I don’t want to make too much about this because I’m not fully educated on it myself.
However if this is a real possibility, traders need to be made aware of it.
To read about the proposed H.R. 1068 to amend the Internal Revenue Code and impose a tax on certain security transactions, go here:
http://www.govtrack.us/congress/billtext.xpd?bill=h111-1068
I’d love to hear comments from you about this one. Is this legit? Do you know anything about this? How do you feel about it? Enter your comments below.
This is making the rounds and will, in my opinion, knock me out of trading if it ever becomes law. It’s absolutely ludicrous! I’ve already signed a petition against this. Why not tax all the people spending all of our money and printing up more which erodes the value of what we’re trying to save? Again, in my opinion, this is a tax on Main Street and made to sound like a tax on Wall Street in order to make it palpable to the masses.
Just quickly reading this proposal it looks like to me that this proposed tax would further cripple our economy… If we are charge .25% of any equity we purchased as a tax it would seem to me that would be much like paying sales tax on any item we go to a hardware store and purchase. It seems .25% sales tax is a little STEEP! Day trading would become obsolete… I dont think anyone day trading makes .25% of the trade as profit… I dont think many people who buy stocks make a 25% profit on one trade…
This was a note posted on the Alphatrends.net site:
hey brian, i am a board member with the boston securities traders association. we met with congressman barney frank last thursday to discuss the ftt proposal. he assured us that it was off the table for this presidential cycle (the next 4ish years.) he said that the only way it would be enacted is if wall street doesn’t pay back its share of tarp funds. our stance (obviously) is that it would be extremely detrimental to the mkt efficiency and also to our local economy as it would damage the mutual fund industry by having a fee that would increase the expense ratio on funds at a time when profits are scarce.
The Bill H.R. 1068 basically imposes a 0.25% transaction tax on the sale and purchase of financial instruments such as stocks, options, and futures. While this may sound minimal, it could amount to a round-trip charge of $50 on a 100 share purchase of AAPL, for example. And that’s on every trade you make.
If you go to this website, you will find more information on the Bill and how to sign the petition against its passage and to send emails/letters to Congress.
Please Do This Today
Rally Congress Website
http://www.rallycongress.com/no2tradertax/1536/tell-congres-to-block-trader-tax/
how do i feel about it? prob the same way other traders feel! i suppose obama knows he’s not gonna be able to pull money outa his a$$ to pay off this trillion dollar deficit he’s creating.. so he’s gotta go somewhere else to raise the funding for the irresponsible businesses and all the free-loaders w their hands out….he’s all about ‘spreading the wealth’ u know! yeh, let’s punish the hard-working, responsible ppl! god forbid we let them get ahead!!
Dr. Burns,
This is from a section of Larry Levins’ recent email to his email list. The “good news” is at the bottom of his letter. Hope it helps.
Best regards,
Charles A.
Some of you have heard of a particularly idiotic idea bouncing around in Congress. Representative DeFazio of Oregon has a brilliant idea; he wants to place an onerous tax on every single stock, bond, ETF, mutual fund, and futures transaction. The scheme is to make Wall Street pay for the TARP bailout. Now for those who can’t think beyond “what’s for breakfast?” this probably sounds great. But you would be wrong.
First of all, if the tax was only charged to the trades that Goldman Sachs and pals did, they would pass the cost along to their customers who did nothing to cause the current problems. The Bill, however, will tax EVERYONE who makes a financial transaction like; day traders, floor traders, pension funds, bond funds, mutual funds, etc.
In other words, it will tax YOU either directly via trading accounts or indirectly through a 401k or pension plan.
A copy of my email to the CME Group is below. They replied, “We’re on it!”
I wonder if this email will be a surprise to you. Perhaps you are already aware of this situation. If it’s new, I hope your media department can spread the word about the potentially horrendous legislation making its rounds in DC that could KILL your business.
Representative DeFazio of the 4th District in Oregon wants a transaction tax on all securities trading, including futures. This tax would be ? of a percent on all trades, possibly on each side. The brain-dead logic of this idea is that it will fund the TARP. Rep. DeFazio believes this is a punishment for Wall Street, yet it will only punish your customers.
Consider a 1/4% of one ES contract. Even if the tax is only on the margin it will be a killer, since that equates to $12.50 per side. How many floor traders can earn a living paying a ridiculous $25 per round turn? NONE! How many day traders in offices or at home can make a living with the tax added? NONE!
Say goodbye to liquidity if it passes. Say goodbye to the CME Group and all other US exchanges if it passes, at least in their current form.
