The Glade 4.0

You are missing the point. People will take their tax-free paychecks and go shoot craps before they research, create and maintain a solid, diversified portfolio. Are they better off doing so? No. Are they going to do it anyways? Yes.

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This argument is completely irrelevant to the discussion, seeing as how the individuals that will gamble before being fiscally responsible would do so anyway ... or somehow end up running the country.

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Why is price signaling important to the market? Oh, right -- because the market doesn't respond to actual prospects of the company, because the long-term prospects of the company are irrelevant to speculative trading.

Yes, you'd lose those price signals. But the price signals wouldn't be important, because the real merit of the stock is the company behind it again, not how it's been trending and signaling.

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"Aaaah! Emotions are weird!" - Amdee
"... Mirrorshades prevent the forces of normalcy from realizing that one is crazed and possibly dangerous. They are the symbol of the sun-staring visionary, the biker, the rocker, the policeman, and similar outlaws." - Bruce Sterling, preface to Mirrorshades

Yeah, you get it.

Once again, there's at least a touch of "Devil's Advocacy" in my suggestion, because I'm not convinced taxing investment like this at all is a good idea. But it has positive aspects, and I believe on a flat consumption tax it would really be "fair." Exempting investment vehicles is like a tax break for the wealthy. If you don't tax it at the same rate, then to remain fair, that means you need to exempt everything at walmart, too.

This is why I don't like consumption taxes...

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Well Ali Baba had them forty thieves, Scheherezade had a thousand tales
But master you in luck 'cause up your sleeves you got a brand of magic never fails...
...Mister Aladdin, sir, What will your pleasure be?
Let me take your order, Jot it down -You ain't never had a friend like me
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I'm not sure there's such a clear disconnect between speculative trading and value investing though. This is one of those topics where very knowledgeable- and reasonable-sounding (to me at least) people seem to disagree. I've read articles and talked to securities analysts/lawyers who think speculative and technical trades are pure noise, screwing up the system for "legitimate" investors, but I've also read articles and talked to people who think the speculative and technical trades, while noisy and volatile over short time scales, are informative and efficiency-enhancing over the longer term. The arguments on each side are, honestly, beyond my ability to judge or even summarize, but the upshot is that I think it's an open question and hence I'd be reluctant to make any drastic changes.

If you're leery of penalizing speculative and technical trading, why not offer a "grace period" for reinvestment, where if you can prove that you liquidated a qualifying investment type X period of time before "reinvesting" it in another, similarly qualifying vehicle (a different stock, for instance), you get refunded the sales tax on the purchase of the reinvestment.

The downside, of course, is that you go and build the bureaucracy of the IRS back into the system, but maybe you can limit it to licensed fund managers or something who are able to qualify for this, and thus restrict it to brokerages and the like, which would limit the volume of paperwork needing to be filed because John Q. Public doesn't have a dozen Investment Tax Reimbursement Form 11763b's to file.

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"Aaaah! Emotions are weird!" - Amdee
"... Mirrorshades prevent the forces of normalcy from realizing that one is crazed and possibly dangerous. They are the symbol of the sun-staring visionary, the biker, the rocker, the policeman, and similar outlaws." - Bruce Sterling, preface to Mirrorshades

Yeah...that could be the equivalent of a tax sheltered retirement savings plan...you buy into it (paying the consumption tax up front), then all purchases made inside the plan afterward are tax free.

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Well Ali Baba had them forty thieves, Scheherezade had a thousand tales
But master you in luck 'cause up your sleeves you got a brand of magic never fails...
...Mister Aladdin, sir, What will your pleasure be?
Let me take your order, Jot it down -You ain't never had a friend like me
█ ♣ █

Craps was a metaphor for blowing money. I did not mean it literally.

Taly:
I knew I was overlooking something huge yesterday. Buying stocks and bonds would be disincentivized under your plan. If buying a stock meant an immediate 12% loss on my funds through taxation I would buy a CD because it would outperform the asset I was buying.

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Again, people would do this anyway.

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