I have been empathetic to an asset transfer tax, like a sales/consumption tax on all speculative financial assets (securities traded on public exchanges as opposed to real estate or equity in small businesses). But I saw on this thread that u/RobThorpe opposed them. Now I am curious why. We need taxes, so why are transaction taxes worse than other taxes (e.g. income taxes, capital gains taxes, payroll taxes, etc.)?
Are financial transaction taxes (e.g. stock transfer taxes) net bad?
byu/MildDeontologist inAskEconomics
Posted by MildDeontologist
1 Comment
All taxes have deadweight loss, so there are tradeoffs associated with all of them. Transaction taxes will incentivize holding over selling, which hurts liquidity, for instance.
The amount to which is does so depends on the scale of the tax, so, for instance, the 3 centish ORF fee on an options trade is, while technically still a fee, a quite small one, and the effects are correspondingly modest.
Note that by comparison to capital gains taxes, transaction taxes are less discriminating, taking from those who have suffered losses as well as those who have had gains. Some would consider that straightforwardly undesirable for ethical reasons. Economically, transaction taxes decrease liqudity, trade volume, etc. They can also push trading to jurisdictions that do not have them. For instance, if the US began notably taxing every stock trade, it is highly likely that trading volume would shift to other countries, resulting in the US losing its position as a financial center, or at least having it greatly decreased. This is highly undesirable.