[luke warm]

Quote

Democrats push $150B stock tax on Wall Street
By Silla Brush - 11/24/09 12:05 PM ET
A House bill still being drafted aims to raise $150 billion each year to pay for new jobs.

Under a bill being drafted by Democratic Reps. Peter DeFazio (Ore.) and Ed Perlmutter (Colo.), the sale and purchase of financial instruments such as stocks, options, derivatives and futures would face a 0.25 percent tax.

The bill, a copy of which was obtained by The Hill, is titled the “Let Wall Street Pay for the Restoration of Main Street Act of 2009.Half of the $150 billion in tax revenue would go toward reducing the deficit, while the other half would be deposited in a “Job Creation Reserve” to support new jobs.

The job fund would be available to offset the additional costs of the 2009 highway bill and other legislation that creates jobs.

The Obama administration and congressional Democrats are looking for ways to create jobs after the nation’s unemployment rate hit 10.2 percent in October and job losses are expected to rise.

i see they're sticking to that 10.2% unemployment... good thing it's not measured in great depression numbers, eh?

link

[hrothgar]

This type of tax is designed to operate as a transaction fee.

The incidence of the tax will (primarily) fall on investors that place large numbers of trades over a short period of time. In particular, trading strategies based on front running orders are going to get nailed...

Conversely, so called value investors and individuals who practice "Buy and Hold" type strategies really aren't going to fail much of a pinch.

I have mixed feelings about this type of of tax. I do think that algorithmic trading programs make the stock market more efficient by arbitraging out mistakes in prices. At the same time,

1. If you believe that large amounts of government spending are necessary right now (which I do)

AND

2. You claim to be concerned about the deficit (More complicated: I think that why you are running a deficit is more important than the magnitude of said deficit)

then, you need to raise money somehow.

I think that I prefer this type of tax to a broader capital gains tax...

[kenrexford]

hrothgar, on Nov 24 2009, 06:54 PM, said:

This type of tax is designed to operate as a transaction fee.

The incidence of the tax will (primarily) fall on investors that place large numbers of trades over a short period of time. In particular, trading strategies based on front running orders are going to get nailed...

Conversely, so called value investors and individuals who practice "Buy and Hold" type strategies really aren't going to fail much of a pinch.

I have mixed feelings about this type of of tax. I do think that algorithmic trading programs make the stock market more efficient by arbitraging out mistakes in prices. At the same time,

1. If you believe that large amounts of government spending are necessary right now (which I do)

AND

2. You claim to be concerned about the deficit (More complicated: I think that why you are running a deficit is more important than the magnitude of said deficit)

then, you need to raise money somehow.

I think that I prefer this type of tax to a broader capital gains tax...

I don't ever understand this logic.

Let me see if I can follow this. Government spending stimulates the economy, because it adds money into the economy to trickle around.

However, we raise the money to introduce into the economy with taxes.

This seems absurd to a silly person like me.

I mean, imagine ten people in a room where stuff is being sold, plus me. Everyone has $10 to spend. If I then take $1 from everyone, I will have $10 more than I started with, or $20. So, if I then pay everyone $2, they will end up with $11. So, they have more to spend on stuff in the store.

However, there are two major problems with this theory.

First, the whole group of 11 people end up with the same amount of money, as a group. I just end up broke and cannot buy anything. If it is critical that I buy something, I must eventually take back everything I gave out to the other 10 people, or I must borrow that from someone who is actually selling the stuff, ending up in debt and having major problems as a result.

Second, there is a cost to all of this. As I have to pay $5 in expenses for this entire set of transactions to occur, I really only end up giving the other 10 people $1.50 each.

Third, I really didn't start with $10 to begin with. Actually, I started with nothing. I got my $10 by taking $1 from each of them before the hypothetical started. Thus, each of the others actually started with $11. So, after my great plan, they end up with $10.50, someone ends up paid for stupid expenses to reduce everyone else from $11 to $10.50, I stay broke, and the guy selling stuff has become my creditor. If I just stayed home and never entered the room, everyone except the seller and the transaction-facilitator would have been better off.

