Proposed Transaction Tax on Securities Will Make Investors Insecure

A recent report in BNA's Daily Tax Report notes that among the The Progressive Policy Institute's recommendations to President-Elect Obama to help finance his middle class tax cuts are a proposed securities-transaction tax applied to purchases and sales of securities--yet another tax layer in addition to the capital gains tax. They do propose implementation in 2010 after stimulus packages have stimulated, but is a new tax on investments really the way to lead investors that have lost their nest eggs back into the water?

Here's what PPI proposes:

You are right that the top rates of the Bush tax cut should be allowed to expire. Yet with the government bailouts of the financial and housing sectors (along with a possible second stimulus package), that extra revenue alone will not be enough to pay for both a middle-class tax cut and reductions in a fiscal year 2009 deficit—a deficit that some believe may reach an astronomical $1 trillion. That is why we are proposing an additional offset to pay for a middle-class tax cut: a securities-transaction tax...

A tax of this size, with comparable taxes on various other financial instruments, like options and futures, would help reduce the excessive speculation that has contributed to our current financial crisis. A transaction tax of 0.25 percent on the trading of securities, derivatives, and credit swaps could raise anywhere from $100 billion to $150 billion annually, enough to cover the cost of your middle-class tax plan and then some. Alternately, you could use some of the revenues from the transaction tax to cut the highly regressive payroll tax (thus restoring some balance between how we tax income from work and capital) and apply the rest to extend the life of the Social Security Trust Fund.