I’m not usually a proponent of lobbyists, but the CME Group sure better get someone on the phone NOW with the idiots masquerading as Congressmen NOW to stop this.
Please read http://www.govtrack.us/congress/billtext.xpd?bill=h111-1068
You can sign the petition against this dim-witted idea here http://www.rallycongress.com/no2tradertax/1536/
The good news is that a bill like this has little chance of passing. In fact, I spoke to a “connected” RIA last night who says it is DOA. However, let’s make sure it does die on the vine. Please sign the petition and write/call your Congressman. If you’re lucky, they may have a staff member that knows how to use email.
This is a statement bill. It’s creator Peter Defazio has submitted over 180 bills, 160 of which never made it out of committee. This bill includes taxing securities and futures, options transactions and the name of it is The let wall st pay for wall streets bailout… This is ridiculous and would not make sense for the government to pump liquidity into the markets and then turn around and tax the living daylights out of the markets to discourage liquidity. This will never fly and I personally am not worried at all about this silly bill.
well, i guess this is part of the “change” & “hope” americans voted for. 🙁
i received an email from another trader with a link to write to our senators. i’ve already done so.
As a non US resident or citizen it’s not really appropriate for me to comment. However, if my own funds at my US brokerage get taxed, I may have to reconsider having the account there.
Dr. Barry, RE: Proposed taxes for traders, I can assure you it is real. Came with the HR1 the stimulus bill. Could become real because Prez Obama is blaming in part “Wall Street” for the bad economy, no public outcry expected. How much is a matter of debate, depends on what the 25% is taxed on, could be $30 to $180 per contract for the S&P 500 e-mini round trip. Congress hasn’t met a tax it doesn’t like, the brokers are the one in the middle. My view, is it puts many out of business and the market slows to snails pace. Many would say wasn’t long ago when trades cost hundreds to take, this is why many bought and hold, just maybe this is what government wants again giving more time react. Who knows the motive, all I know is as a daytrader it spells disaster. No vote scheduled as of yet, but the new Hope and Change machine as by passed rountine procedures and as a result snuck a lot through already.
I’ve read the bill and also send emails to the Chairman of the House Ways and Means Committee. I tried sending emails to other members of the Committee, but their websites are set up not to accept emails from anyone NOT living in their district. I did also send emails to my 2 state senators to voice my opinion about this. I’ve read on another blog that this bill is not likely to pass but it is scary. I wouldn’t doubt that Obama is behind this type of suggestion.
I don’t believe this bill in it’s present form will ever become law. Regardless, we have to face the facts that taxes will be raised in some fashion. As americans we all have to man up and bite the bullet. We cannot continue to kick the can down the road. Skyrocketing health care costs alone will cripple any future economic growth, and coupled with the looming medicare and social security meltdowns, it is a crisis that MUST be addressed, frankly I see no other way. Furthermore, those of us who live in abundant prosperity have a moral obligation to perhaps contribute a little more to the solution than the poor sap having his life sucked out of him on the factory floor at barely a living wage. For example, I would be willing to forego any social security I had coming once my net worth had reached some set amount. The way I see it, we ALL have to look beyond our own narrow self interest for the sake of our children and grandchildren. And no, I’m not a democrat. Let the flaming begin.
I’ve read all the other comments regarding this bill. I agree with them. But, I’d like to add a personal spin.
My husband is unable to work due to a traumatic brain injury. He is not receiving disability. I am the sole support of the family while being his full-time caregiver. I make a living supporting us through trading. If this tax takes effect, it will have the effect of $25 on each mini-lot traded in forex. This would effectively cut my income in less than half.
Now, keep in mind that through this whole mess, I have never missed a house payment, a credit card payment or asked for government assistance of any kind. I keep my nose clean, and live within my means. I’m not making a killing, just a living. It’s not bad enough that I’m being asked to subsidize those who have a $50,000 income with a 5 bedroom 3 bath home and 2 beamers in the garage that find themselves in foreclosure.
So there you go…maybe I will end up asking for help after all.
I live in canada, Have just completed a full year of active trading. Our tax laws punish people who invest in trades outside of Canada with a heavy tax and several other restrictions. I wouldnt mind as much if it had a income floor level, but it doesnt. Its based on the 100% balance of what ever profit you make added to your current income and taxes as the same rate. I am a lower middle class Canadian hoping to improve my situation and would pay 47% in taxes. My comment summarizes by saying “you better hope they dont grandfather the law” Its basicly a good money maker for Gov. coffers.Even better than the GST we pay on all transactions.
