The Democrats have the same weary narrative that the growth of government and pressure on the private sector is how to solve the woes of the world. Now they want to add a 0.125 % tax on each side of a stock purchase. Dean Baker writes an opinion column at Forbes, “Make Speculators Pay“, promoting this stupid idea. This would kill the day trading industry. Which means that TD Ameritrade and other discount brokerages would have far fewer commission and less revenue from this industry, resulting in less tax dollars for the US government. It will dissuade the activity of day trading, but it is extremely unlikely to solve any problems. It will just squeeze the private sector even more and lead to even more unemployment.
In my opinion day traders pay an important role in greasing the stock market. They put added liquidity in the market and it helps to keep the machine flowing. I don’t think day traders can be credibly blamed for any of the current economic conditions that we are experiencing. The sudden credit crisis caused by the meltdown in the sub-prime mortgage market was caused by a combination of government regulation (Community Reinvestment Act) and the sale of bad loans as investment products by lenders. It is also caused by too much leverage (Bear Sterns, Lehman Brothers, consumer debt). Now, the pressure that the Obama government is putting on the private sector is exasperating the situation and leading to massive unemployment. Taxing investors is clearly unnecessary and counter productive–it is unnecessary because they already pay income taxes on whatever they earn. Instead, Congress should be seeking to encourage people to speculate in the US, not just day traders but speculative investors; the best way to encourage investment is by lowering taxes, but instead, they only want to penalize speculation. Well, my money is not going into the US market any time soon. So I guess the Dems have managed to get rid of one speculator right off the bat.