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simfa: The Ramifications of a Financial Transaction Tax

A Financial Transaction Tax Harms US Capital Markets and Individual Investors

The original concept behind modern financial transaction taxes (FTT) was the Tobin Tax. This proposed, but never enacted, currency transaction tax was meant to eliminate exchange rate differentials among countries across the globe.

The original Tobin proposal was meant to maintain the benefits capital markets bring to investors and economies. It was not meant to impact long term investments, nor was it meant to be a revenue generator for governments with ballooning deficits. Tobin himself disavowed this tax as a means of revenue raising for social purposes and eventually backed off his own proposal.

Despite the fact that the proposed benefits of a Tobin Tax have always been, and remain today, controversial, many countries have tried versions of this tax, now commonly known as FTTs. The primary driver behind FTTs is to raise revenue and curb volatility. The results have failed to meet these objectives. FTTs have been shown to harm individual investors, and the harm generally outweighs any benefits.

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