Yah--And What He Said Too!

I was all set today to comment on Alan Blinder’s column, when I ran across this Post from Tyler Cowen. I have always advocated (like in the last year!) that Financial and Stock assets should get their own special Sales tax, with a regrettable yearly re-flash for the lengthy Holders of such Paper. It is a sound Program, where immediate acquisition costs 2% tax (the loved numeral of my life), and 2% per year afterwards. There stands a gem of genius in this formula: a normal Carry load of 2% would both be an effective rate of tax, and do much to bring nominal asset value in line with real asset value. The yearly repeat of the Tax, while still low, will constitute a legitimate tax on Profits (irregardless of the value of the assets, as the Tax is implicit in the Total value of the asset found in the Market on Tax Day), without major imposition at either Time of Purchase, or Time of Sale. The later will prove to remove the majority of the drag on growth from the Taxation, while curbing excessive Expense and Stock prices.

A Secondary effect will be to realign Executive Pay Packages, as a Provision will be introduced insisting on the immediate payment of the Tax upon Purchase, and an equal payment of all residual Tax upon Sale. Stock Options, and especially Stock Grants, will not seem as attractive where there must be obvious Front money provided by the Recipient upon receipt of the actual Stock. It might even be a significant detraction from these form of Wealth acquisition that Stockholders will recover their ability to control the levels of Pay granted to their own Employees.

This type of Tax could also save rapid increases in Commodity prices which Consumers must pay, as Marginal investment by Hedge funds and equity money must run up a good 2% of Market price of the equity, before such practice becomes Profitable. Sensible Long-Term Investment, on the other hand, gains a minimal tax on the demonstrable Profitability of the Investment. The value of this Tax in all ways depends upon the tax of the total value of the assets, though low. The Rippers and Day-Traders will find themselves in actual need of Operating capital, without ability to enjoin the Market itself to front it. lgl