Re: Fast trades. High frequency trading by definition is an abuse of the market system because not all investors wishing to enter the market have similar, low cost, timely access to information or trading facilities. A true free market system requires that everyone participating has equal and timely access to information, such as prices and/or corporate news. Instant trading decisions made by a computer program, based on formulas that predict the direction of market prices work against the proper, orderly functioning of a free market.
One way to curb the abuse is to apply a surtax to short term trades. A fee of 50% of profits from a short term trade where the turnaround is less than 24 hours might be an appropriate place to start. The fee would be reduced for longer trades until after a three-month turnaround there would be no fee charged on short term gains.
At the same time, a tax preference could be applied to all capital gains of greater than one year, indexed for inflation. This would replace the arbitrary 15% tax on long term capital gains with an inflation index based, perhaps, on the GDP deflator. In practice, it means that long term capital gains arising from investments held more than 10 to 15 years would not be taxed at all. Shorter term gains would be taxed as ordinary income, less the inflation adjustment. A typical long term investment gain realized after, say, five years, would, at current inflation rates, be adjusted by about 20% (the GDP deflator compounded over five years), giving the investor a tax preference of about 20%. |
