Why Bernie's Proposed Wall Street Tax Won't Work
Taxing financial transactions would discourage market-makers from providing liquidity.
Let’s talk taxes.
Source: Bloomberg
On Friday, Feb. 28, the S&P 500 ETF SPY traded over $100 billion in volume in a single day. With a .1% financial transactions tax, something that a few U.S. presidential hopefuls had proposed, that volume would have generated $100 million in government revenue.
Those types of numbers have lawmakers salivating over the potential to raise untold amounts of money from applying very small fees to stock, bond and derivatives trades — so small that people wouldn’t even notice. But financial transactions taxes have also become a rallying cry among U.S. Democrats, like Senator Bernie Sanders, seeking to rein in Wall Street. The idea is that those taxes would discourage pointless speculation and high-frequency trading, returning our markets to the halcyon days when transaction costs were high and people traded less.