Congressman DeFazio's bill HR 1068 - a new tax on securities transactions

Update - Dec 2009 - HR 4191:

http://www.defazio.house.gov/index.php?option=content&task=view&id=532 

Hi Folks,
I don’t usually send out politically oriented messages, but I urge you to read this one and see the links below it. This one is from Price Headley, and if you are subscribed to his newsletter, as I am and others are, this came across your email.

Carol Kelly suggested I think about putting this on the site, and after reviewing the info I think that is a good idea, and I’m sending it to the site update list as well. She stated: “I have made 14 trades this month...using Price Headley’s example, I would now owe an additional $700 in taxes for this month – amortized, that’s an additional $8400 for the year!”

Folks – this is real. I personally called Congressman DeFazio’s office in Washington – 202-225-6416 – and spoke with his legislative aide “Auke”. I would encourage you to do the same. Then call or write your congressperson and tell him/her what you think of this legislation. This is not a hoax email. You'll notice my name is on the bottom of this email, and I'm not hiding. I'm telling the truth here - I really did call the Congressman's office. They really are trying to get this passed. Please read the legislation (links at the bottom of this email).

Here’s how the math works. The maximum tax they will levy is 0.25%. The tax rate could be less. This depends on factors that are spelled out in the legislation. But for discussion’s sake, let’s say it’s 0.25%.

AAPL is at $91.00/sh (as I write this). 100 shares of AAPL are $9100.00 x 0.25% = $22.75 per transaction, so it’d be $45.50 to buy and sell 100 shares of AAPL. How’s that for an “added commission” (if you want to think of it like that) on your trades? This will affect YOU. This is not reserved for brokerages, or institutions – this tax (if passed) surely will be passed on to individual investors as well. I cannot imagine that the brokerages will absorb this.

Read the info for yourself (it's below the "Boilerplate Info" so scroll down) and be sure and see the Links section at the bottom. Please think about not only signing the petition, but writing your reps in Congress and getting on the phone to their offices as well. (Again, see the Links section at the bottom.) They DO respond when enough constituents make their voice known. So speak UP.

Oh – and you might want to let your friends know about this if they have a 401k, IRA , 401b, or any other account that they make trades in stocks and options. This extra tax will surely make its way into the cost of managing them as well.

Bill Bledsoe
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Here at BigTrends we rarely venture into politics, unless we are analyzing the possible reactions to political events in terms of trading opportunities. We prefer to find profits for our clients through chart and sentiment analysis then to worry about what politicians are doing.  

However, a New York Congressman has proposed a Bill that is detrimental to active traders/investors such as ourselves, our Newsletter readers, our Premium Advisory subscribers, and our Coaching Clients. Enough so that we are passing along a website link to you which will allow you to sign a petition against the passage of the Proposal and will automatically submit an email to your Senators and Congressman.

The Bill H.R. 1068 basically imposes a 0.25% transaction tax on the sale and purchase of financial instruments such as stocks, options, and futures. While this may sound minimal, it could amount to a round-trip charge of $50 on a 100 share purchase of AAPL, for example. And that's on every trade you make.  

If you go to this website, you will find more information on the Bill and how to sign the petition against its passage and to send emails/letters to Congress.

 http://www.rallycongress.com/no2tradertax/1536/tell-congres-to-block-trader-tax/

Here are some opinions on this proposal from Price Headley and the BigTrends Team of Portfolio Managers:

Price Headley, President:
I view the ability to Trade and Invest as a true symbol of the capitalism and freedom that has helped drive America's rise to greatness in the past 2 centuries. As if the swing to socialism by our government was not already offensive enough to our forefathers and to all hard-working Americans, the idea of a tax on trading decisions would be among the dumbest things Washington ever did (yes, right up there with the ridiculous ban on short-selling back in September - see how well that worked too?). A tax on all trading activity would severely limit the frequency of trading decisions and thus the liquidity of the markets would be seriously diminished. I hope you'll join all of us at BigTrends to click the link and sign the petition to vote for the protection of your free choice to trade as little or much as you like, without further government taxation.

Bob Lang, Portfolio Manager:
This will reverberate and be considered quite negative with traders. The currency and futures markets, which have been a source or liquidity and balance will suffer the consequences, the fallout will be tremendous. The Government's reactionary response to the past greed does not hit at the heart of the problems on Wall Street. Once again, big government is there to bully around smaller participants, limiting market access to the wealthy.

Andrew Hart, Portfolio Manager:
This is government's method to find a scapegoat for the financial mess and it is likely to backfire. In my view, taxing all trades (wins and losses) will affect liquidity most. In raising the cost of trading many traders, which are small business owners, may stop trading or reduce shares/contracts traded. Reduction in liquidity can have broad implications as we saw in the credit markets in late 2008.

Moby Waller, Portfolio Manager:
While certainly there is Main Street anger against Wall Street due to the scumbag Madoffs of the world and for other reasons, an additional tax on active investors is not the answer. A bill like this will actually decrease trading volume and inhibit a potential market recovery into a new bull market that will lift all boats (and 401Ks, etc). It also will not help the troubled financial sector, which is at the heart of much of our current fiscal mess. I actually also would support a lowering (or temporary removal) of capital gains taxes on securities trades (both long and short term) as a means to boost the markets through increased buying activity.

Scott Downing, Portfolio Manager:
As we have seen in the past, taxes create a shift in supply and demand. If this tax is imposed upon traders, the banks and the brokers will have to lower their margins to compensate for the tax as they try to keep traders in the game. We already know that the banks and the brokers are in dire straights right now, so this is not a good solution to the problem. As the government continues to lend money to companies and take ownership stakes in these companies, it makes most traders want to stay away from the markets because they can't predict the government's next action. The tax will ultimately take us further away from the free market flow of capital that drives our nation's economy, lengthening the current recession.

Once again we urge you to go to the website linked above and sign the petition urging Congress not to pass this proposal into law.

Trade Well,
Price Headley

Links:

The HR 1068 Bill: http://thomas.loc.gov/cgi-bin/bdquery/z?d111:h1068:

The “meat” of the bill: http://thomas.loc.gov/cgi-bin/query/z?c111:H.R.1068:  

http://www.govtrack.us/congress/bill.xpd?bill=h111-1068 

Congressman DeFazio’s site: http://www.defazio.house.gov/index.php 

How to contact DeFazio: http://www.defazio.house.gov/index.php?option=com_content&task=view&id=127&Itemid=74 

Email Congressman DeFazio: http://www.house.gov/formdefazio/contact.html

How to contact your own Congressperson:

https://writerep.house.gov/writerep/welcome.shtml 

http://www.senate.gov/ (see the upper RH corner – “Find Your Senators”)