Divine Neutrality, Blog. Science, Philosophy

Tax Stock Trades

February 12th, 2011

A Sales Tax on Stock Market Trades Can Balance the Budget

totemYou buy a pair of shoes. In most states if the price is $50 you pay about $55 to buy them. The extra amount is sales tax. Sales taxes range from 7% to over 10% in most communities. To buy a car in Cook County, Illinois you pay $11,500 if its price is $10,000. The extra $1,500 is a sales tax collected by government. In Santa Cruz, CA for a MacDonald’s hamburger listed as 89¢ you pay 97¢. There is a 9% tax.

But if you buy 10 shares of Wal-Mart stock at $56 per share you pay $560. Nothing at all is taken by government! There is no sales tax on buying stocks or bonds. Too bad you can’t wear or eat stock.

Now here is the remarkable fact: If there were a 9% U.S. Government sales tax on the sale of securities (stocks or bonds) the amount of revenue collected would entirely wipe out the Federal Deficit and even leave some surplus!

Here’s the arithmetic: The web site of the New York Stock Exchange (nyse.com) lists the value of securities traded each day. Extrapolating for a 250 day year of trading yields an amount of about $18 trillion in stock sales per year. The US Government Budget, Summary, Table S-1 (www.gpoaccess.gov/usbudget) says the deficit for the year 2010 was $1.6 trillion.

So a 9% tax on security sales (otherwise known as stock trades) would completely eliminate the deficit!
(9% × $18 trillion > $1.6 trillion)

When a ‘sales’ tax is imposed by the federal government it goes by the name excise tax rather than sales tax.  The euphemism ‘security trade’ actually means ‘sale’. Somebody sells a stock or bond to somebody else who buys it. And, unless it’s a rare initial public offering (IPO), the sale has no effect whatever on the coffers of the company being ‘traded’. It’s just an exchange of ownership. The ten shares of Wal-Mart stock that the seller sells to you means that he relinquishes his ownership stake to you. Now you, instead of the seller, own one 400 millionth of the company – 10 shares worth. It’s like buying a used car from someone. He owned it before. You own it afterward. No money goes to the manufacturer. But you must pay a tax on the car ‘trade’! The stock trade is tax free.

There’s an important economic difference between taxing the sale of consumer goods and taxing the sale of securities. Taxing consumer goods hurts prosperity. Taxing stock sales doesn’t. Making, transporting and selling consumer goods employs people. Trade in goods and services adds to general prosperity. It keeps people working and gives them purchasing power. So a sales tax on consumer goods hurts prosperity. Every fiscal conservative knows this.

But a sales tax on stock market speculation – the buying and selling of stocks – doesn’t directly affect general prosperity. Stock trades are exchanges of ownership. Exchanges of ownership don’t create jobs. Consumer goods are not affected. So our tax system encourages speculation and discourages the prosperity of job seekers.

Things not taxed cost less. Low taxes encourage commerce. The tax system makes the commerce of stock market sales easier and the commerce in manufactured goods harder. But the manufacture of goods employs people. It contributes to prosperity. So prosperity is handicapped with taxes. While speculation is encouraged by being tax free.

Perhaps its time to discourage stock market speculation and to tax it.

For those who may want to bring this idea to their representatives in Congress and in the Senate take note that, using your zip code, you may look up your representative and senators at:

For sending email to Chairman Max Baucus of the US Senate Committee on Finance go to http://baucus.senate.gov/?p=contact

Email may be sent to Senator Barbara Boxer at:

http://boxer.senate.gov/en/contact/policycomments.cfm. Or on twitter @senatorboxer

Email may be sent to Senator Dianne Feinstein at:

Email may be sent to Congressman Sam Farr at:

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Save Prosperity

June 27th, 2010

Save Our Prosperity. Tax Ourselves

The essential premise: Prosperity is desirable.

Austerity is undesirable. Everyone wants prosperity. Austerity brings violence and unrest.

What is prosperity?

Prosperity is the ability to buy what you need – or what you may not need.

It is everyones desire – this ability to buy what you need; having the money to pay for it.

When there is much buying and selling we have prosperity. Those are times when people are employed. They sell their time and buy goods and services with their earnings. Thus causing other people to be employed and, themselves, to buy things. Prosperity is connected to economic activity; the vigorous exchange of goods and services.

To be able to buy things is the ultimate measure of prosperity. So to ask for prosperity is to ask for economic activity.

Of course, the benefits of economic activity may not fall equally on all, but those who prosper do so from economic activity. Governments try to create prosperity. Adversity drives Governments from office.

Fundamental equation:

spending minus  revenue =  deficit must be borrowed

Any government – municipal, national – is an economic unit. During the year it spends an amount called ‘spending’. The taxes and the fees it collects are its ‘revenue’. The difference between these two is called the ‘deficit’. A negative deficit is called a surplus.

The deficit is the amount of money that must be borrowed in order for the government to pay its spending bills for that year.

Government borrowing takes the form of bonds. These are promissory notes sold on the open market. In the U.S. all such borrowing is done only with the consent of the electorate. It is we who permit government to borrow; either directly, by vote on a bond issue, or indirectly as when Congress raises the Debt Limit.


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Exponential Growth

June 8th, 2009

Living cells multiply. Their number grows exponentially. The more there are the faster they increase. An exponentially growing population has a doubling time: the time it takes for the population to double. Having a doubling time is a characteristic of exponential growth. In the time it takes each individual cell to divide into two cells, the whole population of cells doubles. The population doubles because each of its members doubles.

Anything that is growing will eventually double in size and then double again and then again if one waits long enough. But only exponential growth has a single characteristic period of time that is the same for every doubling.

Things that do not grow exponentially are the distance the train carries you away from the train station or the amount of coffee in the cup you are filling. These increase only linearly with time. The increase has a rate of growth but no characteristic doubling time. The time for the second doubling is not the same as that for the first doubling. Rather it is twice as long. The third doubling takes four times as long. So, in linear growth, no single period of time characterizes a doubling.

An amount of money invested at a compounded interest rate of, say, 7%/year, grows exponentially. It has a doubling time. Ten years. After 10 years the return on the investment will be as much as the original investment itself. The original investment will have doubled in value. Each of the dollars in it will have doubled. In the next ten years the money will have doubled again – to four times the original investment. The next doubling – to eight times the original amount – again takes ten years. The rate of growth, r, is related to the doubing time, T, by the simple formula: rT = Ln 2 = 0.7 (approx). At a growth rate of 10%/yr the doubling time is 7 years.

The motion diagram shows exponential growth through four doubling times at the rate of 7% per second. The exponentially growing brown bar doubles in size every 10 seconds. The green bar increases in size linearly at 7% per second. Clicking on GO starts the growth. Clicking on STOP freezes time. You can assess the doublings by stopping at 10 seconds (first doubling), 20 seconds (two doublings) and 30 seconds (three doublings) etc.

No matter what mathematics governs its increase, any physical quantity must eventually stop increasing. Nothing goes on increasing forever. Eventually the mathematics of growth fails to describe the phenomenon. Growth is never sustainable.

See Can growth be sustainable?

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