Transaction Taxes, Now Being Debated In Illinois

Why do politicians always want to get between people and their money?  I was listening to an Uber X driver last night.  She was at wit’s end.  She had no job prospects and she was losing everything.  She didn’t want to go on government assistance.  Uber gave her a way out.  This isn’t the first time I have heard a story like that.

Yet, politicians in cities and states all over the country want to tax innovation and protect cronies.

How is this related to a transaction tax?  Because politicians in the US Congress and now in the state of Illinois want to get between people and their money again.  They are doing it so they can redistribute money to their cronies.  The taxes aren’t going for “public good” despite what anyone says about them.

I have blogged about the transaction tax on trading several times.  Here is a search.  If you support a transaction tax or a candidate that supports one, you are supporting a tax on innovation.  You are supporting a tax on capital.

If you are cool with stopping America from getting ahead, support a transaction tax.  If you think it’s awesome that jobs and money are sent overseas, support the transaction tax.  If you think it super to tell highly talented STEM graduates that America isn’t the place for you to set up shop, support a transaction tax.

For anyone that thinks a transaction tax is the solution to some of the market structure problems we have in stock/option/future markets, you are totally incorrect.   Period. Drops mic.

In Illinois and the city of Chicago, we have duel budget crisis that are out of control.  There is only one solution, bankruptcy.  Neither the state, nor the city can tax their way out of the mess they created for themselves.  They can cut the size of government and privatize it.  They can change rules around unions.  They can change pensions.  So far, elected officials in control are unwilling to do it.

Yesterday, CME Chairman Terry Duffy testified in Springfield on the proposed transaction tax.  Democrats in Illinois want a transaction tax of $1 on agricultural trades, and $2 on everything else.

Ludicrous.  People aren’t even dealing remotely with reality.

Most of the time, we see proposals of pennies on transactions.  Those are ludicrous too.  With the amount of transactions and risk that traders take, having even a penny tax on every transaction is a game changer when it comes to the macro.  Years ago I figured out that I would have payed around $100,000 per year in transaction taxes on a .05 cent tax.  I was a medium size trader.  That extra cost would have caused me to refocus my energy on another business.

There is another reason that I think it’s time leading Democratic donors and supporters should tell people in their party not to support a transaction tax, especially in Illinois.

Chicago has great momentum in its startup community.  On a parallel, people are flocking from all the best schools in the world to come to Chicago and work for high frequency trading firms.  Chicago is ground zero when it comes to HFT.  People from disciplines like Engineering, Computer Science, Programming, Coding, Math, Statistics, Probability, and Physics flock to Chicago to build systems.

As the landscape of the HFT industry changes, they are leaving to startup companies.

Pass a transaction tax in the state and you can kiss every single one of them goodbye.  Every HFT firm, every firm that engages in stock/option/future transactions will leave.  Every firm that has built a business around supporting those firms will leave too.   Accountants and Attorneys will flee.  The core exchanges, CBOE and CME will leave.  The industry isn’t physical anymore, it’s virtual.

The nascent startup industry in Chicago will be decimated.  Much of the early money in the startup community comes from successful traders.  Much of the talent is initially attracted here because of the trading industry.

The Options and Commodity Industry are to Chicago as the Automotive Industry is to Detroit.

Chicago politicians like to make a big deal that Chicago is diversified, so Detroit can’t happen here.  I am calling bullshit on them.  The trading industry is the straw that stirs the drink in Chicago and without it nothing else would have come here.  Nothing else will survive here without it either.

Go take a trip to Detroit.  Drive around.  I was just there.  There is a vibrant four to six block area in the city’s core.  Outside of it, scorched earth.  It’s slowly, ever so slowly, coming back.  But, does Chicago have to become Detroit for everyone to learn yet another lesson?  At least in Detroit’s case, the blame can fall on both bad public policy plus terrible missteps by automotive executives.  In Chicago’s case, the problem isn’t the businesses.  It’s specifically Democratic politicians.

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