This proposal impacts even further the people who had nothing to do with the problem, and is asking every investing American, who received no TARP bailout money to repay it. Through our taxes we are funding the bail out and through additional taxes we’ll repay it.
For those of us who try to save and invest in America, you will propose to take another .25% on transactions, making it more difficult to capitalize on investments above the management fees, which will probably go up in order to manage the tax payments.
Even if the tax doesn’t reach retirement accounts, I am like many investors that I know and use trading to supplement my income beyond funding my 401K and Roth IRA. This type of taxation would virtually eliminate my ability to attempt to better my annual income and retirement.
I suggest that we assure that repayment comes from those who received it!
Like another responder here, I’m not a US tax payer, a UK one in-fact …
We have a one way tax (when you buy a security) ‘stamp duty’ of 0.5% for each stock purchase. It’s onerous, because it’s not recoverable via income or capital gains relief on losses. Currently spread betting transactions are free of tax here, because there is now ‘real’ ownership of the stock or commodity etc. and its is a ‘bet’ and falls under the gaming and gambling laws. The thing I’d be worried about with this ‘across-the-bows’ shot is that its an exploratory/probing move, and some other proposal/bill may sit right behind this so called ‘dead-in-the-water’ one…!!! Keep sharp – I think there will be more of this to come.
This Bill will encourage investors of all makes to look for investing their money outside this country. This will ruin not only the Wall Street but also the Government plans and will invite more illegal transactions.
Here’s what I came up with looking at a trade of AAPL @ $89.31/share on 100 shares. That’s $8931 cost. It goes up, lets say, $2.00 and you get out. That’s $9131 for a $200 profit. $1.00 comm. in $1.00 comm out, a net of $198 profit. But you now have that .25%. So getting in costs you $22.33 and getting out costs you $22.82. Thats $45.15 or 22.8% of your net profit. Now you have to pay income taxes on top of that? Would the .25% be a cost that the IRS would allow? BAD! BAD! BAD!
From my reading of the Bill at the link Barry gave, it would affect stock, options, and futures traders. It does not mention forex traders. If anyone knows whether forex traders are included, please post a comment.
Hi Barry,
Just to add a comment about UK taxes. From what I have read, as long as the profits gained from trading are not part of your main income, they are tax free because it falls under betting rules. But obviously any losses cant be offset. Hope this is useful.
I would like to second Mike’s comment from March 1st, 2009 at 12:15 am.
As traders, we are in the very fortunate position of having entirely in our own hands, the means to make a very nice living doing something from which we cannot be fired. Relatively few of our fellow citizens can say that; instead, a steadily growing number of them are losing their jobs, health care, and homes. Our country needs to make investments to make possible a better future for all who are willing to work for it, and who just need a more level playing field from which to make their start. Those investments cost money.
0.25% on a $1000 transaction is $2.50! In my view, that’s a small sacrifice to make especially for someone who has the means to make a $1000 trade in the first place.
Finally, while the vast majority of traders had nothing to do with causing this crisis, the fact remains that the general public has a very negative few of our industry, and we’re all being tarred with the same brush. Given the privileges we enjoy as traders, I think our industry benefits in the long run if we show a willingness to make this modest sacrifice, rather than carping about it while so many of our fellow citizens are suffering through no fault of their own.
The tax is a killer to almost and body that does trading for a living and especially short term trades. The tax is levied on the full transaction not just the margin used in other words: A ES contract is 50 times the index so that is currently at around 700×50=$35000 x the .25% tax it equates to $87.50 per trade or $175 per round trip per contract. Try inputting that kind of slippage and 99% of traders will have to find other jobs….If there were any that is.
Why did Rep. DeFazio write this bill called “Make Wall Street Pay for Wall Street� Making some political “hay†out of public outrage against the financial industry, I’m sure had something to do with it.
I’ve read about the trader tax issue in a number of different places, and what I’m mostly seeing is a knee-jerk opposition to any new taxes at all, and the “100 shares of Apple†example being repeated over and over. I think that reflects poorly on our industry because it makes it look like we are unwilling even to think about making any changes or sacrifices on our part. That just exacerbates the public’s already negative image of our industry, and plays right into the “greedy traders†stereotype into which we are all lumped, unfairly or not.
“The public†is a lot bigger group than we are, and we ignore their opinions –and their outrage— at our collective peril. If you think this bill is bad, how many worse bills do you think lie ahead if we continue to fan public anger by appearing unwilling to compromise or share in any sacrifice while so many suffer?
I agree with others who have said here that the bill as presently written, would kill liquidity in the e-minis and drive e-mini day traders (of which I am one) out of that instrument. But I think we’d be much better off advocating for a modification to the bill so that our sacrifice is small and bearable, but that we are still seen as willing to give something. Simply stamping our feet and saying “No!†will backfire on us in the long run.