If I as a simple-minded person then extrapolate this example into the real world, it seems to me that massive government spending on the economy actually has a net effect of reducing consumer spending, with the costs of paying for a bureaucracy to make all of this reduced consumer spending happen, and a massive debt to China.

Strangely, this seems to be happening. Jobs lost everywhere, because of reduced consumer spending, a blossoming bureaucracy, and China with lots of credits.

Now, the stock market looks better, even if miserably down from the start. But, whereas an asset that yields a 2% return looks like garbage if you could get 5% in another way, it looks great when the other way suddenly only yields 1%. When something has a greater return in comparison to other things, people want that more. You end up with everything approaching the same return. So, the asset gains value, not because it produces more than it once produced but because it produces more than other things that used to produce much more but now produce less. Hence, keeping interest rates down props up the stock market. Make interest rates normal, and the stock market moves down. I mean, if interest rates were real over night, just how low would the stock market drop, and how fast?

[mike777]

Granted this is all very confusing and complicated but for starters we need to assume that interest rates are real. Whatever today's interest rate is, it is real.

The main argument for even more govt spending/stimulus is that the current or even projected deficit numbers are not that important or hurtful compared to the alternative. The argument is that we can increase taxes, whatever taxes and increase borrowing, from whomever, is not evil but the best way to get the economy going again. The government needs to spend more, alot more. Whatever the limits on taxes and borrowing, people argue we are not close to those limits.

In fact the argument continues that do to otherwise will harm America.


Why?

Let me try and make it simple, I assume you agree that some borrowing and some taxing is good. IN fact no taxing and no borrowing would be bad. If so then at what point is it too much?

[kenrexford]

I still don't get it. It seems to me that wealth means that I have more stuff. More things. More services.

Thus, if I want to increase wealth, I increase spending as to stuff.

This seems to suggest spending lots of money on things that make stuff.

For example, targeted spending as to machinery production and raw ingredients makes sense. Spend money on drilling for oil, improving roads, acquiring more injection molding and extruder machine, build more robotics, etc.

However, spending money on government workers, so that they have money to spend on stuff, so that someone will have incentive to build stuff, seems to take longer, allowing the debt to pop up too soon.

Really stupid ideas seem to be ones that do not yield stuff, or even get rid of stuff.

For example, dumping money into home purchases seems to create incentive for building more homes, despite having too many homes already. So, we end up with more vacant homes in the urban areas. That seems dumb.

Or, destroying cars. We end up building replacements, but we end up with the same number of cars -- just newer ones.

I mean, suppose the government spent a huge amount of money buying steel, from US manufacturers. We'd spend money to start back up a bunch of steel mills in the rust belt, creating jobs for these people. We'd end up with a lot of steel, to build new bridges or buildings or whatever. At least we would have this asset -- steel. Heck, maybe then we could stop buying Chinese steel, because the subsidies (orders by the government, if you will, and the re-sale by the government to other companies wanting steel) would make our steel more marketable. I mean, if we don't care about profitability at all in the one scheme, this seems more plausible.

Or, take the cars situation. We crushed them all?!?! What -- no one ever thought of shipping them to some other country for sale? Sure, maybe the transportation costs would be really high. But, that's more spending, which is what y'all want. Plus, we would either get something for the cars (some reimbursement) or we would give the people of some country a bunch of cars as a nice Christmas present. At least the cars would still exist.

I mean, sure. We recycled the cars. Great! We could recycle everything we have and start over, under that theory. No one has anything except a big fat wallet, with a bunch of monopoly money in it. Lots of things to buy! Lots of consumer spending! A bunch of empty living rooms for a while, but progress!

[mike777]

Let me try this:


If the government can spend money smarter than Free Capital Markets, then that sounds like a good thing?


If the government spends money on more productive innovation than Free capital markets is that a good thing?


If Free capital markets or people like you just save the money and do not invest it in productive stuff, that is a bad thing.

Another part of the argument may be that having a smaller gdp may be a good thing,not bad thing. It may be a good thing to shave 1% per year compounded over 50 years from a country's growth.


