Tax every single share of stock that is bought and sold 10 cents per transaction. One dime. If you buy a share of stock, your brokerage pays a 10c tax. If you sell a share, your brokerage pays a 10c tax. 1 share, 100 million shares. Its 10 cents per share.
Of course the tax will be paid for by those of us who are buying and selling stocks. So what. Here is the reality. If you are a true investor. Someone who wants to own a share of stock in a company you believe in, then its an amount that is not going to impact your investment decision making process.
If you are a professional trader or an institutional trader that trades continuously, then it may impact your decision making process, but only to the point of reducing your returns by a minimal amount. Its not going to change your inclination to trade. If you make 9.9pct instead of 10pct, you aren’t going to stop trading.
Whats the economic impact ?
If the NYSE, Nasdaq, Amex and OTC are trading 2 Billion shares a day, thats $ 200 Million Dollars PER DAY. If there are 260 trading days a year. Thats about 52 Billion dollars a year.
Thats real money.
Of course there has to be some fine print. You could reduce the tax per share for stocks under $5 dollars to 5cents. But i would leave it at 5cents even for stocks priced at pennies per share or less. This tax would act as a protection for investors and traders who get pitched unregulated penny stocks and who are more often than not the victims of rip off artists.
Take this $52 Billion Dollars and ????. I will open it to the floor for suggestions and save my conclusion for a later post.
5 dollar and under stocks
Alex, day traders are not “video game players.” Many are just people trying to make a living, no different from you or me. I know of stay-at-home moms who have learned to trade to try to earn extra money to support their family. It’s disgusting to see you refer to such people as “video game players” or as “unproductive.”
They are trying to make ends meet just like anyone else.
And traders DO provide a service to Americans. They provide liquidity to the markets. They are the ones that allow you to make money in your 401K. If you are a long term investor, the traders are the ones that give you the liquidity to give you a good price. Just because you can’t “see” the service or order it or something like that doesn’t mean they don’t provide a service. And on top of that, the money they make is then spent into the economy which is beneficial to everyone.
And, the fact is, there is practically NO difference between the investor and trader. The ONLY difference is their time horizon. Otherwise they’re doing the exact same thing. So you are wrong to differentiate the “video game playing day trader” from the “well meaning investor” when essentially they are the same…just one has a time horizons of minutes or hours while the other has a time horizon of months or years. But otherwise they are the same.
Comment by James -
Video Game playing day traders will stay in a stock for all of 2 minutes and some of the cheap tricks for scaring money from well meaning investors are just pathetic. The burden of social support should be put upon the unproductive whose activity doesn’t contribute a lick to Americans only themselves. Its really the problem at the core of all our troubles, that sociopath
in the individual who has nothing but disdain for society enlarge.
Their cynical trickle down, supply side beliefs are nothing but excuses to extract their livings from folks who have their guard down ..predatory. Some of them may even have to find …work. Admit it, thats why you got into it, you’d rather sit in front of your monitor all day and avoid work.
Comment by Alex -
On Friday, February 13, U.S. Congressman Peter DeFazio, introduced H.R. 1068: “Let Wall Street Pay for Wall Street’s Bailout Act of 2009”, which aims to impose a 0.25% transaction tax on the “sale and purchase of financial instruments such as stock, options, and futures.”
http://thomas.loc.gov/cgi-bin/query/z?c111:H.R.1068.IH:
Comment by Matt -
Mark:
Unique idea to collect tax on each share traded. Seriously, I would pay a 10 cent a share tax since I don’t buy many shares. In addition, we could collect for auto liability insurance at the gas pump. I have a short commute and a gas efficient car. We could collect for health insurance at the sale of every pack of cigarettes, bag of pork rinds, and every Big Mac (or even a tax per gallon of high fructose corn syrup). I also don’t smoke or eat fast food and I don’t drink soda (excuse me… being from Pgh. “pop”)
Seriously, $52 billion would be good. Nice solution.
Kelly
Comment by Kelly Lefkowitz -
You are an idiot.
Comment by Reality -
Unreal, I am absolutely against this unbelievably naive opinion.
Comment by Brandon D. Taylor -
There is no need to tax in a fiat based economy, government can just print the money.
Comment by FLC -
Every tax like this starts out as a “good idea.” No tax is ever repealed. The result is that the government(s) layer taxes upon taxes, increasing the overall tax burden for everyone.
Comment by Nate -
I recently posted my own version of this idea – just click on my name to see it.
I believe it addresses the main criticisms of Mark’s proposal, and improves on it.
Comment by Sachiko -
An excellent idea. This would slow down the people who churn stocks all day. If a stock os up at closing, they will sell tomorrow at opening, the re-buy during the day and re sell
I’d like to see a “sunset” on this. Make it 10c in the beginning, then reduce it ti 5c when Wall Street pays the US Treasury the $700 Billion.
Re-Enact laws that outlaw ‘Bucket Shops”. No more casino gambling on Wall Street with deritiatives and credit default swaps.
Comment by DonMac -
And one other thing about the stupidity of this “tax” idea.
There are plenty of markets in the world to trade, and the trading would be done on those markets.
This country would be relegated into a thirdworld economy.
On a side note,
Love this quote by Mark Cuban.
“I’m not doing this for some greater good – I want to make more money. I love to fuck with people, and I love finding ways to make more money.”
Comment by Tbone -
“Adding the 5 cents won’t cause the most discussion”
Adding 5 cents would erase at the very least 90% of the liquidity of the stock market.
Hedge funds would not be able to operate in this enviornement.
You guys real don’t understand the mechanics of the stock market. I advise you to do some research into this field before coming up with any more brilliant ideas that would put us in a much worse position than we already are.
You put a tax on the stockmarket, you cut shares traded by 90+% (atleast if not completely break the market in half) AND you increase volitality to levels never seen before.
One
Comment by Tbone -
Hi Mark,
I think you are completely misguided in your ideas and your stockmarket math needs some work.
You obviously do not know much about how the market operates.
You dont just raise taxes on trades and sit there thinking you are going to make billions of dollars.
The moment that your tax idea went into play in the actual market, liquidity would cease
to exist.
What does this mean? You just erased the stockmarket. Is that your goal?
If it is, then GREAT IDEA!!
So,
Comment by Tbone -
It would have to have some price thresholds in place. like only on stocks that trade over 5 dollars per share.
Comment by JDOG -
How about we charge all men around the world 10 cents for
everytime they blow a load. That would be a real boon!
Sorry Mark, you are a brilliant guy and all, but this is just an
egregious form of wealth transfer that has no place in our economy.
Giving the government $52 Billion more (5 months in Iraq)
we might as well just flush it down the toilet and skip the middleman.
The government has only one plan for our money – waste it.
Capital gains is enough of a tax on investors. You should know that
better than anyone!!
You are the man!!! Congrats on all your success..
Drew
Comment by Greenrush -
Dear MC,
(i). You have no idea what you are talking about. The concepts of
liquidity, free markets, market making and market efficiency are clearly alien to you.
(ii). This is political grandstanding.
(iii). Your net worth has suffered from the recent volatility.
(iii). See (i), (ii) and (iii) above.
Sometimes it pays to keep one’s mouth shut, than to open it and
remove all doubt if you know what I mean…
Regards, Libor.
Comment by Libor el Robil -
You and the people that agree with you truly do not understand how markets work at low level.
I am a professional trader. I principally provide liquidity to the markets.
I don’t drive stocks down, I don’t drive them up, I profit from the people who
do that. I trade over 1Mil shares most days. I can assure you I do not make
$100,000 per day to overcome this tax. You will have put me and many people like
me out of business.
Consider what you did to my cost of business. My typical commission is around
.2 cents per share. You just 50X my costs. Given that no liquidity provider on
earth can overcome a 10 cent per share cost, you’ve removed any professional liquidity
provider from the marketplace, at a time when the markets DESPERATELY need liquidity.
Volatility is a symptom of a lack of liquidity. More liquidity decreases volatility. You are
proposing to do the exact opposite.
You can kiss penny spreads goodbye. So not only will you be paying your new 10 cent tax, you will be paying that amount and more again in inferior prices as there will be no professionals willing to take the other side of your trade.
