September 15, 2019
I have known reporters at Business Insider. I had been under the impression that it tried to be a serious news outlet. Apparently, I was mistaken.
It ran an article this morning attacking the financial transactions taxes being proposed by Senators Bernie Sanders and Kamala Harris in their presidential campaigns, which was based entirely on an analysis by an industry-funded group.
The gist of the piece is that colleges and universities would pay the tax from their endowments, as would pension funds. While anyone who trades would pay the tax, the article ignored the basic logic of the tax even as it presented it to readers. It tells readers:
“‘Moreover, because trading volume decreased, the FTT failed to raise the amount of revenue expected in those countries, and in some countries like Italy and Sweden, the FTT only raised 3% to 15% of the annual expected revenue,’ MMI [the industry-funded organization] wrote in the report.”
Of course there would be a decline in trading, that is a main point of the tax, to discourage excessive trading. The proponents of the tax (which include me) always assume that trading will decline, although by an amount that is consistent with better-designed taxes, like the 320-year-old stock transfer tax in the United Kingdom.
The reduction in trading volume saves colleges, universities, pension funds and others money since they pay for this trading out of their assets. By most estimates of the impact of trading costs on trading volumes, the reduction in trading costs should be roughly equal to the size of the tax.
Since each trade has a winner and loser, investors on average are not profiting from the trading and would not be hurt by trading less. If trading fell too much, there would be a problem that prices are not reflecting fundamental values, but with the taxes being proposed we are just talking about reducing trading volumes to 1990s levels.
This means that the numbers on costs that are highlighted by the industry group and Business Insider are actually the loses being suffered by the financial industry, since the tax payments by colleges, universities, and pension funds would be almost completely offset by their savings on trading costs.
It is understandable that a group funded by the financial industry would not want to highlight this point, but why would Business Insider not explain it to its readers?
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