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For those entirely new to financial markets, the basic distinction in tax structure is between long- and short term investments. Therefore an FTT must encompass these products as well. Even taking into account the 2008 market collapse and using year-end 2009 data, total U.S. market capitalization was $15.1 trillion. Finally, the political logic of an FTT—the dynamic of Wall Street vs. Main Street—should give it wide appeal. There are two important points to keep in mind about the structure of markets for financial assets: these assets may be traded either on or off organized exchanges (the latter are usually referred to as over-the-counter markets), and they are traded in a variety of forms. Learn about the best online tax software you can use to file this year, based on fees, platforms, ease-of-use, and more. We know where the money is.

Market participants are very unlikely to move trading outside of these clearing entities since the trades would then take on increased risk of default by one or the other party. I believe there would be. It’s not that simple, of course. Because there are derivative markets as well as markets for the underlying asset—in this case, stocks—traders can produce returns equivalent to those from investing in the S&P 500 index stocks by using either futures or options. An FTT could be cast in terms of Wall Street vs. Main Street or it could be articulated as a matter of economic justice. Check out the IRS webpage for more information on TTS. High-frequency trading is a blight on markets that the Tobin tax can cure A tax on financial transactions can calm the frenzy of speculation fuelled by computer-driven algorithms John Fullerton Households that own stock indirectly would pay the tax indirectly to the extent that the portfolio managers who invest their savings engage in trading activity. A financial transaction tax (FTT)—a tax on the trading of financial assets—has multiple appeals. After the increase in the tax, much of the trading in Swedish stocks moved to London, and the government responded to intense lobbying from Swedish finance by eliminating the tax. An effective FTT should cover all venues and all instruments without advantaging one venue or instrument over another. First, it could generate significant revenue. Thus, the value of stocks available for trading grew by 544 percent between 1984 and 2008. You might qualify for Trader Tax Status (TTS) if you trade 30 hours or more out of a week and average more than 4 or f5 intraday trades per day for the better part of the tax year. And the wash sale rule states you can’t hold shares of that stock 30 days before or after the holding period you wish to claim them on a tax refund. However, beyond making the election in the previous tax year, traders who choose the mark-to-market accounting method must pretend to sell all holdings at their current market price on the last trading day of the year and pretend to purchase them again once trading resumes in the new year. In urging an FTT, progressives should tie the revenues to programs and policies that distribute benefits widely and would be seen to be such. How do we get it? Even in the more subdued environment of 2009, the value of stock trading on these two markets exceeded $46 trillion. Traders must report gains and losses on form 8949 and Schedule D. You can deduct only $3,000 in net capital losses each year. When bank robber Willie Sutton was asked, “Why do you rob banks?” he reportedly responded, “Because that’s where the money is.” Progressives should keep this insight in mind when talking and thinking about how to pay for the needs facing the United States—from job creation to road repair to expansion of human services to investments in green technology. Since the mid 1970s, financial services have grown at a rate well above that of the economy as a whole. It is, obviously, important to levy the tax at the appropriate point in the trade process and that appears to be the clearing level. Finally, any decline in the revenues and profits accruing to the financial sector would help return the United States to a more balanced political economy. The direct benefits to this designation include the ability to deduct items such as trading and home office expenses. If it doesn’t, trading will shift from a taxed venue to an untaxed one. This formulation would have immense political appeal and, I believe, help the United States break out of the politics-as-usual gridlock into which we have drifted after the initial enthusiasm of the Obama election and the sense that the times were right for change. There would have been an additional $62.5 billion from the levy on index option trading in 2008 ($67.2 billion in 2007).

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