Implementing your proposal would cause a drastic drop in prices and paradoxically never
generate the revenue you expect as trading volumes shrivel up and die. Be careful what you wish for….
And then there’s the even more obvious argument of why the heck are you punishing the equity markets when they had absolutely nothing to do with this? The abuses that happened all occured in exotic securities that did not have a central marketplace and were traded off balance sheet and off exchange. To paint “Wall Street” with such a broad brush is like punishing China for Pearl Harbor because they are Asians too.
Comment by Stan -
cuban is a jew…….that’s enough information for me.
Comment by tom chittum -
there already is a tax on all stock sales in the united states.
the revenue is given to the SEC to fund their regulation of the
markets.
Comment by steve spencer -
You estimate $52 billion a year in revenue. Thus, the trading/investing community, under your plan, would make $52 billion less a year in profit. And this will not affect peoples/institutions’ willingness to trade, and lower liquididty? Please. Every tax has an impact on the margins; it is just a matter of degree. And $52 billion is a lot of impact.
I’m guessing you know some folks who run or are big investors in Quant funds. Ask them how much their trading would be impacted by your idea. And I know you said, they will find ways to incorporate the tax and make money; why do they need a tax to find new ways to make money-you think they aren’t maximizing their profits now and need a 10 cent tax to motivate them?
Comment by mike -
Mark,
On the surface, for an outsider looking in, it sounds like a good idea. But as we all know the road to hell is paved with good intentions. This would be a disaster and this is why:
First of all the problem the country faces is due to the credit and real estate market not the equity stock market. Clumping everything together and calling it “Wall Street” is naive very dangerous. Our business had NOTHING to due with the current state of affairs.
As a “liquidity povider” I personally trade 2+ million shares of stock per month. Your tax scheme would make my break even point $200,000 PER MONTH! That means I would have to make 200k before I make 1$ for myself and my family. This would put me out of business over night. The firm that I am a member of which contributes 4 to 5 Billion shares per year in volume would be out of business over night. MOST IF NOT ALL of the firms like ours would be put out of business. That is just the beginning. Other Listed and otc market maker, floor traders, NYSE specialist operations, high frequency proprietary trading houses, and high frequency “quant” hedge funds not among others will be put out of business or serverly hobbled in the best case scenario or in the very least povide a fraction of the liquidity that they currently do. You see we are in a low margin business and when you average all of the profitable trades together with the losing trades market makers and other high frequency traders are lucky to average 10 cents per share. Again from an outsider looking in it sounds propostuous but it is our reality.
You will in effect take away half of the overall trading volume in other words liquidity (remember liquidity is the very thing the non regulated cdo market so desperately needs at this point so much so the Treasury dept. put together a scheme using hundreds of billions of tax payer dollars to be the market maker or liquidity provider in non liquid CDO’s (market makers are the people you will inadvertly put out of business in the stock market)
A robust, transparent, LIQUID market is a GOOD thing just ask one of the millions of people trying to sell their house at cut rate prices with not bidders in sight or the Treasury Seceratary Hank Paulson that has had to turn the US gov. into a liquidity provider because there is no liquidity for the credit derivatives that have been wrecking havoc on the banking systm.
Markets and exchanges around the world look to our stock exchange in envy and often try to emulate them. Our market already serves as a great tax provider, job creator, wealth builder, and bastion of capitalism. Don’t mess with it, it is not broken, and is as much a part of the current problem as your basket ball team or former internet company.
Comment by Mark -
This is naive on multiple levels… from your basic premise to your volume assumption… from your mistaken belief that the impact on professional traders would be minimal to bizarre consequences like one share of Berkshire Hathaway ($111,900 on 24 Oct) being taxed the same as one share of GM ($5.95). I have a better idea… a 90% tax on billionaires. Would raise A LOT more money without hurting market liquidity and taxing the masses. Come down to earth Mark.
Comment by Mark -
Mark how can you possibly think that this idea wouldn’t affect liquidity? The daytrading community that I have been a part of for 10+ years provides 25%+ of the daily volume on each major exchange. We provide liquidity and tighten spreads. There is no arguing that fact. An average daytrader trades about 100k shares per day (myself around 200k). If I understand your idea you would tax me .1*200,000=$20,000 per day. Myself and every trader I know would be instantly out of business, and this includes the black box traders. This includes hedge funds, pension funds, professional traders, mutual funds…everybody would be taxed to death overnight. I don’t understand how you see another side to this.
Don’t think because I am a trader that I don’t support some type of transaction tax. Somebody does have to pay back the billions that have been used to slow the death of our financial system. As someone stated earlier, every stock sale has a minimal fee from the SEC. It costs me around $300/mo which I believe is a fair cost to doing business. It’s based on a % of dollar value of the transaction, and it works. Why try to reinvent the wheel?
You are putting the entire system at risk with this type of idea. Every trader, every hedge fund, mutual fund, brokerage, and pension fund would see a huge increase in cost of doing business…and that would be passed on the the retail public. Our beautifully efficient markets that are admired the world over would come to a screeching halt.
Re-do your math…your premise is wrong.
Comment by Dustin -
This will be great for the guys doing 500,000 to 1,000,000 shares a day. Hell, why not make it 20 cents a buy/sell? Making money is a terrible thing and it should be taxed. This retarded tax is just what we need. I’ll make sure I pass my extra little bill down the line.
Comment by Trader -
but since your so rich, you probably wouldnt agree, haha
Comment by jonsjon -
tax is already in effect in england.
caused CFD’s to arise.
CFD are more expensive for the beginner investor then buying stocks.
effects are already known.
liquidity in smallcaps dry up, liquidity in largecaps more
or less stay the same.
tax revenue is not lineair. income tax is lower, but its unknown
whether transaction tax total is higher or lower
so does have somewhat an effect on liquidity. myself i see much more
in taxing higher incomes at 90% income tax. brokers, the wall street
guys, will probably get an exemption from the tax.
so the tax will hurt the smaller investor.
also, i find it funny you propose a flat tax instead of
percentage based. this will hurt the small investor thus far more
then the wall street guys.
another thing, CDS were unregulated. does it make sense to
tax regulated securities, just because wall street guys also trade
in those regulated securities? what about investors or traders who
traded only in regulated securities like stocks. they will get taxed,
for something they didnt do.
so their are moral implications connected to your proposal.
I see much better something in hightening capital gains and
income tax to 90% for $500k+ rich people
Comment by jonsjon -
21st Century version of “The Stamp Act”?
Wasn’t that “the straw which broke the camel’s back” and lead to the
Revolutionary War?
Comment by Orlandes Wayne -
On the face of it, this seems like a good idea, especially as it would help to finance getting us out of the financial rut Wall Street got us into in the first place. However, I would make one simple and obvious change, which would allow penny stocks etc. to continue: tax by percentage instead of an absolute amount. Something in the order of 0.1-1%. That would make it a lot fairer, and I dare say more effective as well.
As to the markets abandoning Wall Street and moving overseas, this is one of the great opportunities the present situation presents: countries all over the world are working together to solve this problem, so all western countries could introduce this tax at the same time.
Comment by Sachiko -
Great advice from a billionare. What about the little guy Mark? That idea is
ridiculous.
Comment by Pujols -
MC-
I think the idea has a lot of merit
I say use the funds generated to backfill Social Security,Education and the National Debt
If need be, call it a “luxury” tax
Comment by Big P -
Mark- Your theory does not hold water. It violates a basic fair market economic law. Tax the people and money retreats. Reduce taxes and money floods in. There is a reason why tax revenues have increased 20% even though taxes have been slashed with Bush. The problem is not the lack of taxes. The problem is spending that’s out of control. Hence your post about how to build wealth. The best thing that could ever happen to this country is eliminate capital gains tax and watch money flood back into the stock market from some 13 Trillion we have in offshore accounts. It would turn America’s markets into an unstoppable powerhouse. Replace corporate tax with a national sales tax and watch job flood back into the states too. Then your idea of investing through less spending would really kick in.
From MC>
Not true at all. An entrepreneur will follow the opportunity. Money that needs to earn money in order for fund managers to get paid millions of dollars, will find ways to incorporate the costs into their returns.