Today I traded Visa, in my retirement account but the numbers bear out my argument; 1000 shares at $55.00 is $55000.00 each way. That’s a tax of $137.50 on each way, in and out, for a total of $275.00 of additional cost in the trade. This $275.00 represents 27.5 cents movement in the stock on my 1000 shares. The commission in and out is another 2 cents total so now before you have any profit, you have to clear almost 30 cents! If I could make $.30 on every trade I’m doing right now I’d be a very happy guy. I happily voted for Obama and I realize that this is going to cost us all but this is too great a tax on an already tenuous profit position. A more reasonable tax would be a one cent per share per side for equities and a similarly sized cost for futures and options. We’ve got to keep the profit potential in the picture or traders will be forced to look elsewhere and what income we do derive from the associated taxes will dry up. Our money can find a new arena. I’m now day trading because my drywall contracting business has dried up due to the credit climate and our lovely illegals.
I’d drink more if I could afford it.
I sent an email to my congressman to oppose this bill. Action is required by the populous to get this bill defeated. I hope all traders and investors do the same. It is time to flood our congressmen and senators with our dissatisfaction with their actions and plans.
I trade for a living and this tax would kill my ability to make a living off trading.
Beatrice, you say 0.25% isn’t very much. But if you trade for a living, that’s a lot. I might put $3K – $5K into a trade. Thus, I would be taxed $7.50 – $12.50 per trade. If I do 20 trades per day, that’s $150 – $250 that I’m taxed per day. Some days I may not even make $250 of money. And some days I might lose. This tax would hit me even on a losing day.
Chris, a 1 cent per share side also would not work. I typically trade smallcaps and microcaps and thus typically have 500 – 1000 share trades. A 1 cent per share tax would cost me $10 per trade. Again, this would kill my ability to make any type of living.
I kinda a newbie to trading. I just started last November, but I know a shake down when I see it. The gov’t has got a problem with Wall Street and blaming investors for the economy. They say it’s the housing crisis that is the problem. No the problem is the jobs. There are none. No job, no house. Pretty simple. Instead of discouraging the investors, DC should be praising the investors. If the investors don’t invest, companies can’t expand to create jobs. Give the investors a tax break for a year. This would bring trillions back into the market and confidence levels and jobs will be sure to follow.
This tax won’t end the bear market, it will crash it. Think about it: would you leave your capital in stocks or funds knowing there is going to be a tax on withdrawals AND buying? No, investors will move to fixed-income instruments in a mad dash to the exit.
It’s like everything else the government does – it creates unintentional consequences.
They don’t get it… and never will. It’s a mindset after they get on the “hill” which changes from everything below them.
I think this would kill liquidity in the markets.
I think they need to correct the cause of the problem “Congress”, the greedy bankers and the crooked rating agencies. All involved should go to jail and forfit all their assets! Requiring banks to lend money to people who should not have gotten loans then packaging the bad loans should never have happened!
The baikout was ridiculous all these firms should have gone bankrupt.
I really don’t see any plus to this ridiculous amendment. Even if Wall St was completely to blame for the problems that we find ourselves in, which I don’t believe it is for a moment, imposing this tax is not the way to deal with it.
The parties that will be most effected by this will be the active traders who provide much of the liquidity of the market. This tax will put 75% of us out of business and with our departure will go the liquidity that the market needs on an hour to hour basis. Whilst 0.25% doesn’t sound a great deal, professional traders use substantial amounts of leverage as routine, so try multiplying that by 100 and anyone who thinks this amount is negligible will start to get the picture.
The knock on effect will be that the cost of administering IRA’s, 401K’s, 403b’s will increase, mutual funds will be adversely effected and generally these funds will trade much less frequently and be susceptible to greater stock price moves. This is something that we don’t need after the decline in the market last year and effectively punishes those who were not to blame for the fiasco in the first place.
This is a typical LOAD, FIRE, AIM approach to solving the problem and should have been dismissed a long time ago.
Hi Dr Barry
It will be much appreciated if you could elaborate further all the 5 cycles you mentioned. Thank you.
I’ve been active in taxations for longer then I care to acknowledge, both on the private side (all my working life history!!) and from a legal stand since satisfying the bar and following tax law. I’ve rendered a lot of advice and righted a lot of wrongs, and I must say that what you’ve posted makes utter sense. Please continue the good work – the more people know the better they’ll be armed to handle with the tax man, and that’s what it’s all about.