Obama 2012 Federal Budget-Includes Tax on Futures

Posted by Jeff Carter
on February 14th, 2011

In my previous post, I attacked Obama for lacking any leadership capability. Turns out, he lacks common sense too. His presidential budget slapped a “user fee” on all futures trading to fund the CFTC. This is also known as a Transaction Tax.

In the past year, PnF wrote about the transaction tax. Representative Jan Schakowsky of Evanston supported a tax. There are many economic arguments against the tax.

A transaction tax tacks on a small fee to every futures transaction. In effect, it is a tax on liquidity. Virtually every high frequency trader will leave the US with a transaction tax. I once calculated what I would have paid as a medium sized eurodollar trader with a .05 levy, and it was around $200k per year. Not exactly chump change.

Even a small tax would alter the width of the bid/ask spread, making it much more expensive for hedgers to enter and exit the market. The amount of contracts bid or offered at any one time would diminish as well making for a less efficient market.

No other futures market in the world would have the tax. Since markets are electronic, it would simply be a flip of the switch to shift volume to a market with no taxes. The US doesn’t control financial markets in the world anymore. No one has to trade here. Singapore would be happy to see traders move over there. So would Toronto. Any exchange outside of the US looking to build a derivatives market would encourage the US govt to apply a fee here. Gives them a leg up competing.

Virtually every Presidential budget has this in it. It must be in the software. However, one would think that Obama being from Chicago, and having so many Chicago centric people in his administration would have caught it and zeroed it out.

Just to remind the Chicagoans who are now inside the beltway Washingtonians now. Chicago exchanges account for thousands of jobs in the city, and surrounding suburbs. Firms lease miles of office space in the city. Traders keep lots of hairdressers, waitresses, and bartenders alive with business and tips. They also help the divorce attorneys in town make a living!

Write your Congressman, tell them to get the tax out of the budget.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.