The capital gains is after the fact. Remember this. No one ever got in trouble for taking a profit, and they will take a profit no matter what the cap gains tax is.
Comment by Charlie -
Hell, call it a “fee” not a tax.
And once we get rid of all the day traders, won’t we have a much more stable system all around?
Comment by Wally -
Great. Tons of reverse splits.
Good idea on the surface though.
Comment by Miles Archer -
Horrible idea. Dumb. Just dumb. H. L. Mencken was right. Nobody ever went broke underestimating the intelligence of the American people.
Comment by jtintx -
On the surface this seems like a good idea, however why shift the burden to pay for Wall St excess to the many people who had no responsibility in this financial crisis to the innocent masses. Lets not forget that we would not be in this mess if people did not default on their mortgages. Many mortgages that were made with 100% financing. People who had nothing to lose. A wonderful opportunity that offered a chance for appeciation, with no downside.
Comment by Pasadena Homes -
With all these brilliant blogs, how do you ever find time to run your financial empire?
Comment by Tripp -
i say legalize poker everywhere in the USA (offline and online) and take a $0.50 “tax rake” per pot. Have no idea what the per year tax revenue would be, but i’m guessing it would be a healthy amount and there won’t be as much pushback from average joe poker player (vs. average joe trader). card rooms shouldn’t care b/c they just tack on the $0.50 per pot, effectively charging the players. i doubt you’ll see a reduction in total poker pots played per year due to the tax.
Comment by luckymucky -
Tim,
The Tobin tax is to charge a small fee for currency speculation, not stocks. We wouldn’t need international cooperation to implement the Cuban Tax, because companies could be penalized for moving to foreign exchanges.
Comment by RobertJ -
I like it for the simple reason that it would eliminate the sub-penny
and penny scam market.
Comment by Star the Wonder Pup -
Mr. Cuban,
It’s time to put your pulpit to the test. As a wealthy guy with connections, you owe it to your community, your country, and yourself to talk to decision-makers about your ideas – this one, especially.
With great power comes great responsibility.
P.S. – How ’bout them Rockets?
Comment by BD -
I LOVE IT! 🙂
I think it’s brilliant and I think you should run for office.
Seriously.
Why can’t we propose a plan like this that produces REAL money and
real value to the economy? You’re absolutely right that a true investor
that believes in the company he/she is buying shares for will not
be deterred by such a tax. Great idea!!
Comment by Blakely -
Market will not have enough liquidity only with
‘true’ investors. Day traders help moving the market.
Gamblers help take the risk while every true investors
jump ship.
Comment by WL -
Seems good to me.. we all pay income tax and then a sales tax in purchases.. why not for stocks too!
Mark… which politician will you be working with to get this passed? 🙂
Comment by Max T -
Terrible idea! The people who purchased stocks have nothing to do
with the people who purchased more home than they could afford,
realtors who sold them more than they could afford,mortgage brokers
who arranged for a mortgage they could not afford. Then we get to
the people that packaged the mortgages,the rating agencies who gave
their AAA blessing. Not one stock transaction.
I have a better idea.Tax the hell out of the owners of every
professional sports franchise by taxing every ticket $1.00. That won’t
effect anyone who chooses to stay home.
Comment by Everett -
Capital gains tax is only when you sell and make a profit. That can stay in place – they should pay tax on the profit. I like the idea of a transaction tax that is due immediately when the trade takes place. They can even deduct the transaction tax from their capital gains tax if that would help make the vote. Send it around and see if anyone on the hill likes it.
Comment by Leon Gaudi -
This plan would totally pay for the “bailout” plan that radio host
Dave Ramsey has proposed at his site.
Comment by Ben -
Mark,
I very much enjoy watching the Mavericks again and
I think you have done a good job with the team.
But this idea that when people want to invest their capital
in American business’s they should pay additional taxes is a
bad idea.
It will raise the cost of capital to business, less capital for
business means less capital for productivity enhancing measures.
This means lower wages for employees.The law of unintended
writ large.I’m sure you wouldn’t propose this sort of a tax if you
knew this would be the result.
Besides this is just a little more of setting up a group of people to
take the punishment of the tax man, why just them, lets design a tax
for all the groups we can villanize, Oil companies, Insurance companies
Billionaires etc etc.
Have a great day
Dave
Comment by Dave Cribbin -
It would be nice to tie the companies or services that are being
monitored by congress ala “Oversite” to actually pay for the “Oversite”
without the companies contributing to re-election campaigns and causing
the mess we have now, of course if “real” oversite was taking place
this should never have happened.
Comment by John R. -
Cuban,
Normally I find you to be an annoying blowhard, but I come to your
site from time to time because once in a while, I actually agree with
what you are posting.
This is one of those times. Bravo.
Comment by Scott Kreitz -
You’re an idiot Mark Cuban. All the tax would do is greatly decrease the market volume. People can still trade stocks outside the market, so you would just eliminate the stock market in its current form. It would be like ramping up the minimum wage – it would “send jobs overseas”.
Comment by Brian -
Why would you arbitrarily tax $5 stocks at 2 percent and $100 stocks at .1 percent?
Also it seems that OTC does several times the volume of of the other exchanges combined. So if the OTC volume declined by say 75%(seem likely since the top 30 OTC stocks are trading at fractions of a cent) your 52 Billion would rapidly deflate.
While tax revenues may still be in the billions, the bigger question is why? I mean you could in theory increase taxes on anything with high volume at a relatively low rate and make huge numbers.
I’ve still have yet to hear a compelling reason why this tax is necessary.
Comment by Tadashi -
Interesting proposal… but what would you do about 401(k)’s and other retirement investments from main street? Would they be exempt or reduced?
Comment by Robert -
I think that most people have missed the point. Whether its 5 cents or 10 cents, some amount should be collected to compensate the American people for the continued malfeasance on Wall Street. Tax is too strong a word for people. I suggest transaction fee then traders/investors alike will consider it as a natural cost of doing business in the U.S. This fee is not unreasonable if you figure $52B a year for the next 10 years only equals $520B. (Please note Wall Street is about to receive $700B tomorrow and there is no concrete plan of how we are going to benefit from our “investment.”) Also consider that a very large amount of trades are place from overseas traders/brokers which means we get ‘free’ money that does not have to be split with them. I suspect that some daily volume will move to overseas exchanges but if you want to make money, you trade where the most liquidity is and a 5-10 cent fee is not going to change your business model.
To those who think the fee is unreasonable you have several options:
1)Don’t trade stocks on U.S. exchanges; stick to bonds
2)Find a 401K that will lower their annual fees to account for the “t/fee” on stocks
3)Trade stocks less (i.e. the Warren Buffet approach)
4)Improve your other investments to account for the perceived “loss”
I could go on all day but you get the point. These strategies are already being used every day by MANY millionaire and billionaire investors who understand what the words; diversification, patience, and long-term investing, really means.
As to Congress getting the money and pouring it down the drain, you have several options:
1)Move to another country
2)Run for office or get more involved in the political process
3)Don’t trade stocks or pay taxes and wait for the IRS to catch you
In regards to what to do with the money, we can only guess because we do not know the current state of such Govt programs which make up; Education, Healthcare, Social Security, and countless other programs that might be on the brink of disaster but we won’t know it until we get another 3-page proposal from the President and/or one of his cabinet members asking us for $1T in the next seven days.
Comment by TomH -
Problem is that there is already a capital gains tax on the
profits in stocks and tax on the companies profits and
double taxation at both the corporate level and investor level
of dividends. Why do you want more taxes?
Comment by Brandon -
Great Article.
I like your list Andy. All good ideas.
And Hop… Are you serious? How is 10 CENTS taking away a traders
wealth? I trade stocks, there’s already so many fee’s who gives a crap
about 10 cents? I loose 10 cents when taking my wallet out to buy a
soda at the exxon-mobil down the street. Give me a break.
If you tried to preach what the government would do with it, then I
wouldn’t have said a word. But taking away wealth? come on.
Comment by Dyno Tuning CT -
all solutions begin with cutting government spending. with that in mind
1. reducing the govt military budget, which was just increased. remember that 9/11 was an inside job and that these wars are totally fraudulent.
