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April 20, 2003

Saving NY: Tiny Tax on Stock Sales

London does it. Most other big financial cities do it. New York used to do it.

Imposing a tiny tax, say around 5/100th of a cent per share, on stock sales in New York state would raise $3.8 billion for the state.

Doomsayers worry about stock sales fleeing the city, but that hasn't happened in cities like London with taxes time times as what is being proposed. Given the costs of doing business in New York City to begin with, such a marginal tax cost is unlikely to be the tipping point for decisions.

"Every tax can be avoided," said Josh Mason, policy coordinator for the Working Families Party, the main backer of the transfer tax. "The question is, is avoidance the better, cheaper option than just complying with the tax?"

Many believe the answer is no, especially if the tax is instituted for a limited period as the city and state struggle to fill yawning budget gaps.

In the end, it may be the only idea left to rescue the city.

Posted by Nathan at April 20, 2003 09:18 AM

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Can't speak about London, but 5/100th of a per cent strikes me as a *lot*. There are people who arbitrage stocks vs. futures for that kind of money (5 basis points), so this kind of proposal would indeed drive business away from the NYSE, towards the electronics exchanges.

Posted by: Andrew Boucher at April 20, 2003 11:42 AM

You misread the proposal. It's not 5/100 of a percent (.05%)-- which might be seen as significant, but 5/100 of a cent, a penny, per share. So on a share of $20, that would add up to .0025%, an order of magnitude less.

Posted by: Nathan Newman at April 20, 2003 09:31 PM

Actually, Andrew is right -- the language in the article is somewhat confusing, but the average rate works out to 5 basis points, i.e. 5 one hundredths of a percent of the value of the trade.

That's between 10 and 15 percent of average transaction costs at present, enoguht to bring them back up to where they were in 1998 or so.

Trading on ECNs is much thinner, so the difference in transaction costs is generally going to be a lot more than 5 basis points. Of course (as I told the News) some trades would move, but the question is, how many? Given the existing cost advatage of the NYSE for the vast majority of trades, I think the answer is, Not many.

Posted by: jw mason at April 21, 2003 11:54 AM

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