According to Prospect.org, instituting a Financial Speculation Tax
could rein in some of the worst excesses of financial markets that too often operate like casinos. By increasing the costs of placing trades, the tax would moderate trading activity generally, but it would most strongly deter short-term trades rather than longer-term investments. Importantly, for example, an FST could reduce the profitability of high-frequency trading, whereby computerized trading system enter and exit trading markets many times during the day—a practice that regulators worry gives an unfair advantage to some firms and increases market volatility.
Adopting an FST does not involve a leap of faith. From 1914 to 1966, the U.S. imposed a small tax on all stock trades, and Congress more than doubled the tax in 1932 to raise revenues during the Great Depression. The Securities Exchange Commission still exacts a fee equal to .00257 percent of each equity transaction traded on an exchange that funds the agency off-budget. In the U.K., the government imposes a “stamp tax” equal to 0.5 percent of each equity transaction. About 29 other countries also impose some form of an FST. In these jurisdictions, markets have survived and even thrived, even though trading in other jurisdictions without an FST is available. Most notably, financial markets in the U.K. have grown considerably since the early 1990s even with an FST in place.