The New York Times Is Dumber Than I Thought

Yesterday, The New York Times editorial board called for transaction taxes on trading financial instruments.  Hillary Clinton and Bernie Sanders favor transaction taxes.

They are dumber than I thought.

I have written about transaction taxes before here, here, here and here and even here.  I understand two sided marketplaces better than most people.

The Liberal solution to a problem is always more government spending, a government program, and a tax to pay for it.  I can forgive them sometimes for their misguided thought process and framing because many of the solutions seem really logical.  Rarely do they work.

The New York Times has never been good at math, and proposing a transaction tax shows they still don’t know how to add, subtract, multiply or divide.  It is intuitively obvious to even the most casual of observer that they have absolutely zero experience when it comes to markets as well.  Neither does any political candidate that supports a transaction tax.

Locally, Representative Jan Schakowsky has advocated for a transaction tax and thankfully there is a good alternative in Joan McCarthy Lasonde.  Ironically, there are a lot of people that owe their living to the financial community in that district.  Hopefully they will turn out and vote for Joan.

There are certainly times when a government needs to flex its muscles and step in to take care of problems.  Anyone can tick off a couple.  But, in this case there is no rationale for levying a tax except populist anger and wanting more revenue to pay for stuff that isn’t useful in the first place.

The tax won’t work and will hurt little people a lot worse than it will hurt big market players.

Let me tick off just some of the reasons why the NYT editorial board is so misguided.

  1.  They propose a small tax.  All taxes start small.  They never stay small.  Here is a quote from the last paragraph of the essay, “setting the tax rate low at first, and raising it gradually, would help avoid potential damage.”  Taxes also have effects not quantified in the accounting that is used to support them.  For example, the NYT says $66 billion could be generated from a small tax.  What about the smaller pool of liquidity that will result from the tax?  That will make markets less liquid, and cause even more slippage to orders.  The true economic cost (which is hidden) of the tax to governments, pension funds, individuals, banks, hedge funds, HFT firms and other people trading will be in the trillions of dollars.
  2. The NYT proposes the tax because every other country is doing it.  It reminds me of my parents when I used to try and persuade them to get something because a friend had it.  “If Johnny jumps off a bridge, are you going to do that too?”  Foreign markets are no where near as robust as the American market place.  They aren’t as innovative, and they are most certainly not as diverse.  One of the strengths of the American marketplace is its diversity of traders.  The EU doesn’t have a lot of independent traders.  They are mostly bank traders.  A tax will limit competition, and kill diversity in the US.  Are you a minority or a woman that wants to try financial trading for a living?  Are you entrepreneurial and want to try and support yourself trading?  Your hill just got a lot higher to climb.
  3. The NYT makes the point that pension funds don’t use hedge funds as much today as they used to.  They don’t.  So what?  It’s a free market and pension funds might go back to using hedge funds if they see it as an asset class that has potential for them.  A tax puts a wrench in the risk/reward math.  I bet we could find thousands of editorials in the NYT about how we have to save more for retirement, take care of government employees, and support unions.  Transaction taxes hurt all of those groups.
  4. The tax isn’t borne just by the traders.  The tax is shouldered by the American public.  The tax will make it more expensive for producers and consumers to manage risk.  That cost will be passed directly on to the market.  It might only be .05-.20 cents on products that have exposure to grain. When you think about all the grocery products that have exposure to grain, the tax adds a lot of money to the average grocery bill quickly.
  5. In the startup community, people are debating whether firms should stay private, or go public.  I think it’s better for the American economy, American people and the firms to be public sooner rather than later.  Having a transaction tax makes it more expensive for them to go public.  That limits investment opportunity and wealth building opportunity for average Americans.

The financial industry will eliminate jobs because of the tax.  A small tax doesn’t seem like a lot but when you are trading trillions of dollars every day it does.  The initial jobs that get eliminated will be the lower level jobs where people start.  This tax will extinguish opportunity for young people entering the industry.

A transaction tax is a totally sexy idea to someone that is not familiar to markets.  But, once enacted they will become very familiar with it as all kinds of bills go up; from the grocery to the fees banks charge them to handle money.  Basically, anywhere they transact business will be more expensive.

Thanks for the link Instapundit

Thanks for the link Doug Ross.

I should have added that public companies use the capital markets to raise capital for operations and expansion.  A transaction tax makes accessing these markets significantly more expensive.  That hurts GDP growth, potentially increases unemployment, and continues to make America less competitive.


