Odd Citizen

Odd Citizen
An Odd Citizen’s Search For Vanishing Freedoms

A New Tax: Attacking Your Wealth

December 7th, 2009

The Pelosi Democrats want your wealth. A financial transaction tax,
HR-4191 is now in committee. It was introduced by Rep. Peter DeFazio (D-Ore) and is enthusiastically backed by Nancy Pelosi.

This tax, demagogically described in the bill as the “Let Wall Street Pay for the Restoration of Main Street Act of 2009” is claimed by its promoters to raise $150 Billion per year. The promoters say they’ll make sure that every country in the G20/G8 (or something, they say) will impose the same tax so as not to disadvantage U.S. securities exchanges vis-a-vis foreign exchanges.

The bill proposes a 0.25% tax on all financial transactions conducted on exchanges, such as the stock exchanges, the commodity exchanges, and others. It provides up to an individual $250 (joint $500) tax credit against the amount of tax paid, which makes it possible for an individual to do transact $100,000 per year with the tax rebated. Mutual funds and retirement accounts are excused from the tax.

It is not clear to me, from reading the bill, whether both sides of a transaction will be taxed. If both sides are taxed, this would be a 0.5% tax on a given trade. Or would only the buy side be taxed? Clarity isn’t a property of most legislation, let alone this bill.

According to the bill:

The United States had a transfer tax from 1914 to 1966. The Revenue Act of 1914 (Act of Oct. 22, 1914 (ch. 331, 38 Stat. 745)) levied a 0.2 percent tax on all sales or transfers of stock. In 1932, Congress more than doubled the tax to help financial recovery and job creation during the Great Depression.

(emphasis added)

So the starting point of 0.25% is liable to be just the sharp edge of the wedge.

What would this bill do?

1) It would markedly reduce stock market liquidity, since about 70% of stock market volume is from program trading, where the traders are skimming very small gains. A quarter percent hit would make a lot of these trades uneconomical.

2) It is a tax on wealth, much like the death tax, beloved by the Democrats. Wealth taxes kill off capital. Killing capital kills jobs, which kills economies.

3) It provides a convenient and stealthy way for big government to grasp and grow ever larger. The rate won’t remain at 0.25%. It will go up, perhaps before it even leaves the committee.

4) It provides an incentive for capital to flee the country. Although the House Dems. think they can make it universal, some means, and some venue will be found to trade without the drag of a transactions tax. After all, $150 Billion isn’t peanuts, even on Wall Street.

5) It hits private investment partnerships, endowments, and hedge funds. So much for not increasing taxes on the middle class.

6) It disadvantages active individual traders whose portfolios may be small, but whose volume of trading will rack up a large tax bill.

This bill is poison for the U.S. economy and for liberty. Taxes on wealth always destroy capital and reduce economic prosperity.

Write your congressman. Strangle this Bill in its cradle.

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