This is not the total argument but a large degree of it.

[mike777]

Let me try this from another direction.


Denmark has a marginal tax bracket of about60%
Denmark has a VAT tax of about 25%
Denmark has alot of other taxes
Denmark has debt




Denmark is the happiest country in the world

[hrothgar]

kenrexford, on Nov 25 2009, 06:10 AM, said:

I don't ever understand this logic.

Then I recommend investing a modicum of time and effort taking an Econ 101 class...

A the very least, you'll want to look at the basic definition of deficit spending as well as how the multiplier changes depending on type of spending.

You also might want to consider that some policies have more than one goal. For example, Cash for Clunker's was - in part - intended to stimulate auto sales. However, it also had the explicit policy goal of removing old, fuel inefficient cars from the road. This might have had a little bit to do with why said units were destroyed.

For what its worth, I don't particularly like the way that Cash for Clunker's was enacted. As I've said for a long time, I would very much prefer to accomplish the same goal by phasing in a large, comprehensive carbon tax. Regretfully, that doesn't seem possible in the current political landscape.

[helene_t]

hrothgar, on Nov 25 2009, 12:54 AM, said:

I do think that algorithmic trading programs make the stock market more efficient by arbitraging out mistakes in prices.

Interesting. Doesn't that just mean that for a given trade volume, computer-assisted trading is more efficient than old-fashioned trading?

There was this Nobel price winner who suggested putting a tax on currency transactions in order to stabilize currency markets.

My impression was that this is a controversial issue. What the effect of transaction taxes will be on the stability of the markets remains to be seen.

[luke warm]

mike777, on Nov 24 2009, 11:27 PM, said:

Let me try this:


If the government can spend money smarter than Free Capital Markets, then that sounds like a good thing?


If the government spends money on more productive innovation than Free capital markets is that a good thing?


If Free capital markets or people like you just save the money and do not invest it in productive stuff, that is a bad thing.

Another part of the argument may be that having a smaller gdp may be a good thing,not bad thing. It may be a good thing to shave 1% per year compounded over 50 years from a country's growth.


This is not the total argument but a large degree of it.

well i'm not an economist, so in your opinion would more jobs be created by increasing taxes and gov't spending or by cutting corporate and small business taxes to zero?

[hrothgar]

helene_t, on Nov 25 2009, 01:56 PM, said:

hrothgar, on Nov 25 2009, 12:54 AM, said:

I do think that algorithmic trading programs make the stock market more efficient by arbitraging out mistakes in prices.

Interesting. Doesn't that just mean that for a given trade volume, computer-assisted trading is more efficient than old-fashioned trading?

There was this Nobel price winner who suggested putting a tax on currency transactions in order to stabilize currency markets.

My impression was that this is a controversial issue. What the effect of transaction taxes will be on the stability of the markets remains to be seen.

I very much agree that this is a controversial topic. I don't believe that there is anything approaching consensus amongst economists about this topic.

(There is a reason why my original post said that i have mixed feelings about these types of taxes)

[Codo]

hrothgar, on Nov 25 2009, 07:19 PM, said:

kenrexford, on Nov 25 2009, 06:10 AM, said:

I don't ever understand this logic.

Then I recommend investing a modicum of time and effort taking an Econ 101 class...

I totally disagree. I have taken my classes and studied this BS.

Yes in therory, defict spending is great. But unluckily this theory is based on a model. And this model is not the reality.
Actually, it is very easy to show why deficit spending works and it is as easy to show why it does not. It just depends on the model you use.

But: If you use the theory of deficit spending to stimulate the economy, you have a nice theory why you are allowed to spend more money then you earn. And if you spend more money, you have more satisfied voters. So most politicians belive in this theory.

I do not claim that this theory is wrong or that it does not work. But I still wait for just one state where it worked so good that they reached a healthy economy and a balanced household.

[helene_t]

Codo, on Nov 25 2009, 01:10 PM, said:

Actually, it is very easy to show why deficit spending works and it is as easy to show why it does not.  It just depends on the model you use.