  • Patrick Rooney

    Also worth calling out is the inefficiency of taxation in general. All taxes take money out of of system. No taxes are 1:1 where every dollar taken out of public consumption is returned to public circulation. This effort is merely a re-distribution of money. I refuse to say re-distribution of wealth as the vast majority of traders are far from what could be described as wealthy.

    This could even be considered double taxation. As we raise the cost of hedging for producers, traders themselves who are taxed on the trade are now taxed on the increase in prices for the goods they consume and schools their children attend.

    • Public firms are already triple taxed. This is a fourth tax on their profits.

  • WirePoints

    And where is the equity in singling out one particular sector to pay a monstrous bill (over $300 billion estimated from HR 1579)? Why not single out, say, Hollywood? Sure, stick them with a $300 billion bill. Any sector-specific tax should be suspect.

  • teapartydoc

    The public will allow this to go on until the process has reached a point of terminal unsustainability, and will then react violently. In the aftermath of the self destructive conflagration they will establish a system that will inevitably and inexorably repeat the process.

  • Dantes

    I think we should tax newpaper editorials, per word, per edition sold or per click. It would only be a small tax and could raise a lot of money from the rich.

    • Pettifogger

      Only a small tax at first–to avoid harm.

    • Hans Niemand

      Back when newspapers were still alive I advocated taxing large-scale uses of newsprint paper. Y’know, dioxin and all that….

    • GABroncoFan

      Liberals like taxes so I think we should raise taxes on liberal blogs. We could call it an open minded internet surcharge tax. But only on liberal blogs. They don’t have any problems with taxes and I don’t have any problems taxing them so lets give it a go.

    • iconoclast

      End the Hollywood tax cuts!

  • Terenc Blakely

    Once you realize that the Democrats don’t like capitalism at all then their economic policies start to make sense.

    • earthtone55

      Most of them don’t understand capitalism.

      • mreport

        They understand that it makes people happy, don’t care why.

      • Yehiel

        Nor Communism, or much else. They feel, they don’t think.

        • GABroncoFan

          Venezuela is about to crumble and yet somehow the progs think that communism/socialism will work. Communism is nothing more than moving the 1%ers to being the political elite with no way to vote them out. In essence, eternal crony-ism.

  • fahagen

    For progressives, all the opportunity destroying aspects of the proposed tax are not a but but a feature. They want people dependent on the “experts” who will be making all our choices in the progressive nirvana.

  • kdn

    This will force many of the remaining commercial traders to make the call to jump from the exchanges to the private market. They already are moving that way as they can’t get the size they need to hedge further then one or two months out so an increase in transaction cost will be the proverbial last straw on the camel. I doubt that the pushers of this tax have any clue of the amount of transactions that now take place off exchange and therefore would avoid the tax. Unintended consequences will rule and the tax they want to bail them out will kill the cow they intend to milk leaving them in a bigger mess then they are currently in and all parties worse off then when they started.

    • Trust me, they have no clue. Barney Frank wanted to tax oil transactions and increase regulation on speculators. He didn’t understand it all would have exited the transparent futures market and gone underground to private markets.

      • earthtone55

        Didn’t understand, didn’t care, what’s the difference?

  • caseym54

    Part of this is the usual vindictiveness of progressives, who have been thoroughly conditioned in their two minute hate sessions to favor anything that harms hedge funds, corporations or their running-dog securities traders.

    • Hans Niemand

      Small modification: Anything they THINK harms hedge funds corps..etc..
      The costs referred to above are what’s left after business people have done their jobs properly and legally minimizing the impact of SJW tax-idiocy before passing those costs on.

    • Ivar Ivarson

      Hillary’s son-in-law must not be harmed!

      • rabidfox2

        He won’t be. I’m sure it will be written in such a way as the big players avoid most of the tax. As usual.

  • mreport

    Increasing the rate of creation of wealth is the only way out of the debt trap;
    Wealth is created, often in huge seminal geysers, by small new companies
    offering innovative products, usually high-tech, which -unexpectedly- grow
    into mass markets. I would not bet on another Apple, Microsoft, or even Intel,
    but Polywell fusion electric power generation, or anything with ‘nano’ in its
    name, particularly in the medical field, Yes!

    • Jeff Gauch

      And now you see why major tech companies and their founders support the Democrats. They know how easy it is for the markets they dominate to be disrupted, having disrupted previous markets themselves, so they enlist government to raise barriers like Obamacare to keep their potential competitors small and unthreatening.

      • It’s because of social issues and history. Many entrepreneurs are immigrants-and traditionally back Democrats. Many in the entrepreneurial community are Jewish, which traditionally back Democrats. Virtually all entrepreneurs live in dense urban clusters which are overwhelmingly Democratic.

