Social Engineering
I admit it, this tax is about more than raising revenue. It is about creating incentive for wise, long-term investment and eliminating incentive for speculative, short-term investment. Its also about simplifying retirement investment. (More on that here).
What is wrong with Short Term Investment.
In the ideal economy, every exchange of money benefits two parties. Suppose I work for you, and you pay me for my time and effort. Both the employee and employer benefit, right? OR, suppose I invest in your company, your company pays me back using some of the profits, so long as that works out, everyone benefits.
Now, suppose a man puts two million dollars in some crazy stock that he knows is going to bump a little bit today. And suppose it turns out that the stock really does bump a couple of percentage points before he sells it at the end of the day. He makes $40,000. Question: Where did that money come from? AND (other than the guy with an extra $40,000) did anyone at all get anything in return for that $40,000?
But, in our day trade example, someone got $40,000 in exchange for 1 day of "investment" of a couple million dollars. The company cant turn around 2% profit on millions dollars in a single day of having someone's money. That's ludicrous. Which brings me back to my original question.... who benefits? does the overall economy get stronger? do a hundred little people get a little bit of benefit? does the company who's stock was owned temporarily benefit? .... no. No one else benefits in any way. Its a very one sided transaction. All of the other one sided transactions I can think of are considered fraud.
The end result of this day trade was that one man got a years wages for the average American household on a single afternoon in exchange for .... nothing. Call me crazy, but I don't think that's good for the economy. If you want to bet on horses, go to the race tracks. At least there they have gambling odds stacked in such a way that someone else benefits from the wagering. The problem with the stock market is that stocks ride semi consistent waves, so if you have truly huge amounts of money to invest, and swap them around at the right parts of each of these waves, you can effectively skim the cream off the top of the stock market. Its a little bit different from standard "gambling" even if it does include some risk.
What is the Investment Exchange Tax?
The Investment Exchange tax is nothing more than a sales tax that is collected whenever an investment changes hands. When I say "Investment" I mean anything that is created to be saved and resold as opposed to consumed. Such as stocks, bonds, precious metals, land, homes, ... (the sorts of stuff taxed via capital gains today).
To contrast it with Capital Gains tax, the investment exchange tax would be paid at the time of purchase rather than being paid at the time of sale. And, the investment exchange tax would be calculated using the entire value of the investment being purchased, where capital gains only taxes the profit from the investment. Also, the investment exchange tax would be charged even when you are simply moving your investment from one place to another.
To explain that last point, consider what happens today when you buy a home, and end up with lots of equity. then suppose you sell your home in order to use that equity to get a nicer home. So long as you re-invest the money you "earned" you don't pay capital gains tax. You only pay it if you remove your investment from the system and walk away with cash. This is NOT AT ALL the way the investment exchange tax would work.
Under the Investment Exchange tax, if you move your money from Google stock to Apple stock, and then move it again to Microsoft stock and finally back to Google stock, you will pay the tax on the entire amount being bought/sold at each step of the process (a total of 3 times).
Doesn't that scare away investors?
No. But it does scare away anyone who doesn't intend to stick around long enough to make up for that initial investment. It actually attracts serious investment. Suppose you decide to start saving up a retirement by purchasing $100 worth of stock every month. And suppose the current tax rate for investment exchange is 5%. So, you pay $105 for something worth $100. Within a year, its worth $105 (stocks generally go up over time). Suppose it continues to rise until you retire. At which point, your $100 is now worth $400 (not unreasonable). You earned $300. In the "capital gains" system, you now pay tax on the $300 (which you can bet will be more than you did when you paid it on $100). Anyway, the only investor it scares away is the one who intends to pull their money out in less than a few months (we call those day traders).
It completely eliminates crazy statistical geniuses with deep pockets from skimming the stock market into their bank accounts without anyone else benefiting from their "investment" money. It also makes the tinfoil hat crowd feel safer about crazy super rich people sloshing money all around the globe and using their ridiculous amounts of cash manipulate entire economies, etc, etc. Honestly, whether that's happening or not, I do prefer a world where we tax them every time they do. If it isn't happening, no big deal. If it is, at least we are skimming money out of their pockets when they do.
Now, without money being skimmed off the system by day traders, the overall market should have stronger gains. Which will also encourage REAL investment.
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