![]() Many states face budget shortfalls resulting from the coronavirus pandemic. A trade could be taxed by the home state of the buyer or seller, by the state that hosts the data processing centers, and by the state that hosts the stock exchange. If several states implement FTTs, the transfer of a security being taxed multiple times could emerge.Gross receipts taxes are a prime example of tax pyramiding in action.Īs the same instrument is traded multiple times, meaning that even at low rates, an FTT would add a significant tax burden. ![]() This yields vastly different effective tax rates depending on the length of the supply chain and disproportionately harms low-margin firms. An FTT results in a version of tax pyramiding Tax pyramiding occurs when the same final good or service is taxed multiple times along the production process.States can either levy the tax at a flat rate or by value ( ad valorem). States can either tax financial transactions by taxing data processing or stock exchanges, or tax the trader buying and selling financial products.Estimating revenue from a state-level FTT is difficult given the unknown reaction by the financial markets and high risk of tax avoidance.The tax code is, moreover, not an appropriate policy tool to limit certain financial transactions. ![]() However, it is highly unlikely that an FTT would only discourage “undesired” trading and would almost certainly result in a host of unintended consequences. An FTT might be targeted at limiting high frequency trading or speculative short-term investment.Lower volume limits revenue potential, lower liquidity harms traders’ ability to buy and sell shares at the best price level, and increased volatility can increase risks. (FTT) would raise transaction costs, which would result in a lower trading volume, lower liquidity, potentially increased volatility, and lower price of assets. A financial transaction tax A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.Subscribe to get insights from our trusted experts delivered straight to your inbox. ![]() Stay informed on the tax policies impacting you. ![]()
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