Rep Defazio (D-Oregon) at it again: REINTRODUCES FINANCIAL TRANSACTION TAX ACT 0.1% - futures io
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Rep Defazio (D-Oregon) at it again: REINTRODUCES FINANCIAL TRANSACTION TAX ACT 0.1%


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Rep Defazio (D-Oregon) at it again: REINTRODUCES FINANCIAL TRANSACTION TAX ACT 0.1%

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  #1 (permalink)
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Represenative Peter Defazio has once again... yet again... introduced legislation of a FTT (Financial Transaction Tax) of 0.1% on stocks, bonds and derivatives. [Note: no currencies included.]

The most interesting change from his previous proposals is how derivatives would be taxed:

"payment flows under derivatives contracts"

This is not the same nor as devastating as computing the tax on notational value (index price x its multiplier).

Payment flows for futures would be instances when funds are exchanged between party and counter-party. That includes delivery at expiration, daily settlement, and possibly closing out an intra-day trade.

I'm not sure about the intra-day payment flows. Technically it is a payment flow when you take an offsetting position to close out the trade. But by day's end, at settlement time, you'd be flat - no payment flow would occur at that time. Probably splitting hairs here though.

In any event, 0.1% would be $0.05 per $50 in payment flow (gain or loss).


Here's the text from his website:


Quoting 
Jan 15, 2021 Press Release
0.1% Wall Street Tax Will Curb Dangerous High Frequency Trading and Bring in $777 Billion In New Revenue Over 10 Years
Today, U.S. Representative Peter DeFazio (OR-04) introduced the Wall Street Tax Act, legislation to create a new tax on financial transactions that would generate billions in revenue, while reducing speculative trading and volatility in the market.

“High-frequency traders front-run the market and drive up prices for individuals, pension funds and other value investors,” said Rep. Peter DeFazio. “Some days high-frequency traders trade billions of shares that they sometimes hold for only seconds or less. They reap enormous financial benefits for themselves and their privileged elite investors but add no value to our economy. Congress needs to rein in excessive speculative activity and protect working families from these dangerous practices while maintaining appropriate market liquidity. This legislation will curb unnecessary speculation and generate much-needed revenue to help the federal government fund national priorities and invest in the real economy to benefit all Americans.”

DeFazio’s Wall Street Tax Act addresses the disconnect between the financial system and the real economy by reducing unproductive, dangerous, and speculative trading. By increasing transaction costs slightly, the bill will help redirect investment that has flooded into transactions without economic value into more productive areas of the economy. It will also reduce the risk of financial crashes and limit the risks that high-speed arbitrage pose to our financial system.

The Wall Street Tax Act would tax the sale of stocks, bonds, and derivatives at 0.1 percent (10 basis points), and would raise an estimated $777 billion over a decade. A stock trade of $1,000 would incur a tax of just one dollar. The tax would apply to the fair market value of equities and bonds, and the payment flows under derivatives contracts. Initial public offerings and short-term debt (with a maturity of less than 100 days) would be exempted.

A 2019 Public Citizen report found that a financial transaction tax (FTT) will primarily impact America’s wealthiest individuals, while the average annual retirement account costs for a middle-income family would range from $13 to $35. The wealthiest 10% would experience an estimated $155 in average costs relating to their retirement accounts, while many would owe additional taxes for trading stocks outside of retirement accounts. While nearly 50 percent of U.S. families owned no stock whatsoever - including indirect ownership through retirement accounts—nearly 70 percent of upper-income Americans had stock or other personal investments, outside of retirement and savings accounts.

“As Americans continue to suffer in the economic fallout from the ongoing COVID-19 crisis, Wall Street’s profits have soared,” said Susan Harley, managing director of Public Citizen’s Congress Watch division. “The Wall Street Tax Act would begin to right this unconscionable imbalance while progressively raising $777 billion over the next decade that could be used to fund any number of important societal needs like expanded health care, investments in public education, creating green energy jobs, or rebuilding America’s infrastructure. Public Citizen commends Congressman DeFazio’s strong leadership in ensuring Wall Street pays its fair share.”

“The Wall Street Tax Act is a common-sense way to help restore a measure of fairness and balance to our economy,” said Frank Clemente, Executive Director of Americans for Tax Fairness. “It would make wealthy investors who have profited throughout this pandemic pay a fairer share of taxes. The $777 billion it would raise is desperately needed to recover from this COVID-19 depression and to promote growth in our economy, building back our nation's decaying infrastructure and making new investments in things like housing, education and healthcare that will create good-paying jobs that Americans desperately need.”

“The Wall Street Tax Act would reduce incentives for Wall Street’s most reckless and least valuable speculative activity and instead encourage Wall Street to find new ways to make money from longer term, productive investments that create jobs, and develop products and services that make the U.S. competitive in a global economy,” said AFL-CIO Policy Director Kelly Ross.

“This bill is an important step in restoring the real economy for white, Black and brown working families, especially in this time of rising unemployment due to the global pandemic,” said Mandla Deskins, Take on Wall Street and Americans for Financial Reform Education Fund. “The Wall Street Tax Act would both help protect working people from the most acute impacts of risky Wall Street behavior, and raise revenue that could be used for critical public services and investments.”

