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Traders Tax: H.R. 4191 (H.R. 1068) in Congress Now


I don't post in here often, but look through the forum here a lot. I just got an email an about this new traders tax bill in Congress now. From what I understand this could ruin day trading for everyone.

The email had a link to go to and sign a petition to send to U.S. Congress.

I just signed the petition and figured all the traders in here would want to as well as it is very important they don't pass this bill.

www VoteNo1068 com (this link no longer works so disabled)

edit: Link to H.R. 4191 http://www.govtrack.us/congress/billtext.xpd?bill=h111-4191
The thing that is so curious is the absence of FX. All earlier dicussion clearly mentioned FX. This type of a tax originated with FX. Now they are going to allow all traders to simply move to FX, escape the tax, and meanwhile absolutely crush the investors and the market? I don't see it, it doesn't fit their M.O. at all. I think it is just a matter of time until they realize this and add it in. But, it's a ray of hope. Imagine the added liquidity if the entire trading world shifts to just FX.
In reading the proposed draft of HR 4191 ( the successor to HR 1068) there seems to be an unintended loophole in the proposed tax law that could provide some solace to traders if this legislation should pass. As it stands now there would be a tax of approximately $10 per side on a standard emini futures contract ( .02% of the value of the underlying futures contract). Obviously this would be disasterous to any trader and would likely kill most futures trading and liquidity. However, the tax on an option on a futures contract is only .02% of the "premium" of the option when bought or sold. Therefore, the tax on an option with a premium cost of $1,000 would be only 20 cents (.0002 x $1,000). If passed, the smart thing for the exchanges would be to create extreme liquidity in numerous in the money options at or near the daily settlement price on the futures which would have good trading volume and liquidity which would approach that of the futures contracts. Theses options would utilize low premiums but obviously would command the full value of the underlying futures contract. This way, even if these power hungry greedy democrats get their way by passage of this tax, the exchanges could end run their efforts by implementing the heavy trading of options and thus minimize the effects of this "tax"
To add insult to injury this tax would take effect on both winning and losing trades..... At least thats how I interpret it.
trading truth, yes, I noticed that potential 'loophole' myself, and thought it would just be a matter of time before they figured that out and closed it. I was reluctant to even post about it for fear of tipping them off. Maybe they don't and the exchanges do exactly as you have said.

shiela, yes, it's win or lose, you pay just to play. Almost $1,000 in and out for 1,000 shares of AAPL (or $100 in and out for just 100 shares!).
Ah, but here's the thing. Who would sell you those options? Someone who would then hedge them with the underlying. But he/she can't do that without paying the tax. And they won't pay it without passing it on. And how about all the hedging that goes on between the ES and baskets of stocks? That will not be even remotely possible because the stock taxes are huge. So, all this will likely trickle down and have to be added onto those options, spoiling this wonderful concept in the real world. Just my two cents.
With HR 1068's 0.25% tax on entry and exit, the tax would consume about the first 20 ticks of profit on ES! But that's the good news. For example, if you made no profit on 5 contracts, you'd be down about $1400 !

Now I see why HR 4191 was introduced: it reduced the tax on futures. It didn't reduce it on stocks, though.

FWIW, Robert Green claims that this won't get passed until there is global acceptance.
[url]http://www.greencompany.com/blog/index.php[/url]

HR 4191 will tax futures transactions at 0.02%. The first tick or two of profit on ES (before commission) would be consumed by the tax. This is still not acceptable. It would quintuple everyone's futures transaction costs.

See my attached spreadsheet for an editable what-if table. There is a tab for futures and stocks.

-Tom

Click link to access uploaded file:
Transaxtion tax impact.xls
some local non-profit in ohio just got $300K from fed govt for a parachute exhibit in a local museum - <<<< Need to show this to DeFazio
If the underlying price is a multiple is 50 for S&P contract what is the underlying price for NQ?
Just some math fun. We all know how Jim loves math factiods.

I heard mention about worrying that they could pass this tax 'retroactively'. I have little worry about that, and I'm known to worry about everything, but I just wanted to play a math game, imagining they did this retroactively.

We all know some stock traders, in the day, traded 50 or 100 trades a day, commonly. Let's examine just a simple intraday trader who does seven trades a day, a number I picked recalling one of PT's posts where he said, if I remember correctly, averaging seven trades per day among two techniques.

Let's say this trader trades AAPL, 1,000 shares at a crack. He does seven trades a day. At the end of the year he realizes he made a little, or maybe broke even, but he's trying. Maybe he even lost a little. Now he finds out they passed the tax, and he owes for the year. He isn't too concerned, as he didn't make much, what could he owe. He doesn't realize it's a transaction tax, until he gets the bill. What does he owe? $1.75 million.

No, that's not a typo, that's the amount. Just seven trades a day at 1,000 shares, not anything real big for any full-time trader by any stretch, and he owes $1.75 million, even if he didn't make a profit. And he has no choice but to pay. Imagine if they enacted it that way! Just some food for thought, as it has been tossed around as an idea, to make it retroactive.
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