Pretty much every government is taxing stock trades. The fact, is that when people make money, they are most likely going to end up paying the government. Education systems need to be funded, roads built, and militaries maintained. As they say, there are only two certain facts of life: death and taxes.
Stock Trades, Taxes and Bernie Sanders
However, with burgeoning public debts, and the emergence of far left candidates, such as Bernie Sanders in the United States, tax laws regarding stocks could get a lot more complicated in the not so distant future. Some political candidates are now offering proposals to tax stock trades at a much higher rate than has previously been the case.
Going back to Sanders, for example, the candidate has proposed that a 50 cent tax be added to every $100 dollars worth of stock sales conducted. So if you sell $1,000 dollars worth of stocks, you will owe the government $5 dollars. That might not sound like much, but over time it could really add up. If you sell $100,000 dollars worth of stocks, you will end up owing $500 dollars, for example.
Worse yet, if you happen to be a high frequency trader, you could really end up paying through the nose. A stock trade tax will really hurt people who trade stocks frequently. That’s because even if you’re only paying a few dollars per trade, if you are making hundreds, or even thousands of stock trades per year the money will really add up.
Taxing Stock Trades Make Trading Riskier
The biggest problem with this method of taxation is that it doesn’t consider whether or not you’re actually profiting off of your taxes. Let’s say you buy $150,000 dollars worth of Apple Inc stock and then stock prices decline over the course of a few months. You’re forced to sell your stocks, but now they are only worth $100,000 dollars.
That means you’ll be taking a loss of $50,000 dollars, which is certainly not any fun. With Sanders proposed plan, however, the loses won’t be over. You’d be on the hook for another $500 dollars! Having to take losses, and then pay taxes on those losses, could really put a crimp on investors.
Taxes like this make it much riskier to trade stocks. Given how much risk is already involved in investing, this could discourage some people from putting their money into all together. This might sound a bit dramatic, but for investors who are already worried about the risks associated with stocks and other financial vehicles, increased taxes could simply be too much.
Taxes and Politics
Besides Bernie Sanders’ tax proposal, other politicians are also making their own proposals. Not everyone is calling for taxes to be increased, however. Some politicians, like Marc Rubio, want to eliminate taxes on capital gains. Other candidates, like Ted Cruz, want flat taxes. Cruz is proposing that government tax all income at only 10 percent.
Hillary Clinton, on the other hand, wants to increase the capital gains tax, which would have a big impact on investors. Under Clinton’s plan, capital gains taxes could rise to nearly 40 percent! Besides his stock tax, meanwhile, Sanders has talked about raising other taxes, such as estate and income taxes. This would most likely have a big impact on investors.
College Tuition at the Expense of Investors
You can’t blame Sanders for his ambitions. He wants to tax stock trades to pay for college tuition, which is certainly an honorable goal. These taxes, however, could really hurt investors and in turn the economy. They could also have big implications for families trying to manage their wealth and plan for future generations. Whether or not you agree with Sanders and other politicians, you need to pay attention to any important changes in tax laws.
For now, however, there is no need for investors to panic. Even if a candidate is elected to office who wants to increase taxes, it’s unlikely that Congress will vote to increase them. This means that it is highly unlikely that the governemnt will raise taxes in the near future. Of course, nothing can be said about what lies further on down the road. Even if taxes don’t rise this year, they could rise later on.
While investors don’t need to panic, they also can’t ignore the changing conditions in the United States and elsewhere. High debt and high spending means the government may have to eventually raise revenues.