It doesn't directly attack venture capitalism, but it does seem to discourage the kind of flighty investing that creates bubbles, while raising revenue. I don't know how it will affect foreign investing, but a transaction tax leading to a dip from foreign investment may not be such a bad thing.
posted
One of many reasons it is a bad idea: we would collect hardly anything during normal times. Stock transactions would flee overseas. Companies wishing to engage in such transactions would operate through non-US-based subsidiaries and avoid the tax entirely.
It would also have essentially no impact on 'flighty investing that creates bubbles'; the profits being made during bubbles are disproportionately large, and a small tax on them is not a disincentive.
I can keep going with a longer list, but here's the short summary: it raises a small amount of revenues, costs citizens far more than that in lost values (compounding gains alone!), wouldn't accomplish the listed goals, and would make people less likely to fund things such as the small businesses that are usually what lift the US out of depression. Heck, just the additional cost to small businesses alone, which engage in many small loan transactions and the like, would be devastating to the economy.
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posted
It seems to me that there would be plenty of ways to avoid such a tax. For foreigners, it would be simple for an American company to trade their stock (or create a class of their stock that) only on foreign exchanges, avoiding the tax at least for foreign investors. This would be similar to the A and H structure of shares in Chinese companies where only foreigners typically trade the latter.
It wouldn't be a big stretch of the imagination to think that Americans can eventually figure out loopholes too.
Also, this would seem to hit the arbitrage market pretty disproportionately. Structures like ETFs ( http://en.wikipedia.org/wiki/Exchange-traded_fund ) should see their spreads increase to at least the size of the tax. I don't know what the long-term effect of this would be, although I suspect there would be a great incentive to simply move overseas.
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