| Kasz216 said: Well it's not like that's never happened before. Sweden had a Financial Transactions tax for a while. It ended up creating such a drop in trading that the tax ended up being "Revenue neutral"... it ended up greatly hurting their stock market, only returning to form when the market tax was lifted. So, I'm a little curious as to why people think it's a good idea... though if your wondering why Sweden is against such a tax... that's why. They implemented one it caused their stockmarket to plunge until they removed it. If you want to stop high frequncy trading there are much better ways to do so. Espeically since a LOT of high frequency trades get canceled before the order gets filled. Which is often what's seen as the "Distorting" aspect. |
It seems to me that that proves that the Swedes set it up incorrectly. Indeed, even the wikipedia page on it makes the point: "The Swedish FTT is widely considered a failure. The fact that only local brokerage services were taxed is in the literature seen as the main design problem of the Swedish system. Avoiding the tax only required using foreign broker services."
I'm betting that they also applied capital gains tax to pre-tax profits, and not net profits, but I'm not sure where I'd have to look to confirm one way or the other. If they did as I suspect, it would have meant that people would be taxed for capital gains even if they lost money after the transactions tax. Also, from what I can see, Sweden's tax system is bizarrely complex. It doesn't help that I don't speak Swedish, though, so it might just be bad translation on google translate's part.
It's also worth noting that, even now, the US technically has a financial transactions tax - it's at 0.0034%. It doesn't seem to be hurting the system in the US, even though the Swedish system didn't recover until the entire tax was removed (not when it was dropped to 0.002-0.003%).
I provided some quick mathematics in my previous post... and it showed why a 1% tax is probably too big - if someone traded just once each day, they end up losing about 97% of the money to transaction taxes. That's clearly overkill. At 0.1%, it's 30.6% of their money that goes to transaction tax if they make one per day. I'd say that somewhere between 0.01% and 0.1% is a reasonable range to look at, for such a tax, discouraging but not eliminating moderately-high-frequency trading, and only serving to completely remove very-high-frequency trading.
These things can't be treated in isolation. The tax system has to be treated as a whole, and not as individual parts. Adding a certain type of tax without appropriate alteration of the whole system to make it work correctly can screw with economies. The same can be said of tax cuts, by the way.
