A 0.25% Financial Transactions Tax - Good Idea or Bad?

Bob Herbert wrote an op-ed piece in the New York Times yesterday titled "Where the Money Is".

In the piece, Herbert talks about a "good idea" that was floated by economist Dean Baker.

Baker, who is co-director of the Center for Economic and Policy Research in Washington, is advocating a "financial transactions tax". This tax would be applied to the sale or transfer of financial assets such as bonds, stocks, etc.

Dean Baker says that such a tax would raise "$100 billion or more annually".

Here is a direct quote from Baker:

"It raises money in a way that comes primarily at the expense of speculation. The fees would be a considerable expense for someone who is buying futures, or a stock, or any asset at 2 o’clock and then selling it at 3. The more you trade, the more you pay.

For the typical person holding stock, who is planning to hold it for a long period of time, paying the quarter of one percent on a trade is just not that big a deal."

A few things hit me when I was reading this piece:

1. Shouldn't we be encouraging people to invest in the markets right now (seeing as the markets are getting absolutely obliterated), and not discouraging them?

2. Where does this $100 billion dollar figure come from?

3. If the tax started out at say, 0.25%, how long until it was 0.5%? 1.0%?

4. I got a very anti-speculation vibe from this article. Is it so bad if I speculate on the direction of a stock using my own money? Money that I have already paid tax on?

5. I think that such a tax is a "big deal", but I'm glad that Dean Baker doesn't think so.

This just seems like a bad idea to me. What are your thoughts? I have included a link to the article below:

Source: NYT - Where the Money Is

Filed under: General Market News