Transaction Tax: .025%!

http://www.govtrack.us/congress/bill.xpd?bill=h111-1068

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FORM LETTER FOR YOU TO ADMEND/CHANGE AS YOU SEE FIT. WRITE YOUR CONGRESSMAN/WOMAN:

It has come to my attention that Rep. DeFazio has introduced his Transaction Tax bill to the House a few days ago. As a finance professional I beg you to read and think about the following points regarding his bill:

-Many countries have tried a similar tax only to repeal it soon after. They have found dramatic decreases in volume and liquidity, increases in spreads, and therefore increased cost to the investing public.

-Lack of liquidity is a large part of today's problems in today's world markets. The bailout funds are being used to buy the illiquid instruments. The Oct 1987 crash was an example of what happens when the equity markets have no liquidity.

-A 0.25% tax sounds small, but to the professionals that provide liquidity it is enormous. Liquidity providers would not only decrease their volume, but many would be out of business the day the bill is enacted. Many would instead do business on international exchanges where there are manageable costs.

-DeFazio expects tax revenues of over $100B per year, but that estimate is based on current volume numbers. In reality the amount collected would be a fraction of that, with a very high cost to investors and the stability of U.S. markets.

Please put a stop to this dangerous bill. DeFazio has been pushing it for years with no regard to consequences or probable outcome.

Thank you for you time,
(your name)

Strange my Macroeconomics Professor said we don't have a liquidity
problem like in 87. More like a confidence and trust problem.
If your bank is in deep shit you know others are not better off.
So why give them money you may never see it again. That's
the problem we have today.

In certain asset classes we do have a liquidity problem. Btw, does he trade?

Proof that stupid people should not write legislation. You cannot improve the liquidity of a market by taxing it.

Still, until the text goes from committee to the floor, I wouldn't worry about it. Committees are like a roach motel, roaches check in but they rarely check out.

Sounds like a line from "Hotel California." But anyway, it's true. As is Rabid's point that you can't improve liquidity through taxation.

It's the exact opposite. You want to raise the real interest rate and thusly the real savings rate? Lower taxes. Not only that, if you are able to increase the volume of the money flowing in and out (by increasing the real interest rate), you'll actually stand to make more tax revenue on a lower tax rate anyways.

Edit: I need to read more carefully next time. Edit of an edit.