Bad Idea

But it seems so smart! Read:

The nation’s largest labor union and some allied Democrats are pushing a new tax that would hit big investment firms such as Goldman Sachs reaping billions of dollars in profits while the rest of the economy sputters.

The AFL-CIO, one of the Democratic Party’s most powerful allies, would like to assess a small tax — about a tenth of a percent — on every stock transaction.

Essentially, it’s a sales tax. And it would get passed along to you, the investor. This nonsense that it would somehow just hit big, profitable investment firms is just that: nonsense. When sales taxes go up at Best Buy, do they eat it or ring it up for you to pay at the cash register?

Exactly.

So. Why is a sales tax on stock transactions a bad idea? Aren’t all sales taxes a bad idea? Well, no. Generally, it’s probably better (and certainly a lot less invasive) to tax consumption rather than income. But investments aren’t consumption — they’re investments; the expectation that the future will be better than today. Tax that, and you’ll get less of it. Smart!

But it’s a bad idea for another reason. When you buy a new fridge at Best Buy, you do so with the reasonable expectation that it will keep your food fresh. When you buy a toy for your child, it’s so that she’ll have something to play with. When you buy a meal at a restaurant, it’s to stave off hunger and maybe have a good time.

When you buy a share in a company, for all you know, it could be worthless before the end of the day. Unlike the shiny new fridge, your investments come with no guarantee. And if you do make money, you’re already required to pay some of the highest capital gains taxes on the planet.

Investing is risky enough, without Uncle Sugar coming along to demand his cut of even your losing bets.