2. with the money you save there put it towards whatever charity programs you want. with the goal of eliminating those charity programs ASAP.
once this are somewhat stablilized, we do not go back to sleep. instead we
1. eliminate the federal reserve system
2. explore a standard-based monetary policy (i.e. gold standard or something like it)
3. repeal the patriot act, end the wars, reduce govt, and return to capitalism biult on limited government and sound monetary policy — precisely the factors that made this country great in the first place.
that is the solution. there is a zero percent chance it comes from anyone in washington with the exception of ron paul. so it’s going to have to come from the american people.
wake up.
Comment by kid mercury -
Your ideas while newsworthy and relevent is really nothing more than an increase in the capital gains tax. Putting additional costs on the trading of securities doesn’t resolve the lack of oversight and abuse that pervades the market. Until the public is protected from the kind of market abuses that are inherent in CEO employment contracts (which you wrote about earlier) noone on main street is safe and 52 billion a year to the gov’t will only make us all feel that much more screwed.
Enjoy your opinions and your honesty. Ever think of public office?
Comment by WilliamStein -
Mark you are a true billionaire. So you want to add 10$
per 100 shares to a small investors cost on top of about 10$
in commision most peoplpe pay already sheesh just goes to show how
deluded you are. Or it may be you want only large investors to be
able to invest in the stock market.
So which is delueded or just greedy ?
Kris
Comment by Kris -
Mark Cuban. Did you come up with this idea on your own. At first blush, i thinkg it’s pretty genius but then again Im a fan
Comment by Larry Chiang -
Tax, tax, tax, tax. After a while it gets boring to read that so many people believe that raising taxes is the solution and not the problem.
Comment by somoscangrejos -
My suggestions, in no particular order:
Use the $52B to actually fund NCLB.
Use the $52B to research alternate energies.
Use the $52B for the exploration of space.
Use the $52B to provide universal healthcare.
Use the $52B to improve the national infrastructure.
Use the $52B to fund cash-strapped social programs/agencies.
Comment by Andy -
1)The NYSE and NASDAQ will lose lose competitiveness to foreign exchanges.
2)Why should traders be punished? Why should their wealth be taken and reallocated?
3)The should tax bad ideas like this one.
Comment by Hop -
I’ll leave you lot to argue about whether to tax or not. How should you spend the money? How about you try and implement some kind of universal healthcare in that country of yours – bring yourselves up to speed with just about every other nation in the OECD!
Though, that’s unlikely to happen in a place where people like De above seem to think your poor have never had it so good!
Comment by Justin Barrie -
Honest Cap..
The day traders and speculators cause market issues. Removing the “free transactions” would force wiser investments because maybe they pay dividends, are profitable, actually have a product. This brings stability. Yes certain companies will lose, but a stable market with listings of companies who actually add value is better in the long run, for everybody.
My suggestion, buy blue chips.
And all you bail out complainers. The current situation is the result of a “false” market if you will. But the current economy is dependent on the ability to get short term loans and credit extensions. You lose that and millions of businesses close their doors. Then, instead of just subprime and 100% loans being the problem, you have stable families looking for work. Then you have a huge crises making this look like a pimple on the ass of society.
Comment by PSC -
By the way…Obama has only called House leaders and Paulson. It seems he practices loserhip, not leadership. Larry Kudlow came up with increasing the FDIC limit weeks ago and others have mentioned it long before Obama ever did. This is Obama’s plan to influence Congress: “they need to steop up to the plate and get it done”. WOW. Obama = Losership, not leadership.
Comment by Trevor -
Seriously, I need to know how “trading” caused all these problems. This is just vindicitive behavior, it sounds like you are just looking for more scapegoats and taxing the people that provide orderly markets through liquidity is jsut asinine, really. As long as we’re all just making shit up why dont we force every bank and broker to give half their profits to “Main Street”, after all tehy caused the problem right? And screw all these rich people, everyone who makes over 250k a year should pay 75% in taxes. Is that far enough or should i go on?
Comment by tradervic -
Yeah, Mark, your ideas are usually better than this. There’s already a transaction fee by the exchanges that’s paid by the B/Ds and ultimately the investor. Also, Markk institutional investor buy/sell thousands, if not, millions of shares at a time. I can’t see them being excited about thousands more $/year that cut right into their total return. Bad idea, Mark.
Comment by Trevor -
Will kill liquidity and drive the finance industry further offshore rather then keep in the states.
Comment by Barry Gitarts -
Hey Mark, I was wondering about the people that have mortgages and credit card debt with these predatory opporntists. Someone correct me if I’m way off base here but how is it right that someone can get you to bail them out and at the same time pay them debt that you owe in full?Something is wrong with that equation too. WTF???? Thanks for the thoughts.
Comment by Frankie from Lawnside -
The 52 billion dollars should be used on providing health care for the elderly. It should have a started age of 65, anyone 65 or older is not responsible for paying for their medical expenses. Now that would be something great to do with 52 billion.
Comment by Steven Rice (FOOTBALL MAN) -
I forgot to add – there’s a moral issue here too. One should not destroy the livelihood of a group of law-abiding people without a damned good reason. Daytraders and scalpers did not cause excessive leverage in banks and investment-banks, they did not cause people to speculate recklessly on real estate they couldn’t afford, they did not drive house prices above the price Joe Sixpack could safely pay, they did not inflate serial asset price bubbles by recklessly loose monetary policy. All they did was collapse stock bid-ask spreads from 1/4 of a dollar to 1 cent over 10 years, reducing transactions costs on stocks by a factor of up to 25-fold, thus benefiting investors enormously. Many short-term traders have been warning for several years about excessive speculation in real estate and credit – we knew about it because we saw one asset-price bubble before, the ridiculous mania and overpricing of the dot.com boom, from which you Mark profited handsomely (unlike the people who bought your company).
So for providing a service to investors, earning an honest living, and warning about the current disaster 1-3 years beforehand out of pure altruism, why on earth should we be driven out of business by a bunch of limousine-liberal billionaires who can just sit back and collect their T-bill interest without having to earn a living or risk everything in the markets daily? Who are politicians or SEc officials, being paid their salaries from the taxes we pay, to outlaw our work or make it economically prohibitive through knee-jerk punitive legislation? Did you think you might be putting some guy out on the street with your proposal, before posting uup? No, in typical blog fashion an idea popped into your head, you thought about it for a short while, and posted it without even considering if you were educated enough about the subject to be fully aware of the consequences. I’m very disappointed that someone like you could advocate a measure that will ruin lives, and not even mention that as a possibility, let alone give a morally defensible justification.
Comment by Honest Capitalist -
Several posters said this would reduce liquidity severely. Your response was that people will still chase profits so it won’t affect liquidity. Let me explain why your response is misguided.
Let’s take a typical moderately illiquid market, with a 0.5% bid-offer spread. Right now, I and traders like my can go a few pennies higher on the bid, or lower on the offer, and scalp the market, reducing the bid-offer spread to say 0.3% on average instead of 0.5%. We can only make a small profit per trade, but on decent size and high frequency per day, this can make a good living. It also benefits investors since they pay a smaller spread, saving 0.2% on average.
Put on a 10 cent tax, or a 0.25% tax, and suddenly this profitable trade disappears. There is then no incentive to scalp illiquid markets with wide bid-offer spreads. The scalper loses his livelihood, and (more important) the investment community face transactions costs escalating by 60%+ (from 0.3% per share to 0.5%, plus 10 cents per side tax on top of that). Not only do the spreads widen, but the volume will reduce due to the disappearance of intraday high volume liquidity providers.
Have you ever tried to place an options trade in a small cap? The spreads are gigantic. Have you noticed how much wider the spreads got after the short-sale ban? Even wider. Imagine if you have a sound regional bank stock in your portfolio, and you want to hedge – now you are looking at paying 3 or 4 times more in slippage, plus 10 cents per round trip, just to hedge or sell the stock.
I don’t see how massively raising costs by a factor of 60%+, drastically reducing liquidity and volume, and putting tens of thousands law-abiding people and their families into penury by capriciously destroying their livelihoods is a good idea.
