Response (very slightly edited) to a now-removed (by the original poster) reddit post on financial transaction taxes
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For rapid small transactions, esp. automated trading, even a low tax rate can effectively be similar to outlawing the trade. Even if the trade is profitable enough to pay the tax it will likely drive it elsewhere where the tax doesn't have to be paid. Say the US, or New York State passes the tax, well then Manhattan's trades might move to London etc.
As for paying for the infrastructure they benefit from can you be more specific on what you mean by that. Not just what infrastructure (the actual infrastructure for trading is not mostly produced by the government) but why you don't think they pay, and even what corporations paying would actually mean?
To extend on that last part of the question if the government is taking in resources it takes them away from other people. If its nominally taxing a corporation, or a specific actual person for that matter, the tax incidence might not fall on that person.
Say it taxes airplane tickets. Maybe the airline can pass the cost on to its customers (whether as part of the base price of the ticket, some tax surcharge, more fees, less generous reward programs, even small seat space or worse service, etc.), in which case your hitting the flyers which might not be what you want. But lets say it can't and the airlines have lower profits. This can be seen as hitting the equity investors (and to the extent its a big enough hit to the profitability of the industry to drive some firms to bankruptcy or even just make them a worse credit risk your also hitting the bond bondholders. But then you get 2nd and later order effects from all that. If an industry is less profitable it will get less investment. Maybe in at least the long run the industry shrinks, fewer flights, fewer routes, maybe fewer companies. Maybe you want that or maybe you don't but its not something that should be causally dismissed because "your just taxing big corporations so they pay for the infrastructure".
Moving back from an example industry to the actual area under consideration - Financial transactions of a number of types are easier to move around (or possibly hide with cash or clever use of crypto) to avoid taxes then airline tickets. Want to fly from Dallas to Chicago? Well that will all be in the US, and involves your physical presence in two US states (not counting the state you fly over), and checks by government officials of your ID. Want to buy some corporate bonds? Well you could buy Dutch bonds on some European market and have the transaction take place entirely outside the US.
Traders will transact in, and if necessary move to (or have other traders take over their business) in places where it is more profitable to do so. If change in behavior or location can avoid the tax then you don't get the revenue you expected (and may even get less revenue as you probably got some from the existing business which is now overseas). Beyond not getting the revenue you expected you drive jobs in that industry elsewhere (maybe not a net loss overall if someone in London gets the job rather than someone in New York but the New Yorker probably won't be happy about it). You also get behavior or location of trades driven by the new taxes and tax rules which can lead to behavior that would otherwise (without the tax) be sub-optimal (or it might have been done that way already). The sub-optimal behavior is or creates dead-weight loss. Not just in terms of sub-optimal business activity, but in terms of activity that never happens in the first place (because its not worth it after the tax), and in terms of efforts to avoid the tax legally or illegally according to current law, and to change the current law granting exemptions and loopholes.
More generally as much as I like the idea of getting rid of other taxes I don't think narrowing the tax base down to the finance industry (or any industry) is good for stable revenue or efficient taxation.
If you mean beyond the finance industry itself and your taxing any financial transaction at all, well that's a like like adding a .1% to .25% (or whatever rate actually gets applied) sales tax. Except it would be broader than many sales taxes (presumably it would apply to purchases of food and medicine which sometimes don't get taxed with a sales tax or if they do they often get a lower rate), but which might not apply to cash. Its even more like a sales tax if you make a legal requirement for such transactions also to be taxed.
Even more generally I think that such policy ideas should be laid out quite specifically (are you taxing bond and stock and futures and options and such? money transfers? credit card usage? all sales?), and the actual tax incidence and incentives created need to be considered not just what is the nominal target of the tax. |
