The battle over a tax on stock transactions is not going away. In this season of budgetary woe, you can understand why the political machinery is taking a strong look at this, which some have calculated could raise up to $175 billion a year.

The Economix blog takes a look at both sides of the issue, but comes down in favor of a tax. The various tax proposals--so far of course--have sparked a strong response from the industry. And if it ever looks like one of the several bills gathers momentum, the lobbying will turn furious fast.

A transaction tax--and really anything that levies a per transaction charge, like a tax on cancelled quotes, for example--in some ways strikes at the heart of modern Wall Street, which is all about high-frequency trading. The debate rages about whether this sort of trading is harmful to the markets, but it may be best to decouple that debate from the transaction tax debate. There is no doubt some who primarily see this as punishment irrationally imposed on the high-frequency crowd.

There are different versions of the tax, and some are more draconian than others. But it seems possible that a small tax--to go with the nearly microscopic fee that funds the SEC--could be structured in a way that doesn't affect the short-term trading market. At least one study has found that such a tax does not reduce speculation, which is the lifeblood of most traders, while raising revenue. The argument that many raise is that Wall Street will find ways to pass on the tax to investors, which is always a risk.

This is something the buy-side will have to stay abreast of. We would expect them to push back as appropriate. We'll see where this goes.

For more:
- here's the article

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