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Bernie Sanders's Financial Transactional Tax Proposal

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Bernie Sanders's financial transactional tax proposal posses a threat to Wall Street and will harm individuals as well as large financial institutions. Bernie Sanders has been upfront with his plans to reform the U.S. financial markets and one of the key proposals that I disagree with is his financial transactions tax. On Bernie Sanders's website, he lists this financial transaction tax proposal by stating: Picture Source "[Bernie Sanders] Has proposed a financial transactional tax which will reduce risky and unproductive high-speed trading and other forms of Wall Street speculation; proceeds would be used to provide debt-free public college eduction." According to the Burton G. Malkiel in his Wall Street Journal article, Mr. Sanders's proposal is to tax $0.50 on every $100 of stock trades. Bernie Sanders's intent for this tax is not to hurt individual investors, but to discourage large financial institutions from participating in risky high-speed trading. People in favor of this tax argue that the tax is small enough that it wouldn't hurt individual investors as much because individual investors typically buy stocks and hold them for a longer period of time. Individual investors will barely notice the 0.5% tax once they hold the …show more content…

The constant trading in the market keeps the markets efficient because the prices of the stocks continue to stay in equilibrium with respect to all available information. Traders will now have to take into account whether or not the extra $0.50 per $100 is worth the trade and therefore stocks will only move in price on substantial good or bad news. This will increase volatility in the market as well as decrease liquidity of these stocks. The increase volatility and decrease in liquidity combine to have more mispricing in the markets, which can negatively effect individual investors who typically rely on the notion that stock prices are in equilibrium

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