Tax gambling on Wall Street to avoid fiscal cliff

Another Way to Avoid the Fiscal Cliff

Earlier this week, Gaius argued that we should pass a sales tax on all Wall Street transactions as a way to avoid going over the fiscal cliff. After all, it was Wall Street that put us in this situation in the first place so they should be the ones to pay.

I agree in principle, but I have a slightly different solution.

If Wall Street were solely comprised of billionaires looting and gaming the system at the expense of everyone else, I’d be inclined to agree. But a sales tax on ALL transactions might affect plenty of people that we’d rather not┬átax.

For instance, my mother, a professor at the University of Virginia, got some stock options when a company used her work to design a new flu drug. My mother is far from being a day trader and definitely wasn’t invested just for the sake of gambling and greed. And she’s not alone; 54 percent of Americans have at least some money invested in the stock market, down from 65 percent before the financial crisis.

For mere revenue’s sake, I’m sure my mother wouldn’t mind paying a sales tax on the sale of her stock. But if your goal is to punish those who caused the mess, there’s a way to do it without as much collateral damage:

Avoid the Fiscal Cliff by Redefining the Difference Between Long-term and Short-term Capital Gains

Wall Street

Wall Street via Shutterstock

Tax capital gains on stock at 99 percent for stock held less than one day. Gradually reduce the rate the longer the stock is held, ending with gains being taxed as regular income after the stock is held for at least a year.

Currently capital gains are taxed at different rates depending on how long the stock is held, but the rates are structured in a way that still rewards gambling. Redefining the difference in this fashion would effectively eliminate the incentive for flash trading and would guarantee that Mitt Romney pays a higher tax rate than his secretary.

This could arguably amount to a larger tax increase than Gaius is proposing, but, unlike a blanket sales tax on all transactions, only affects transactions that lead to a profit. Getting taxed after selling a stock for a loss seems too much like adding insult to injury.

Wall Street in and of itself did not cause the crash; gambling with other people’s money on Wall Street caused the crash. There’s a way to take the incentive to gamble away, and generate revenue, without punishing those who are actually interested in investing long-term with a company.

Jon Green graduated from Kenyon College with a B.A. in Political Science and high honors in Political Cognition. He worked as a field organizer for Congressman Tom Perriello in 2010 and a Regional Field Director for President Obama's re-election campaign in 2012. Jon writes on a number of topics, but pays especially close attention to elections, religion and political cognition. Follow him on Twitter at @_Jon_Green, and on Google+. .

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8 Responses to “Tax gambling on Wall Street to avoid fiscal cliff”

  1. Kenneth C. Fingeret says:

    Hello Charon,

    If your mutual funds are “constantly trading” (churning) then you are in the wrong funds. If a few pennies are worrisome do yourself a favor and leave the stock market as there are basically two types of people in the market. Sharks and shark food. Either you learn your lesson about how to not loose money in the stock market (don’t invest) or be prepared to kiss it goodby. Invest in a less fixed game. Three card Monte comes to mind.

  2. Jack Gabel says:


  3. Charon says:

    This would still affect the little guys. Most small investors, like me, own things like mutual funds. I may buy shares intended to hold them for years, but the fund itself is constantly trading to change its makeup. Charges on that will get passed on to me as a higher expense ratio. The per-transaction tax makes more sense to me, although I’m definitely not an expert here, because among other things it should kill high-frequency trading, and it would be much easier to implement than your plan. Both plans would result in higher costs for small investors as well, but your plan sounds like it could be worse for them (numbers would have to be crunched to convince me otherwise).

  4. Kenneth C. Fingeret says:

    Hello Dave of the Jungle,

    Couldn’t it also be the “delusion of a free market”?

  5. Swami_Binkinanda says:

    I think the proposed transaction tax is on the order of one to three cents per transaction-something Joe and Jane Daytrader can absorb but designed to put a notable kink into the profit margin of machine traders, who are trading on margins of fractions of a penny and making thousands of transactions or more per second.

  6. BeccaM says:

    It’s one of the many ways the hyper-wealthy plutocratic bastards ensure nobody outside the moneyed class can get in. Or even have a halfway decent and comfortable retirement.

  7. Dave of the Jungle says:

    It’s the illusion of a free market.

  8. I would like to know why a trader with less than 25k in an investment account has to hold a stock 3 days while the big boys can trade in micro seconds? Is that really a “free” market?

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