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1 Ulrik Boesen, The Drawbacks of State Taxes on Financial Transactions 1 (2021)

handle is hein.taxfoundation/dwstx0001 and id is 1 raw text is: The Drawbacks of State Taxes on N Financial Transactions FISCAL Ulrik Boesen FACT Senior PolicyAnalyst, Excise Taxes No. 738 Jan. 2021 Key Findings: A financial transaction tax (FTT) would raise transaction costs, which would result in a lower trading volume, lower liquidity, potentially increased volatility, and lower price of assets. 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. An FTT might be targeted at limiting high frequency trading or speculative short-term investment However, it is highly unlikely that an FTT would only discourage undesired trading and would almost certainly result in a host of unintended consequences. The tax code is, moreover, not an appropriate policy tool to limit certain financial transactions. Estimating revenue from a state-level FTT is difficult given the unknown reaction by the financial markets and high risk of tax avoidance. States can either tax financial transactions by taxing data processing or stock exchanges, or tax the trader buying and selling financial products. States can either levy the tax at a flat rate or by value (ad valorem). An FTT results in a version of tax pyramiding as the same instrument is traded multiple times, meaning that even at low rates, an FTT would add a significant tax burden. The Tax Foundation is the nation's leading independent tax policy If several states implement FTTs, the transfer of a security being taxed research organization. Since 1937, *u Ifea seea states taxx securit taxe haveeseh, analyss and epet multiple times could emerge. A trade could be taxed by the home state of the t tes a e and orot buyer or seller, by the state that hosts the data processing centers, and by the organization, state that hosts the stock exchange. ©2021 Tax Foundation Distributed under Creative Commons CC-BY-NC 4.0 Editor, Rachel Shuster Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 taxfoundation.org

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