Transaction Tax Could Shut You Down

04/01/2011 3:00 pm EST

Focus: STRATEGIES

Robert Green, CPA

CEO, GreenTraderTax.com

The proposed financial transaction tax could put many traders out of business, says tax expert Robert Green, who assesses this hotly contested issue from both sides.

As a trader or investor, you may have heard about something called a financial transaction tax or a fee. We’re here talking with Robert Green from Green Trader Tax about what that is and what may be happening with that later this year and into 2012. Robert, first of all, what is this financial transaction fee or tax?

A tax on every financial transaction. Every buy, every sell. It will put traders out of business overnight.

It’s not a tax on income, which by the way, you still have to pay. It’s a toll on every trade, which is much worse than a commission, so traders don’t have that kind of margin to make to be able to pay that kind of tax.

How much are we talking about here?

Well the proposals have ranged from 0.25% to as low as less than 0.005%.

There’s been a lot of trouble in passing this tax. Secretary Geithner said it’s a tax on Main Street, on the everyday investor. 

Wall Street will deflect this tax. Wall Street is paying the bank levy, TARP (Troubled Asset Relief Program), so advocates of this tax are shooting in the wrong place. They’re targeting Wall Street where the banter is, where the demagoguing is, but really, the tax will fall on Main Street and it will dry up liquidity and hurt all investors.

Unfortunately, it’s seen the light of day again in Europe and in America.

Are we talking about stock trades, mutual funds, currency, everything?

We’re talking about anything the people can pin the tail of the donkey on. 

First it was stocks, then it was futures, now its currencies. Whatever the flavor of the day—what they can get away with—they’re trying. They have not succeeded.

Now the President, in his budget, had an opening. The CFTC (Commodity Futures Trading Commission) is supposed to be expanded as a result of the Dodd-Frank Financial Regulation Bill. 

The President, who has been opposed to a financial transactions tax in the past, thinking it would hurt America’s competitiveness around the world. The President knows the CFTC needs money, so he wants a user fee. That’s synonymous with a financial transactions tax. 

Like all taxes, once you put them on the books, even at a very small number, in later years, Congress increases the number, so this is a slippery slope that traders should fight against. 

Republicans do not want the CFTC to expand its mission. They feel they did an inadequate job even with a Bernie Madoff-type fraud, which is more securities. They feel hiring more agents will not address the fraud, and it will just be another cost on business and another job-killing bill.

Again, this is both sides of the fence arguing over these points, but traders, be alert. On any front, they should fight a financial transactions tax because it has the power to put them out of business.

Now when would be the earliest we would see this if for some reason it does pass?

Well the G20 pushes it at each agenda. The French are very hot on it right now and so are the Germans. 

The Brits, the Swedes are against it, Aussies are against it, Canada is against it. Half the world wants it; half the world doesn’t want it. It can slow down hot money for emerging markets.

There is a need for global charities and they’re pushing it. I think charities are best served by donation from people like Bill Gates and Warren Buffett. The small trader on Main Street should not be charged with paying for the world’s poor. That is selective taxation without any broad base. That people consider an unconstitutional bill of attainer.

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