To be sure, proponents of a financial transaction tax come from a reasonable place.
And less liquidity, in turn, traditionally widens bid/ask spreads, which would increase the cost of capital for American businesses and slow US economic growth. The result will reduce market liquidity, given the higher cost to conduct transactions. Imposing a financial transaction tax into this intricate ecosystem is like throwing sand into the gears of a finely tuned machine. The US capital markets became this way through a combination of smart regulation, robust competition and advances in the use of technology. According to a study by Aaron Klein of the Brookings Institution, these markets finance more than 60% of the US economy. The US capital markets are the largest, most liquid and most efficient capital markets in the world. And what money it does raise will largely come from Main Street investors, even as it also raises the cost of capital for American corporations. However, history suggests that a financial transaction tax will not raise anywhere near the amount of funds its proponents suggest. They say it’s a simple and easy way to raise billions of dollars at the expense of Wall Street and the wealthy. Some claim such a tax could stabilize markets and raise revenue. In the wake of the GameStop stock trading frenzy, the Biden administration recently said it’s worth evaluating the impact of a tax on financial transactions, which would include the purchases and sales of stocks, bonds and derivative contracts, such as options and futures.
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