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![]() An FTT would increase the cost of capital, reducing both owners’ returns to capital and workers’ returns to labor.It can increase volatility and some high-frequency traders have engaged in predatory activity however, it is unlikely that these concerns have significant implications for investors or that an FTT is the best way to address them. HFT has contributed to declining transaction costs. An FTT would substantially reduce high-frequency trading (HFT).Higher volatility leads to lower compound returns and increased risk for investors. The existing literature is inconclusive as to whether an FTT would increase or decrease volatility.Furthermore, investors and institutions moving to derivatives to avoid the tax would face additional risks associated with trading those instruments. Due to the higher transaction costs, investors and institutions would be incentivized to avoid rebalancing their portfolios and leave risk unhedged. An FTT would fail to meet its goal of discouraging risky financial activity.Depending on the design of the tax, derivatives could potentially be substituted for their underlying securities to avoid the tax, reducing the revenue the tax raises.As a result, many existing FTTs have missed revenue targets. It is difficult to predict the magnitude of this reduction. The decrease in trading volume would reduce the revenue raised by the tax. An FTT would raise both explicit and implicit transaction costs, decreasing trading volume and lowering asset prices.005 percent on derivatives, has been estimated to raise between approximately $60B and $220B annually. Bernie Sanders (I-VT), with an FTT levied at 0.5 percent on stocks, 0.1 percent on bonds, and. ![]() For example, the Inclusive Prosperity Act proposed by Sen. A broad-based financial transaction tax (FTT) in the United States would be a substantial revenue source. ![]()
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