Are you guys discussing the same thing?

Ken Rexford said he didn't understand the logic as first the economy has to be stimulated by larger deficit, and then the taxes have to go up to reduce the deficit. So it sounds like we are back at square one and might as well not have done any stimulating. At least that was how I understood Ken Rexford's comment.

Let's assume for the sake of the argument that we agree on the optimal size of the deficit but that the disagreement is about whether reducing private spending (by increasing taxes) while meanwhile increasing public spending is "good" in terms of restoring growth.

As I learned it (but this is a while ago and the fashion for theories might have changed), public spending is better (at least in the short term) since we cannot be assured that private spending actually stimulates the domestic economy: tax reductions may lead to consumers saving more, or buying more imported goods. Now since this is a global recession, increased import may not be seen as a problem, and also one might think that saving would lover interest rates and therefore stimulate investment (but interest rates isn't much of a concern at the moment). Still I thought it is generally accepted that the accelerator effect is larger for public spending than for tax cuts, at least in the short term.

Now this may not apply in the long term, and there could be all kind of other reasons to want the public sector to be smaller (or bigger). Still I think it's fair to say that the optimal size of the public sector is larger during a recession than during a boom or a time of stable growth*. I suspect that those opposed to using public spending as a tool to restore growth are motivated by a general dislike for a large public sector.

Now the "stimulus" packages are partly targeted at private spending, so to that extent I would share Ken Rexford's concern.

*The corollary of this is that once the recession is over, it's time to reduce public spending again.

[hrothgar]

Codo, on Nov 25 2009, 03:10 PM, said:

I do not claim that this theory is wrong or that it does not work. But I still wait for just one state where it worked so good that they reached a healthy economy and a balanced household.

I recommend looking at the US economy, shortly after the Great Depression...

This is normally considered the bellwhether in terms of examples.

[kenrexford]

hrothgar, on Nov 25 2009, 05:19 AM, said:

kenrexford, on Nov 25 2009, 06:10 AM, said:

I don't ever understand this logic.

Then I recommend investing a modicum of time and effort taking an Econ 101 class...

A the very least, you'll want to look at the basic definition of deficit spending as well as how the multiplier changes depending on type of spending.

You also might want to consider that some policies have more than one goal. For example, Cash for Clunker's was - in part - intended to stimulate auto sales. However, it also had the explicit policy goal of removing old, fuel inefficient cars from the road. This might have had a little bit to do with why said units were destroyed.

For what its worth, I don't particularly like the way that Cash for Clunker's was enacted. As I've said for a long time, I would very much prefer to accomplish the same goal by phasing in a large, comprehensive carbon tax. Regretfully, that doesn't seem possible in the current political landscape.

Actually, I did take economics in college. It was the source of great pride in one event. I had failed to read anything at all about Keynes on time, when suddenly a pop quiz struck on Keynes. An essay quiz.

The question was just enough to allow me to guess what Keynes must have thought. So, I made up my own theory of what Keynes' economic theory must have been. The next day, the professor read my asnwer to the class, indicating that it was the best essay on Keynes that he had seen in 20+ years of teaching economics.

I received a perfect 4.0 record in all economics course.

Maybe economics has changed over the years?

[kenrexford]

hrothgar, on Nov 25 2009, 07:46 AM, said:

Codo, on Nov 25 2009, 03:10 PM, said:

I do not claim that this theory is wrong or that it does not work. But I still wait for just one state where it worked so good that they reached a healthy economy and a balanced household.

I recommend looking at the US economy, shortly after the Great Depression...

This is normally considered the bellwhether in terms of examples.

See, now I thought that 10-15 years of Depression was a bad thing.

[Codo]

hrothgar, on Nov 25 2009, 09:46 PM, said:

Codo, on Nov 25 2009, 03:10 PM, said:

I do not claim that this theory is wrong or that it does not work. But I still wait for just one state where it worked so good that they reached a healthy economy and a balanced household.

I recommend looking at the US economy, shortly after the Great Depression...

This is normally considered the bellwhether in terms of examples.

