence for the corrective properties of the FTT. Such a tax wouldnt reduce market volatility, and its impact on asset price bubbles is unclear, the paper stated. Another 2012 study, this one by Oliver Wyman, reached similar conclusions. An FTT would dramatically increase the cost of transactions, particularly the most liquid and most frequently traded products, while having little impact on speculative trading, which could more easily move outside the reach of the tax. In addition, implementation of the tax costs the economy more than the tax burden, according to the report, Proposed EU Commission Financial Transaction Tax Impact Analysis on Foreign Exchange Markets. However, the Chicago Political Economy Group points out that a number of countries, including Hong Kong, South Korea and the U.K., have lived with an FTT for years, with little apparent negative impact on the local financial industry. All boast large financial markets.
...Last fall, Senator Tom Harkin (D-Iowa) and Congressman Peter DeFazio (D-OR) introduced legislation in the U.S. to impose a tax of three basis points on most non-consumer financial trading, including stocks and bonds, other than at their initial issuance. The measure remains with the Senate Committee on Finance. According to a number of reports, however, the White House doesnt support the idea of a financial transaction tax....
With interest in a financial transactions tax (FTT) growing in many parts of the world, it seems like a reasonable time to look at some of the research thats been done on the impact of these taxes. Is it a reasonable way for governments to raise revenue and curb some of the high-frequency trading and speculation that can destabilize the financial systems? Or would such a tax make the financial markets less efficient and liquid, ultimately boosting volatility and cutting into investment returns for even small investors? Arguments have been made on both sides...Studies on the impact of other FTTs already in place around the world, as well as the potential impact of an FTT implemented in the U.S., have shown mixed results.
On the positive side at least, if youre Uncle Sam and trying to reduce the deficit the tax brings in cash. An analysis of the Harkin and DeFazio bill from the Joint Committee on Taxation calculated that it would raise $352 billion between January 2013 through 2021.
On the other hand, a 2012 study of the impact of an FTT by researchers at the Netherlands Bureau for Economic Policy Analysis, Financial transaction tax: review and assessment, found little evidence for the corrective properties of the FTT. Such a tax wouldnt reduce market volatility, and its impact on asset price bubbles is unclear, the paper stated. Another 2012 study, this one by Oliver Wyman, reached similar conclusions. An FTT would dramatically increase the cost of transactions, particularly the most liquid and most frequently traded products, while having little impact on speculative trading, which could more easily move outside the reach of the tax. In addition, implementation of the tax costs the economy more than the tax burden, according to the report, Proposed EU Commission Financial Transaction Tax Impact Analysis on Foreign Exchange Markets. However, the Chicago Political Economy Group points out that a number of countries, including Hong Kong, South Korea and the U.K., have lived with an FTT for years, with little apparent negative impact on the local financial industry. All boast large financial markets.
...Last fall, Senator Tom Harkin (D-Iowa) and Congressman Peter DeFazio (D-OR) introduced legislation in the U.S. to impose a tax of three basis points on most non-consumer financial trading, including stocks and bonds, other than at their initial issuance. The measure remains with the Senate Committee on Finance. According to a number of reports, however, the White House doesnt support the idea of a financial transaction tax....
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