Wealth Devastating Financial Transactions Tax
By Paul Price
Eleven European countries, including heavyweights Germany and France, recently signed on to the idea of a financial transaction tax. The European Union (EU) introduced the new bill through their “enhanced co-operation” procedure which would allow nine or more member states to move ahead with it even if agreement from all 27 nations was not reached.
That was similar to the way Obamacare was finally pushed through here in America through the “reconciliation” process.
The UK and the US have voiced opposition to the proposal, which might crimp trading volumes in the venues imposing the tax. The levy would be a 0.1% on stock trades, mutual funds, CD’s and most other standard risk instruments. Options, futures and other highly speculative vehicles would be taxed at 0.01% of their notional values. Note: The notional value is the value that the future or other option represents, not the premium. If you buy a call with a strike price of $40 for a $1 premium, the notional value will be $4,000, not the contract value, $100.
The fees would be imposed on trades in, and out, of tax sheltered accounts.
Those low percentages sound innocuous but are not. EU commissioner Algirdas Semeta estimated it would collect 30 – 35 billion euros per year.
That amount is one-third as much as the $125 billion a year that the re-implemented extra 2% FICA tax on all employees will bring in this year in the USA.
How much would this supposedly minimal tax hurt you? It all depends on how large your trades are and how often you buy and sell.
If you merely make three round trips per week at an average ticket size of $5,000, you turn over $30,000 weekly and over $1,500,000 annually. One-tenth percent of that amount equals $1,500 right out of your pocket.
Slightly more active accounts might make just one buy and sell each trading day while leveraging up to $10,000 in typical trading capital. That would turn over $100,000 and $5,000,000 per year based on a 50-week schedule. Boom. $5,000 extra to the taxman.
Look at your brokerage firm 1099’s to see the gross proceeds you went through last year. Multiply that times 0.1% to see the damage you would have incurred, just on your taxable activity. Your 1099’s don’t show the trading turnover in any IRA or 401k accounts you might own. Many people's largest single dollar-value asset might be their employer-based retirement plan.
That last function is a true killer. Schedule D taxation nets winners against losers. You are only charged capital gains taxes on net profits. If you had no net gains you pay nothing. You can even deduct up to $3,000 per year of losses against other income.
Let your Congressmen and Senators know your opinion on this very important topic. If you think you are already carrying too large a burden let, them know you oppose imposition of a financial transactions tax here in America.
