Posts Tagged ‘Financial Transaction Tax’

Jack Bogle on why the financial sector is too big

August 3, 2015

Jack Bogle is the founder of the Vanguard group of mutual funds and a pioneer of the concept of investing in no-load index funds with low expense ratios rather than trying to outguess the market.

Vanguard has the largest share of fund assets in the industry, and two-thirds of that is in index funds.  I myself have put my retirement savings in Vanguard and T. Rowe  Price funds.

This is from an interview of Jack Bogle in the August issue of Money magazine.

Q: You’re concerned that the financial sector is too big. Why?

Jack Bogle

Jack Bogle

A: The job of finance is to provide capital to companies. We do it to the tune of $250 billion a year in IPOs and secondary offerings. What else do we do? We encourage investors to trade about $32 trillion a year. So the way I calculate it, 99% of what we do in this industry is people trading with one another, with a gain only to the middleman. It’s a waste of resources.

via Money.com.

Mitch Tuchman of MarketWatch pointed out that $32 trillion is nearly double the size of the U.S. economy.  Merely moving this from one pocket to another during the course of a year is at best useless and at worst destabilizing to the U.S. economy.  Yet a lot of people get rich collecting fees just for moving the money around.

There should be a transaction tax of some fraction of 1 percent.  This wouldn’t affect serious long-term investors, but it would slow down speculators.

LINKS

Jack Bogle Explains How the Index Fund Won With Investors, an interview by Pat Regnier for Money magazine.

Why 99% of trading is pointless by Mitch Tuchman of MarketWatch.

Wall Street needs a sales tax

May 7, 2012

Last November Senator Tom Harkin, D-Iowa, and Rep. Peter DeFazio, D-Oregon, introduced a bill imposing a transaction tax on Wall Street traders of 1/2 of 1 percent (split between buyer and seller) every time they buy and sell a stock, and 3/100th of 1 percent every time they buy and sell a derivative, a security not backed any actual financial asset.

That seems reasonable to me.  As a resident of Monroe County, N.Y., I pay an 8 percent sales tax whenever I buy a restaurant meal or a paperback book.   What Harkin and DeFazio seems modest in comparison.

The Joint Tax Committee of Congress estimated such a tax would bring in slightly more than $350 billion over a nine-year period–roughly $39 billion a year– even if you assume that trading would fall by 50 percent in response.

Long-term investors would barely notice such a tax.  But it would be a burden on speculators who buy and sell stocks many times a day.  Even a nominal tax might inhibit derivatives traders, who buy and sell securities not backed by any asset, but whose trading exceeds the trading on the regular stock market many times over.   A tax might reduce this activity more than 50 percent, but this would be a good thing, not a bad thing.  Constant churning destabilizes the financial markets.

I don’t see any argument against such a tax on its merits, but it has no support from the Obama administration or the Democratic leadership in Congress, let alone the Republican leadership.   Wall Street has occupied Washington.

Click on A Wall Street Tax and an Independent Workers Movement for the transcript of an interview with Robert Pollin, professor of economics at the University of Massachusetts at Amherst, and Rose Ann DeMoro, executive director of National Nurses United, about a financial transaction tax.

Click on Wall Street Transaction Tax Would Raise $350 Billion for an explanation of the proposed tax on the Huffington Post.

Click on Why the financial transaction tax proposal is DOA for an analysis of the proposal’s dim legislative outlook on CNNMoney.