You claim that “traders will still go for a profit” clearly does not apply to people whose profit margin per average trade is 20 or less – their entire trading would be wiped out by your proposal. People making 30 or 40 cents average per trade would have profits cut by 1/2 or 2/3, and would have risk vastly increased due to the tax. All this adds up. It means wider spreads, greater costs to investors, lower volume and liquidity, and worse price discovery. The economic cost of an extra 0.2-0.3% per trade would be many many times higher than $50 billion per year.
You make an analogy to real estate with its 6% commissions. But this analogy just proves how misguided your proposal is. Do you realise that in most western economies, real estate brokers charge 2% per transaction. The US is unique in having TRIPLE the cost to move home compared to other countries. The reason is anti-competitive licensing restrictions on who can be a broker. As a result, realtors enjoy a 200% economic rent from what is effectively a government-mandated closed shop that totally shafts homeowners and Joe Public. On a typical $200k home that is $8000 in pure suplus profit the realtor earns for doing nothing. In the UK, Canada or Ireland the commision would be $4k, not $12k, thanks to this rule. Now how many times does the average person move in their lifetime – 4 times? So that’s 16% of the face value of their average home that is confiscated over their life. Given that a home is the main financial asset of most normal people, that is equivalent to an entire double capital gains tax take out of your pocket and handed to realtors for no reason whatsoever.
Look at a market like the UK, with a 0.5% stamp duty on purchases. Have you ever tried trading small caps there? The spreads are horrendous. Because of the transaction tax, it is totally uneconomic for daytraders to operate, to only the market makers are there to provide liquidity. Since they have no competition, they charge accordingly. I’m sure you are aware that monopolies tend to charge rip-off prices to their consumers. This is why I trade on US exchanges, despite being a UK citizen based in England.
I haven’t even touched on the devastating effect this would have on discount brokerages, US exchanges, and financial centres like New York and Chicago. Business and jobs would go offshore in droves.
Mark you have some good ideas and a refreshingly independent approach on this blog. But I think with this idea, your lack of education and experience in economics and finance betrays itself. It’s as if you tried to comment on brain surgery practises or Brazilian Jiu-Jitsu sumbission techniques. Specialist fields are just more complex than that. You have traded but you don’t have a successful track-record of the likes of a Steve Cohen or Ken Griffin, and you don’t operate in the markets as a professional. This time you’ve just overlooked some serious economic consequences on the market microstructure, and thus the broader economy, that would occur as a result of your proposals. My advice is speak to someone who properly understands market economics, like Larry Harris or Bob Rubin, and ask them if your proposal has any holes in it. I’m sure they will point out some similar points to the ones I’ve made.
Comment by Honest Capitalist -
This is a seriously flawed idea. You assume you’ll
get $52 billion a year because all the stock indexes currently
do about 2 billions shares a day… with this tax you would reduce
the daily volume down to just a couple hundred million a day. When
you want to buy or sell a stock, who do you think you’re buying from
or selling to? Answer: a daytrader or market maker. You take those
guys out of the game by taxing them more than they already are and
you remove all liquidity from the system, the spreads get enormous,
and Joe retail investor pays a much larger, hidden tax when he both
buys and sells (assuming he can find anyone to buy from or sell to in
such a scenario).
There is such a thing as killing the golden goose to get an extra
egg. This is that type of idea.
Comment by MHB -
no way man.. not for more taxes..
although.. since you asking.. id give the money to me.
Comment by Note Taker -
Mark,
Exactly what problem are we attempting to fix here?
Daytraders didn’t cause this mess anymore than Doctors or auto mechanics.
Your assertion that companies will not alter their stock prices happens to fly in the face of reality, as well. Companies often times split their stock for the sole purpose of increasing the float to provide more liquidity in an effort to have a more stable price. Take away liquidity and you increase volitility. Perhaps you’ve noticed the same effect from the short selling ban on financial stocks? If not, you haven’t been watching.
I would say this is one of the most stupid ideas I’ve ever heard, but that hardly seems to convey just how ill conceived this really is.
How about we withhold the tax refunds of anyone who forecloses on a gov’t guaranteed mortgage until it’s paid off?
Or perhaps we could tax everyone who goes to a basketball game $10.
Gee, if were willing to tax just for the sake of it I bet we could raise a ton of money couldn’t we?
Comment by Tom -
I think it’s a pretty good idea, especially if the proceeds are ringfenced for the protection of bank depositors’ capital.
Something that slows the volume of trading slightly (your suggestion for a “per transaction” tax would hit sales as well as purchases) and makes consumers safer is well worth considering at a time when bank runs are a possibility. Your suggestion, properly implemented, could do both. Kudos!
Comment by sampablokuper -
Mark the real problem is the derivatives market, specifically OTC credit swamps. The rest of us are regulated and didn’t cause this meltdown. Don’t lump us all into the same group.
Comment by Dan -
Mark,
I think you forgot about the hand that fed you.. Let’s face it, you are who you are because of the the excess speculation during the dot.com era. The real valuation of Yahoo (and therefore broadcast.com) would be FAR less if there was a transaction tax. You are simply stripping the liquidity out of the market with a naive attitude that since “greed is good”.. the market will still thrive. You fail to mention that you are unfairly taxing one segment of the economy that had very little, if anything, to do with the need for a bailout package. Its the equvalent of attacking Iraq even though Bin Laden is in Pakistan.
Comment by rick -
Wall Street and Las Vegas were built from skimming off of the top.
Call it a pay to play tax. Attach a form of the tax to every financial instrument Wall Street invents. Let the investors who want to play in the game pay. Put the skim in a fund for the next financial bailout.
Berkshire would not mind the .10 per share.
Comment by EG -
Really a shorted-sighted foolish idea. It’s the traders that fill in both sides of the order book, which causes the bid/ask spreads to be so narrow. Take all those short term traders out of business by installing this tax, and you’ll see the bid/ask spreads widen considerably, which is a hidden “tax” on every investor/mutual fund/401K out there.
Comment by Sandy -
This has to be one of the dumbest ideas I’ve ever come across.
I’m speechless.
Comment by steve -
I like the idea of the tax as due on each transaction and due within 30 days of that transaction. I like the idea of it due on both sides of the transaction.
The stock brokers make their money on the number of transactions not the profit, so tax the transaction.
Comment by Jillian Sands -
Hey Mark,
I have a great idea. Charge $10K per ticket for the Mav’s games.
It’s simple economic theory really. Traders won’t tolerate it, they will subsequnetly trade elsewhere or stop trading altogether. In the end you’ll get a tax on half the volume thus resulting in less revenue that before you even implemented the tax. Honestly, I quite surprised you would even propose something as stupid as that.
Comment by Bill Leonard -
I’m a professional market maker/trader. You make a lot of assumptions, the main one being that the majority of liquidity providers make more than 10cps net. Although, I definitely wish that were the case, it just isn’t so. Every firm I’m acquainted with on the street that makes markets is lucky to see a few cents/share since decimilization, in fact that would be phenomenal. If you remember back in the dot-com days, prices were quoted in 1/8’s 1/4’s… the spreads were very large and so were the margins. With the tightening of spreads traders were more precisely able to control risk and were able to make up margins by increasing liquidity/volume.
You’re correct in saying that trader’s would adapt, but essentially, there would be no possibility of profitably making markets at the current liquidity levels and spreads. I’m not against it as my profit margins back in the .com days were incredible, but make no mistake that it would make markets much more inefficient and would hurt the casual investor. By instituting a law like this, market making firms would have very little incentive in providing liquidity in a spread under a dime and due to the increased spread would be providing less liquidity.
So, in short, this will only help Wall Street firms like mine, in fact most of Wall Street will react the same way… ‘bring it’. What is bothersome about your suggestion is the ‘Give it to mainstreet’ aspect. They should get off their asses and start being competitive instead of looking for handouts. You made your billions on the backs of capitalism, so stop spouting this socialist progaganda and think a bit. If you actually believe what you write and this isn’t just an unsubtle ruse, you’ll only destroy your wealth in the long run.
Comment by MarketMaker -
What the hell does the stock market have to do with the problem
with the banks anyway? Why would you tax my stock transactions in
order to fix the problem of over leveraged, super-high risk taking
banks? What does one have to do with the other? Absolutely nothing
of course. The stock market is actually accurately pricing in the
recklessness of the banks so now the corrupt bankers want to be protected
from stock declines? Free market when it goes up, communist control
when it goes down?