    • Jeremy Klein

      You are absolutely right. And the best way to do that would be to do something crazy, like actually following the Constitution, enumerated powers and 10th Amendment included. This would eliminate all the agencies/regs/laws loosely ‘based’ on the ‘expansive’ interpretation of the Gen’l Welfare and Commerce Clauses. This ‘interpretation’ is actually an obviously wrong reading of the document, and makes a mockery of the enumerated powers and the 10th Amendment. A return to the actual text of the Constitution and what it means would limit the Federal gov’t to its proper bounds. Gone would be SocSec, Medicare, OSHA, EPA, HHS, ATF, FDA, and a host of other Fed bureaucrazies that throw not sand but boulders into the gears of the economy. Eliminate them, and watch businesses of all size boom. Watch the poor benefit from entrepreneurial and employment opportunities they long have been unjustly denied. Watch the debt disappear. Watch wealth rise.
      But We the People are a wicked, venal, and ignorant Sovereign, and We won’t do that. This does not end well.

  • dwpittelli

    One thing I’d add is that taxes should be as broad-based as possible — such as an income or consumption tax — so as to minimize market distortions. Or if a tax is going to be narrowly-based, such as on a particular industry, product or behavior, then the tax’s backers have to be able to make the case that the product being taxed is a vice and/or has externalities which are harmful or need to be funded (e.g., on cigarettes; pollutants; and gasoline, to pay for roads). But I have heard no convincing case that financial transactions are per se or generally harmful to us.

  • WirePoints

    Here, no joke, is just a partial the list of evils that would be addressed HR 1579, the transaction tax sponsored by Schakowsky, as stated in its “findings: AIDS, climate change, unemployment, hurricane Sandy, foreign aid, public safety, economic growth, global health, the financial crisis, protection for Medicare and Medicaid, crumbling infrastructure, inequality…. See the whole list here: These people are dangerous and they may win both the White House and Congress.

  • Ivar Ivarson

    It’s hard to imagine the TT being levied on an IPO since you have to sell the stock at least once to get any capital. But I fail in my imagining of the stupidity of the NYT. WWKS=What would Krugman say? That should put icing on this nothing cake.

  • Morpheus

    Everytime the NYT reports a lie the reporter should have all of their credentials revoked and the paper should hire a conservative reporter to replace the liberal reporter. As well as a $50 million dollar fine per incident.

  • Ed O’Brien

    I’ve invested in stocks since 1976, which means among other things back when I started buying & selling stocks, brokerage commissions were fixed. As I also recall, back then we had stagflation, the first New York fiscal collapse as well as an eighth of a point City of New York tax on NYSE transactions. Which was another reason, as I also recall, that all the stock purchases & sales I did back then were routed to exchanges other than the NYSE, i.e. Philadelphia, Pacific etc. So I have to ask does it make any sense other than as an unintend-ed confession of the NYT’s editorial board’s utter economic ignorance to call for a tax so easily legally avoided?

  • rabidfox2

    The trouble is that libs, like the NYT, don’t track the ill effects of increased taxes or costs to the tax or mandated cost itself. Just look at minimum wage – lots and lots of history showing that minimum wage removes jobs from the market place but the libs just WILL NOT see the consequences. And their solution to the problems generated will be more taxes or more mandated costs.

  • Francis Turner

    Tim Worstall points out that this tax will almost certainly result in lower overall government revenue as well as a smaller economy. I.e. it’s a lose-lose

  • iconoclast

    It already is too expensive and risky for many small companies to go public. Sarbanes-Oxley should be called the “protect giant public companies” act since it prevents many companies from accessing the public equity markets.

  • Bandit

    The tax isn’t borne just by the traders. The tax is shouldered by the American public.

    They never learn

    • eric blair

      Trading fictitious or non-existent money around merely by hitting keys on the computer is what should be taxed, heavily. It is after just Las Vegas type gambling. These “traders” and so-called Hedge Fund people make lots of money producing NOTHING. Where does their money really come from? “the tax is shouldered by the American public”. Are you kidding? Uber valued at 50 billion $$+. Yeah, right, sure it is.

      • Bandit

        Sorry comrade – your lust for other people’s money doesn’t give you or the gov’t the right to confiscate it

      • Uber doesn’t support your example. It’s private, not public. If Uber went bankrupt tomorrow, taxpayers wouldn’t lose one dollar. Just efficiency and competition.

        It’s not Vegas unless you treat it that way. Hedge funds produce a service, not a good.

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