The Tobin Tax is a very bad idea.
FT Alphaville » Would you feel three basis points?
Quite frankly, I bet nobody would even feel it, the Iowa Democrat said on Tuesday in relation to his plan to introduce a US financial transaction tax.
Nonsense, says Tabb Groups Adam Sussman:
Three basis points doesnt sound like a lot, right? Certainly for those in the Beltway who have managed to run up the U.S. national debt to $15 trillion, three basis points can feel like small potatoes.Brief recap: Senator Harkin and Representative Peter DeFazio, on Wednesday introduced bills in their respective chambers that would impose a transaction tax on financial firms. The pair proposed a 0.03 per cent tax on stock, bond and derivative trades that would come into effect in 2013 and would apply to every US investor.
But you really have to wonder if anyone over there bothered to do the simple math when they were cooking up the scheme to take the Europeans lead and propose their very own financial transaction tax (FTT) for the U.S. Based on value-traded figures for 2010, in U.S. cash equities alone, the financial tax would have generated $17.6 billion in revenue.
So, 0.03 per cent = $17.6bn. Are you feeling that?
Here are those numbers in perspective via Sussman:
- The FTT is nearly two times the annual amount U.S. mutual funds and asset managers pay to their institutional brokers.
- The FTT is three times the annual amount high frequency traders generate.
- Mutual funds and other asset management investors would pay approximately $1.9 billion annually. In other words, explicit transaction fees would jump 22 per cent.
- Implicit transaction fees would skyrocket as liquidity providers (yes, including high frequency traders) either widen the bid/ask spread or quit the business altogether.
- ETFs would be doubly impacted. Once on the trades in the creation/redemption process and will then the trades on the ETF.
FT Alphaville » Would you feel three basis points?