Sickening. NO BAILOUT. If we Americans have to eat a recession in
order to clear out the corrupt banks then so be it. We should
not live under the yolk of debt anymore.
Comment by GuyWhoWantsToBeFree -
Study your history books Mr. Cuban. Wall Street is Main Street. The liquidity in the markets will dry up and volatility will increase. Have you even seen the way small cap stocks move? If you think 30-40 on the $VIX is big, implement a transaction tax and your “Main Steet” folk won’t be able to hold down.
Do us a favor Mark Cuban. You made your fortune because of Wall Street, because there was the liquidity there for you to collar your stock. Why don’t you donate half of your billion to implement this tax program. Are u willing to take the other side of this “trade” as did the party who you collared your stock with?
BTW, what happens if this tax doesn’t work, and volume is cut by an 1/8 or a 1/4? History shows more taxation and intervention only creates more of a mess.
If you are looking for a goat, look no further than the FED, the creator of this mess.
Comment by Michael -
Why is it often the super-rich who are way in favor of taxing
‘everyone’? I am NOT super rich, why should I pay for this crap
through trading taxes? How about instead, we take 50% of the net-
worth of all Americans who are worth above 1 million instead?
Why are all these communist pundits not putting their own money
in but instead always claiming mine? Does Leonardo give away the
$40 million he doesn’t need, or Oprah, or any other wealthy do-nothing
in Hollywood? Of course they don’t, they give away token amounts,
or their ‘valuable time’ while saying that my 30% income tax isn’t
high enough. Dirt bags all of you.
Comment by GuyWhoWantsToBeFree -
Two objections:
1) It will increase expenses for 401K accounts. It will not magically
reduce trade volumes, it will merely increase mutual fund expense
ratios. Most 401K plans do not offer index funds with low expense
ratios.
2) The money will be wasted. Congresscritters regard $50 billion as
pocket change these days. They’ll lose it under seat cushions.
Comment by BobW -
Rich people won’t like you.
Comment by Jim -
I forgot to mention that high freq. trading provides a service to
everyone – it reduces your transaction cost via the bid/ask spread.
The more people that make markets, i.e. control the spread, the less
everyone pays. While you may not think this cost is substantial to the
investor it is a fundamental aspect of efficient markets. What you are
proposing will in effect create less efficient markets – this hurts
everyone.
I propose that you just tax capital gains at a higher rate – don’t
mess with market micro structure dynamics, its slightly beyond your
knowledge level at this point.
Comment by Mike -
This article is a disappointment! Have you ever heard of the CAPITAL GAINS tax?
Comment by Robert -
As a professional trader this would impact me substantially – to the
point where I would simply trade Asian markets. I think most traders
would do the same thing, we’d find more liquid markets. This tax would
definetely cause a loss of liquidity.
Mark, do you have a academic/prof. finance background?
Well, I do. A loss of liquidity is a very
bad thing… trust me, at this point in time you want to encourage
people to participate in the markets, especially now. Anything that
discourages people from participating in a free market (taxes, short sale
bans etc..) has been shown to cause problems and slow economies.
Check your history – several countries have tried this and it caused
more harm than good.
That being said, I wouldn’t mind this tax IF it were addressing the root cause of the
issue, i.e. OTC credit derivatives markets. The stock/options/futures
markets and their participants have nothing to with MBS’s and CDS’s,
why punish us pro’s and every retail Joe Sixpack Ameritrade account?
This is like punishing the entire class rather than the one bad kid
in the back of the room causing all the problems. Very unfair IMO.
Mike
Comment by Mike -
This tax is called Tobin tax and represents an idea used by leftwing
activists for decades now. Problem is that it needs to introduced in
every country worldwide, you have to close down the Monacos or the Caymans, otherwise all banks move there and settle their trade plattform in those offshore heavens.
Tobin actuallly desigend for something else and is not really considered left wing. Are you , Marc?
Comment by Robert -
Thats tough to deal with for someone like me who day-trades stocks like AAPL or CMI in 100 share lots. A reasonable goal for each trade is $1-200…now I’m giving $20 to Ameritrade plus an additional $20 to the government.
Comment by Tim -
Also, it’s not a “dumb idea,” especially if you specifically say
that all taxes will go into a specific fund, i.e., for alternative
energy R&D and/or education and/or for the homeless and/or for
cancer and AIDS R&D.
It’s not a dumb idea– if we’re so afraid of stupid politicians,
as Matt writes, then we can simply tie the taxes to certain programs
(as aforementioned), We already do this with some of the taxes we
place on certain goods.
If the taxes go back into the economy via researcher salaries and
facility maintenance and construction, then that means many more jobs
and job opportunities are being created, and our economy grows.
Again, I’ll have to side with Cuban on this one.
Comment by the-cuban-responder -
I mean, I personally agree with you. If I could decide these things,
I would definitely buy into your plan. The problem is, how do we
make it sound attractive to everyone?
Comment by the-cuban-responder -
And that’s $52 Billion gone from our economy and into the hands of politicians that can’t ever get anything right. Dumb idea.
Comment by Matt -
Mark, you say traders will adjust and you are absolutely right. They will adjust from high volume, short time scale trading to lower volume, longer time scale trading. When you raise the price of trading, the volume of trading goes down. This is Econ 101. It cannot be any other way.
Some traders “adjust their return expectations” to the point where they are no longer in business, and others will “adjust their risk tolerance” by making fewer trades, depending on whether they are clever and adaptable enough to still make money in the face of costs that increase by a factor of 10 or more.
I’m not saying everyone would stop trading. Clearly investors will still invest. But higher frequency traders — arbitrageurs, market makers, dealers — would have to sharply curtail their business.
Comment by Martin Unsal -
Mark,
Excellant idea. Don’t the really intelligent, workable, sensible ideas get killed by lobbyists?
Also, a question from a season ticket holder who has done business with your great employee Eric Ferrell, what’s the best way to obtain sponsers for a website?
Comment by rwf -
One of the dumbest ideas I’ve heard in a long long time. I like it when those that have made a bundle want changes the rules after the fact!
Comment by Charles F -
Mark, this idea sounds a little too good to be true…as somebody stated earlier, what happens to the trader who is trading huge volumes per day, i.e. 500,000-1 million? Not many brokers are going to be willing to pay that sort of fee. While I agree that there needs to be some sort of sales tax to help replenish the national debt, I’m not sure that 10 cents would be the most effective method. I think a hybrid percentage/quantity tax would do well. By the way, love your blog. You should seriously consider political office. Cheers from Europe
Comment by Billy Conway -
Mark, just out of curiosity, have you run your ideas by any politicians or anyone with the ability to reach those involved in trying to fix this mess? If so, what has been the reaction to the various ideas you have put forth?
From MC> Have not, i dont go out and sell any of my blog posts.
Comment by Jeff Mitchell -
http://www.taxhistory.org/thp/readings.nsf/ArtWeb/6062A8E3B6C9C7C585257480005BFEE6?OpenDocument
Until 1966 we had a Stock Transfer Tax to raise funds, but it limits speculation.
Comment by PSC -
Mark,
i usually like your ideas but this one stinks. 10 cents to get into a trade and 10 to get out is 20 cents round trip. liquidity will be snuffed out of the market faster than a dog steals chicken.
From MC>
No it wont. traders will reduce their risk tolerance and return expectations, but people will always try to get over on the market because “thats where the money is”
Comment by Lawrence -
a better idea would be to tax credit default swaps.
or regulate them at all, for that matter!
that’s what got us into this mess. plus joe sixpack doesn’t trade CDS.
Comment by gilltots -
I may be a little slow on this subject but I have one question. When social security was stated as going broke our government raised the retirement ages for full benefits. No one offered 700 billion to bail us out. What would happen if the bail out money was but into social security. Do you suppose a share of people would retire now instead of later drawing on social security putting this money back into the economy and opening up jobs by taking retirement reducing unemployment? Gee what a thought, but this is only a view form main street not big business.
Comment by Tom -
Worst. Idea. Ever. At least 90% of those trades would instantly disappear. That may be a good thing, but the revenue you are looking for just wouldn’t exist.