So in your example: When did the US reached and hold a stable economy?
I guess your access to a source about this is easier then mine.

I

[Al_U_Card]

As a sidebar on the "driver" for all of this....I can only wonder how much more time Rep. Dr. PAul has left...

House Panel Votes to Advance
Paul Plan on Fed Audits

By Scott Lanman

Nov. 19 (Bloomberg) -- A U.S. House committee advanced a proposal to remove a three-decade ban on congressional audits of Federal Reserve interest-rate decisions, a measure backed by a lawmaker who has called for the abolition of the central bank.

The House Financial Services Committee today, in a 43-26 vote and a second voice vote, attached a Fed-audit amendment to legislation creating a council of regulators to monitor systemic risk. The proposal was offered by Representative Ron Paul, a Republican from Texas, and based on a bill with more than 300 co-sponsors.

Fed Chairman Ben S. Bernanke has opposed the Paul legislation, saying it may result in interference with monetary policy. The panel’s vote increases the possibility that Congress will reverse the ban on audits of interest-rate decisions. The broader bill on financial regulation is subject to a vote by the committee, then must be approved by the House and Senate and signed into law by President Barack Obama.

“This is the bill that would allow the people to win over the special interests,” Paul said during debate on the measures today. “There is no doubt that the individuals opposing this amendment represent the secrecy of the Federal Reserve.” An audit “shouldn’t hurt them in any way,” he said.

Barney Frank, the Massachusetts Democrat who chairs the committee and opposed the Paul measure, said it “may be revisited” when the legislation reaches the House floor.

“It’s going to be seen as weakening the independence of monetary policy with consequent negative implications,” Frank told reporters after the vote. “People are going to be worried about the impact on the dollar, on the interest rate.”

‘End the Fed’

Paul, who wrote a best-selling book this year titled “End the Fed,” said provisions in his amendment would limit interference in monetary policy. The measure, co-sponsored by Representative Alan Grayson, a Democrat from Florida, would exclude any unreleased transcripts or minutes of Fed policy meetings.

The committee voted first, 43-26, to substitute Paul’s proposal for a Democratic measure to retain the ban on audits of monetary policy while requiring more limited audits. About one- third of Democrats joined the unanimous Republicans on the vote. Then, in a voice vote, the committee attached the Paul measure to the broader bill.

Frank said he expects to finish the legislation in committee on Dec. 1. He supported a competing measure from Representative Mel Watt, a North Carolina Democrat, to retain the ban on auditing monetary policy.

Inflation Expectations

“Perception is very important in monetary policy,” Frank said. He said he was concerned that “inflationary expectations will be given a boost if we adopt the Paul” measure.

Paul and other lawmakers have accused the Fed of lax oversight of banks and failing to avert the financial crisis. He said Watt’s measure instead would put further restrictions on the power of the government to audit the Fed, contrary to its sponsor’s assertion.

“Everybody would like to beat up on the Fed and call them the bad guys,” Watt said during debate on the measures. “So if we make this decision on a political basis, I know what the result will be.”

“This committee is called upon to transcend the politics of the moment and do what is in the interest of the country,” Watt said.

“This actually takes away some auditing authority,” said Paul. “This amendment eliminates all the benefits that people see coming from” Paul’s legislation, he said.

Emergency Loans

Also today, lawmakers attached, by voice vote, a separate Republican measure to audit all Fed emergency-loan actions “during the current economic crisis.” Legislators may need to figure out how to combine the amendments when the bill goes to the House floor.

Watt said that “if we do what Mr. Paul has suggested, we will be inconsistent with every industrialized country in the world,” which have central banks not subject to “political second guessing.” Grayson responded that most other central banks were in fact subject to audits.

http://www.bloomberg.com/apps/news?pid=206...FIW4QXPEE&pos=4

[luke warm]

and the paul plan is bad why?

[Al_U_Card]

The constitution grants the power of the coin to the government. They ceded that power to the Fed and pay interest on their having given away that right.

Ron Paul sees the problem with that and wants to bring them to heel. They never have appreciated anyone (including presidents) horning in on their territory.