The wealthiest 10 percent of Americans own an estimated 85 percent of stock market wealth. The bipartisan Tax Policy Center estimates that a tax of this kind would only apply to the highest earners in the country, with almost half of those affected belonging to the wealthiest 1 percent.

The bill has been co-sponsored by House Majority Whip James Clyburn and Reps. Earl Blumenauer (OR-03), Jamie Raskin (MD-08), Eleanor Holmes Norton (DC), Mark Takano (CA-41), Peter Welch (VT-AL), Ayanna Pressley (MA-07), Grace Napolitano (CA-32), Adam Smith (WA-09), Tim Ryan (OH-13), Pramila Jayapal (WA-07), Ro Khanna (CA-17), and Jesus “Chuy” Garcia (IL-04).


On his webpage: https://defazio.house.gov/media-center/press-releases/defazio-introduces-financial-transaction-tax-act-to-rein-in-wall-street


Here's the text of the bill he presented last year with the same name:

https://www.congress.gov/bill/116th-congress/house-bill/1516/text?q=%7B%22search%22%3A%5B%22Wall+Street+Tax+Act%22%5D%7D&r=1&s=1

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  #2 (permalink)
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The US wanted Biden and they become now what they wanted....more taxes ;-)

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tsgz29 View Post
The US wanted Biden and they become now what they wanted....more taxes ;-)

True statement. The subtext is an increase in socialist policies that will have significant impact on US equity markets, interest rates, and inflation rates.

But really, I'm saying that only because I want to point out that US has been pretty socialist for a long while now..in the form of crony capitalism.

Crony capitalism is not capitalism. Crony capitalism is socialism for the well-connected.

Now, US monetary and fiscal policies (or so it presently appears) will allow that mindset to flow down to main street rather than just wall street. As the argument goes, if wall street can get bailed out, why can't main street? And thus democratic socialism takes hold. And this actually started with the CARES Act, I might add. He who is the chief executive of the US matters not.

Understanding this dynamic will be important in watching the market narrative unfold.

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It sounds good to me. Might also make HFT less lucrative as well

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Thanks @DmanX hadn't seen this one.

DmanX View Post
I'm not sure about the intra-day payment flows. Technically it is a payment flow when you take an offsetting position to close out the trade. But by day's end, at settlement time, you'd be flat - no payment flow would occur at that time. Probably splitting hairs here though.

There's still a payment of flows. If you made money on your day trade, the exchange sends you that money, isn't that the payment of flows?


tsgz29 View Post
The US wanted Biden and they become now what they wanted....more taxes ;-)

What's the point of this comment? Just trying to create more divisiveness from afar?

For what its woth President Biden and Represenative Defazio are actually different people! One was elected in a national election in 2020 the other was elected in small regional election, covering less than a million people. Defazio has also been a representative since 1987 and as @DmanX stated has proposed variations of this bill several times before.


Bermudan Option View Post
It sounds good to me. Might also make HFT less lucrative as well

Probably would. Also make market making much less lucrative. Question is would the combination of the two net help or hurt the average person?

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SMCJB View Post
Thanks @DmanX hadn't seen this one.
There's still a payment of flows. If you made money on your day trade, the exchange sends you that money, isn't that the payment of flows?

It is technically. But they may craft the bill for only overnight holds, marking to market everyday at settlement being that that is the most objective, easily auditable metric. But I'm guessing here, since the latest EU FTT proposal exempts derivatives and intra-day trades - much like France's currently, German's proposed.

If there are any exemption carve outs, it would likely come in the form of market-making activities being exempt. HFT can revamp some of their operations to become more market-making in nature as they do already provide liquidity. Moreover, if the basis for taxing derivatives survives a final draft as payment for order flows, expect to see many more single stock futures and an increase in equity index volume. Derivatives would become the default price discovery mechanism in the market while equity market volume evaporates.

Should a FTT pass, we'll also probably see a resurgence of spot currency dealing in the US as that has been exempt (contrary to the original idea of a FTT as proposed by Tobin on currencies trading). Which means many more brokerages will be offering spot currency trading to US customers with leverages between 2-3% (50:1 and 33:1). From ECN style to market making bucket shops.

As for the probability of something like this passing, it's a hard call. Normally I'd say no. However, if the EU had it in place, then yes, we would very likely follow suit albeit in a more competitive manner. Of course, Asia (China specifically) and the ME (Dubai specifically) would take advantage of the situation and dramatically increase efforts to become financial centers. But as it is, the EU FTT talks have stalled because of a number of countries saying no to a historically failed idea. Germany is trying to copy France but are having difficulty with the idea.

Unfortunately, the West will never give up on the idea of an FTT until Asia becomes a serious financial sector competitor.

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DmanX View Post
If there are any exemption carve outs, it would likely come in the form of market-making activities being exempt. HFT can revamp some of their operations to become more market-making in nature as they do already provide liquidity.

I agree. It is my believe that if something like this ever is enacted, the people it is allegedly aimed at the most, ie HFT, will find exemptions, probably in some form of liquidity providing exemption.

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