From MC>
no chance the trades disappear anymore than day traders disappear. They will just adjust their risk tolerance and return expectations.
Comment by Alex -
How is this any different than increasing capital gains taxes? You’re getting it on the front end instead of the backend. And I agree with a previous commenter that this will devestate the 401k accounts of those of us on main street
What we need to do is to force accountability in big business and restore people’s faith in big business. I think there is going to be a surge in Venture Capital firms investing in small startups and small business where you can actually put your trust and faith in the owner’s of the company, where on Wall Street there is simply no accountability and too much pressure on earnings and growth rather than sound business practices and “doing the right thing”.
From MC> Capital gains only is paid when you make money. This is on every trade. And this wont kill your 401k unless you have it somewhere the manager churns the fund over and over. And in that case, you are probably paying cap gains on the churning or losing money in the fund
Comment by Ben -
I’ve been reading your blog for a long time and this is by far the
dumbest thing I have every heard you or anyone say…ever.
Sure, 10 cents per share sounds like nothing, but there are many
traders — who are providing needed liquidity into the market — that
trade more than a million shares per day. They obviously can’t pay
100k per day.
Also, 10 cents seems like no trouble when buying a $150 stock, but
what happens when the stock is $1.00. That’s a 10% premium to own those
shares…20% when you sell.
It’s foolish talk and actions like this that are making London the
world financial capital rather quickly
Comment by David -
Mark,
I think you should sell the Mavs and run for office — Mr. Cuban goes to Washington. You’d have my vote!
Comment by Vicki -
As a professional trader, I can tell you with certainty that this proposal would vastly reduce trading volumes, and hence raise far less revenue than you expect. You assert otherwise, but this seems to be little more than an uninformed opinion. What is your basis for this assertion?
From MC> I have traded quite a bit over a long period of years. When a trader thinks they can make money, they think they can make money. They will adjust their expectations and rotate to where they can make the return after accommodating for the costs. No different than people paying 6pct to a realtor, plus trx costs on real estate. It doesnt stop anyone. People have ways they want to make money, they will adjust their returns.
where volume may get hit is on OTC stocks, and personally i dont think thats a bad thing
Pros currently pay less than one cent per share in commissions. This will increase the cost of trading by a factor of 10 or more. I can only speculate as to the elasticity of demand but you can be certain that volumes would drop by at least a factor of four or five. The large majority of trading volume is short term, arbitrage and program trading that is extremely cost sensitive and operates on low profit margins. By increasing the cost of trading by a factor of at least 10, you will reduce market efficiency by a similar amount on short time scales. This will certainly accelerate capital flight from US markets, already occurring as a result of Sarbanes-Oxley. For revenue of only ten or fifteen billion dollars a year this hardly seems worth it.
Incidentally, the SEC does charge a transaction fee to fund its own operations, it is currently 0.0000056% of the gross transaction cost. On a $50 stock that is 0.028 cents per share. This rate has been cut quite a lot as transaction volumes increase. I personally know traders whose business models are sufficiently cost sensitive that changes in SEC fees affect their business and their trading volume, and we are talking about changes on the order of a tenth of a cent per share or less, not ten cents per share.
http://www.traderstatus.com/secfeerates.htm
Comment by Martin Unsal -
Whether we raise $52 billion or $520 billion with this proposal, our government will find a wasteful way of managing and/or spending it. That’s part of the root problem. How is the government held accountable for its spending? But if we were able to funnel that money into one particular thing, here are some ideas:
1.legitimate affordable healthcare or
2.funding the capture of bin Laden or
3.totally revamping our educational system so that students can graduate high school with a knowledge of things THEY WILL ACTUALLY USE (such as learning how to manage and grow money, learning about the different cultures of the world and how to relate & do business with them)
Comment by Todd Hoskins -
Also, given that brokerage services are mostly interchangeable, I think you’re wrong to suggest that the incidence of the tax would be on the consumers. Looks to me like it would come out of the pockets of the brokers.
Comment by Michael F. Martin -
Before the abolition of progression commissions on stock trades, there were a lot more conglomerates around. That’s because it was cheaper (in terms of transactions costs) for investors to buy a conglomerate that diversified through M&A than it was for the same investors to diversify themselves by buying a bunch of companies.
Have you considered that such a tax would lead to more conglomerates? Would you say that this would be better or worse for the economy as a whole?
Personally, I like the fact that the market of institutional investors gets to make decisions about what companies to bundle rather than a handful of conglomerate managers.
Comment by Michael F. Martin -
Worst idea ever. They’ll just pass the tax on to consumers just like everyone else does. Think along the lines of “Tourism Tax” (13-15% in NJ — utterly ridiculous), the 8 or 9 Airline Taxes/Fees, “Cigarette Tax’ or “Gas Tax.” It wouldn’t go to Main Street except for people being charged for the companies to make up for it.
Interesting that the article points that out immediately, but then tries to pass it off. 10 cents is an extra $10/100 shares, or an extra $10/option contract, which is very considerable, seeing that an option contract could be anywhere in the neighborhood of $50 to $1000. It basically would be a sliding scale tax most harmful to anyone that is trying to be (or is forced to be via low available cash total) a value investor. And the section about “helping unknowledgeable investors avoid getting scammed by penny stocks” is ridiculous. No one should be falling for that spam anyway, and we have no requirement to help such fools in the free market.
Comment by Michael D. -
Why not 25 cents a trade? 500 million/day * 260 = 150 Billion/year
Again, it doesn’t change the margins or trades much, but it adds up
Comment by RobG -
Then a whole lot of money will leave Wall St for other financial centers, and the US will be poorer.
Comment by unintelligible -
Don’t give them ideas, please! Isn’t a percentage of every transactin already collected by stock exchanges?
Comment by Seun Osewa -
Resulting reverse splits would completely negate this. Every stock price would be in the hundreds or thousands of dollars to minimize this cost.
Comment by troy -
Mr. Cuban,
Big fan of yours but a Rocket at heart! 😉
Thanks for your posts on the financial BIND we are all involved in. I think the plan you laid out in this post is great! It’s a pay to play type of deal that wouldn’t kill the player and (properly managed) would lend some aid to our struggling economy. My senior drill instructor had a saying that is wide spread but it was the first time I had heard it. It’s called the “K.I.S.S.” method, Keep It Simple Stupid. Our politicians sometimes forget that every solution doesn’t have to be a 7500 page thesis with earmarks and additions not pertaining to the problem at hand.
What would our country be like if the cell phone commercial where the firemen are in congress passing bills over push to talk devices were closer to truth?
One other comment on social security. You nailed that one on the head as well! Had they privatized it, we would be screwed NOW! I’m 36 and I don’t figure I’ll ever see a dollar when I retire so I am making other plans and investments to compensate. As my parents have just began collecting theirs, I at least feel like my input is helping fund theirs. The American people HAVE to make our representatives see that privatization will not help save or enhance the system. We need a better system but taking it private isn’t the answer!
Keep up the good work on your Blog.
Ps. Good one on the posting of the e-mail addresses and posts from the Josh Howard thing. You guys in the “public eye” have my sympathy! With my mouth, I’d stay in trouble…
Scott
Comment by Scott D from Arkansas -
What about public works projects? Simple…yes (at least in theory) but it might put money into a sector that is in real trouble right now (i.e. construction and into laborers hands)
Comment by Andre -
We have a similar tax in the UK, called stamp duty.
But it is a fixed proportion of the selling price
(0.5%, I think) not a fixed sum per share.
Comment by Dave -
Your assumption that the average number of shares traded per day will stay the same is false. A tax like will bring that average down and have a number of other effects since market liquidity would decrease. It would also make companies less likely to split.
Comment by Brad -
Mark, of those 2 billion shares a day, how many do you think are automated bots, trading over and over again? I would say, a large majority. And those bots are trying to make a dime per trade sometimes.
A trading company like Tradebot Systems (founded by the guy who started the BATS exchange) here in KC sometimes does 10% of the whole volume of the Nasdaq in a day. So, if you imposed this tax, that trading would dry up. I’m neutral on whether these liquidity providers are good or bad, but the point is, if you took these out, then your projections of income start to fall rapidly.
