Re: Transaction tax equations... Re: So .. how does a transaction tax stack up?

From: Jeff Bone (
Date: Fri Mar 30 2001 - 10:14:00 PST

Russell Turpin wrote:

> Jeff,
> Your analysis is wrong, though your conclusion is
> right. The transaction tax can't be analyzed in terms
> of income flow, because transactions occur
> independent of that.

It's not analyzed in terms of income flow; rather, the definition of
EQUITABLE-3 considers the relative accumulation of (the basis for,
independent of performance) wealth between two parties making the same
proportional allocation decisions across the buckets: C, I, S. An
equitable system is one where any two parties allocating the same
proportions of their earnings to various tasks will have the same
potential rate of wealth accumulation.

> Consider two investors who
> both put $10,000 into stock. The first buys X
> shares of IBM, and sells them at the end of the
> year. The second buys X shares of IBM, sells them,
> buys Y shares of GE, sells them, buys Z shares of
> RATL and sells them. Let's assume they both
> break even. The first has one full-cycle transaction,
> and pays 2% (as example) on that. The second
> has three full-cycle transactions, and pays 6%.

Well, that's true. But there's still an implicit, loose assumption of
"all things being equal." I don't think it invalidates the analysis.

> The strongest argument against a transaction tax
> in the financial markets is that it would kill day
> trading, hurt the derivatives market, and lessen
> liquidity.

I'm not sure the first is a bad thing. The second is bad, and the
last is horrible.


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