From MC>
dont agree at all. That would suggest the automated trading systems wont want to make money any more. They will. they will make less, but still be able to get paid. Trading definitely would not dry up.
Comment by Nick Davis -
Mark,
While I enjoy your out of the box thinking, I would be weary of tacking on taxes like this. The government has a near 100% track record of keeping and increasing taxes that they include on anything. Can you imagine how much this could impact the financial markets and upset it once every 4 or 8 years either political party talking and scaring investors into the “other” party raising/lowering the tax (a la the SS scare tactics)? or including more graduated taxes depending on volume or market?
This idea partly reminds me of the movie “Office Space” where the guys steal fractions of a penny from each transaction being made. Except remove the apathetic guys with our Government (who has the power to metaphorically hold a gun to our heads) and instead of them slivering pennies away like they already do with riders and last minute, unread provisions, they would do it outright.
A slippery slope indeed. I do enjoy your interesting posts and don’t want to dishearten you from providing ideas. Let’s not allow our government to allow these institutions to privatize profits and socialize losses.
Comment by chris -
Pingback: Taxes and the Market | TraeBlain.com
I dunno… if this actually serves as a barrier to trading, wouldn’t it lower the liquidity of the stocks in the market? And therefore make it more possible for knowledgeable traders tot ake advantage of inefficiencies and rip off other investors?
from mc>
i think a fee on every trade would make everyone think a little more about every trade. Which isnt a bad thing. It wouldnt impact liquidity at all. Greed is still good on wall street
Comment by Mike -
Oh, and as far as how to spend the money: 1/3rd to education, 1/3rd to energy independence, and 1/3 toward the debt. Splits it up between a medium term reward, a long term reward, and an immediate reward, which will all snowball over time and make us a better Nation.
Comment by Dave -
I have seen this idea floating around the tubes the last couple of days, but I must admit your tax is the largest I have seen yet. I think I disagree with a tax based on share, which is arbitrary, taxing based on total value would seem better.
The type of tax you are proposing is like a revenue-based tax. Instead of taxing profits, you tax revenue. The idea is that large companies consume more public resources (transporation, judicial, etc) than small companies. Taxing revenue is also good because it can not be hidden like profit; my accountant makes sure my business never sees a profit, I can only imagine the billions the big guys can hide. Finally, revenue based tax is much like income tax: it taxes everything you make, not matter how poor you are at the end of the year. Of course, revenue based taxes would be at a much lower percentage.
In the case of taxing transactions, taxing the money made upon sale of stock is effectively taxing the revenue of the seller.
Comment by Kyle Lahnakoski -
Shares run at vastly different prices. A single Google share is worth about $500, 10 cents on that is nothing. If your idea is to be anything other than bullshit, at least propose a percentage…
Comment by Wouter Lievens -
I like it. I like plans where it costs a trivial amount for a LOT of people, but nets a lot in results.
My idea on the bailout I’d like to hear discussed: Why not take this $10,000 per family and force them to put the money into a IRA with mutual funds for some period of time? This way, Wall Street gets a HUGE shot in the arm, and families get a kick start in learning how to save. Then each family could grow that immediate nest egg over the next 30 years to have something actually worth something.
Comment by Dave -
Mark,
This is not as well thought-out as most of your posts are. And it’s a lousy idea.
At a macro level, if you are so unconcerned about the amount taxes cost, then I am sure you will be publishing your 2007 tax return, wherein we will find that you have waived every deduction and simply paid the full amount of taxes.
We both know that won’t happen. You don’t manage your money this way, so why should you expect anyone else to?
When people speak of “limousine liberals” they are talking about people who behave exactly this way. Al Gore who screams about the environment and has a swimming pool that costs $2000 a month to heat; George Clooney who drives his Prius to the airport and then boards a private jet which then spews pollution and burns way more fuel; people like you who are so wealthy taxes would have very minimal impact prescribing tax increases for everyone.
At a micro level, 401k accounts are made up of mutual funds which are made up of stocks. I already pay 1% per year management fee for 401k account. Many people pay more. This will certainly drive up that cost at a time when almost no one can afford any further impact to their account.
And, when you are talking about a stock below $10, and this is where most small investors first look, this is more than a 1% tax… on top of the 15%-20% people already pay in cap gains.
A horrible idea. Sorry Mark.
Comment by HJ Mann -
Unfortunately, a good amount of those taxes will be pushed back onto main street, as their pension funds, 401k’s etc, etc, are going to be backed a great deal by those equities, and the institutional investors that create the funds will push the tax back onto the client.
From MC>
Of course every tax always reaches the consumer. But this separates the investors from the traders. If you put your money in a fund that trades a lot, it will hit you. If you put your money in a fund that actually invests in companies, it would barely impact you
Comment by Nicholas Paldino -
Percent trading done by “professional” investors who pass on
management fees back to the “tax payer” – 70%+
Either way we’ll all end up taking from Peter and paying Paul.
Comment by Cindy -
What about the penny stocks. There are up and starting companies that
list on the market and would not be able to gain capital due to the
sometimes up to %30 percent tax per trade. If you are buying goog then
i get it, but there has to be some sort of scale. Just as I shouldn’t
pay the same amount of tax that you do, well, because you are rich.
Comment by mike miller -
As described, this plan would have two salient impacts, both of which would radically reduce the expected revenue:
First, any companies with stocks that continued to trade in the US would do reverse splits, reducing the number of their shares by orders of magnitude. People would avoid the tax by reducing the number of shares so that equivalent stakes could be traded without incurring as much tax.
The concepts of penny stocks would disappear, either going private or having much higher share prices.
Second, a great deal of trading would move to overseas markets where the taxes were not nearly as steep.
There would be much disruption and very little money raised.
I like many of your ideas, Mark, but not this one.
From MC>
Dont agree at all. companies will realize that traders will churn their stocks less because of the tax, but a lower priced stock will allow their company to be more broadly held. They wont split over a 10c per share tax . Thats a certainty
Comment by DWAnderson -
– Adding a tax will slow the markets, making institutions slower to respond to market information. This inevitably leads to less efficient markets that are more prone to instability.
– If you give the government $52b, kiss it goodbye first. Most of it will be squandered in its bureaucratic administration, and the rest will go to whatever special interests rule the day in Washington.
In the end, the natural distribution of wealth benefits society most efficiently. The proof is in the pudding. The more capitalist and free a nation’s markets are, the better poor people fare. Anyone who believes there are poor people in the US should first take a look at the poor in China, Cuba, or any other previously developed nation that got hit with the kind of socialist policies you’re describing here. If you want to see the future of such policies, watch Venezuela closely as it unravels before us.
Comment by de -
Take a portion of the money and hire more personel at the SEC. They are woefully understaffed.
Comment by Philip Eller -
This idea is spectacular. Then we can hush the “Fair Tax” people and it is still a type of consumption tax. Let’s do it…call your congressmen and women.
Comment by tblain -
Before you pursue this any further you should change the idea to be a tax that works on a percentage basis. It is after all a sales tax.
Comment by robinatrb -
…make sure the government never actually gets to use it.
Comment by Shawn -
BEST IDEA EVER! HOWEVER THE BROKERS WILL FIND A REASON WHY THIS CANNOT WORK.
Comment by Daniel Doucet -
Isn’t there already a tax? It’s called the capital gains tax, and it’s usually a lot more than 10 cents per transaction.
Comment by gecampbell -
Couldn’t you just use the money to buy up the mortgages directly? Or is your average sliced and repackaged mortgage too complex to buy alone?
I did notice the Obama proposed upping the limits of the FDIC to $250,000. That would help out some small businesses. Note that the limit is per person on the account not per account.
Comment by Derek -
It could be sort of a sales/transaction tax for stocks. I would leave it at 5 cents across the board to eliminate confusion and controversy. I guess that you could buy 30year Govt bonds and use it as a reserve fund for Soc Security or a real Pension Plan for American workers. Adding the 5 cents won’t cause the most discussion. What to do with the $52B and who gets to manage it will be the bigger problem.
Comment by Tom -
Apply it directly to the National Debt. Every year.
Comment by John Mark Parsons -