I'm doing a bit of research right now, trying to dig up how taxation of futures trading works in Canada, and I bumped into an amusing write-up that I thought I would share. For those that aren't familiar with Canadian politics, the "Green Party" is relatively newer on the scene, haven't yet won a significant number of seats federally, so not really a political "force" as of yet. I should also mention for background purposes that in Canada we receive a 50% capital gains tax credit unless someone trades stocks as a full-time business. So if I realize a $1000 gain from buying then selling a stock, only $500 of it is taxed. Speculation and Taxation http://lp.greenparty.ca/tiki-index.php?page=speculation+and+taxation&bl Issue: Speculation, inflation, taxation Speculative activity in financial markets has been often associated with negative social impacts. The nature of speculation is that no new wealth is created, but yet it absorbs substantial social and economc resources. The value speculators provide in a market economy is that they absorb risk and provide liquidity in the marketplace (for a chance at making gobs of money) but how much speculation is too much? Speculative activies contribute to economic bubbles and stock market crashes, currency traders have economically destabilized whole regions as in the 1997 Asian Financial Crisis. In the event of these destabilizations it is inevitably the poor who suffer most. Labor Economist Jim Stanford argued in his book Paper Boom that tax regulations that favor financial speculation over "real" investments in factories and equipment have undermined Canada's (and the world's) economy. see wikipedia:speculation AIMS reviews "Paper Boom" TWN reviews "Paper Boom" Speculation also fuels inflation? (this is unlikely in the long run) Alternative # 1 - adopt a sliding scale over time for a capital gains tax REPLACE the existing 50% capital gains exemption with a sliding scale based on how long the capital asset had been owned. So for any purely speculative trade of stock, real estate, currency or whatever that was held for only a month before reselling, the exemption would be 0%, i.e. the entire gain would be taxed as income. For a true investment where the asset is held for 25 years or more, the exemption would be 100% - none of the gain taxed. Argument - Doug's initial comments Here is an idea to modify the capital gains tax in order to bring all speculators to heel. Speculators, including currency traders, make gobs of money without doing any productive labour. (LOL) Currency speculators, in particular, can destabilize currency relationships and are the parasites of international money markets. I think most people would agree that speculation is bad, whether it is currency, the stock market, real estate or even fine art. They drive prices up without adding any real value. One can argue that they lose when prices come down but in reality, the losers are the poor suckers that get drawn into these markets without really knowing what they're getting into. For every dollar that a speculator makes, somebody else loses a dollar. The people who make a living out of speculation have the timing down to a fine art and many of the big players have the financial clout to make the markets dance to their tune. Speculation also fuels inflation (other factors cause inflation but rapid inflation in a free market economy is driven by speculators). When markets contract, once again it is fuelled by speculators dumping their overpriced portfolios at below cost. Canada encourages speculation by including only 50% of the capital gain as income. (The other 50% is tax free.) The argument for this is that it encourages investment, whether in the stock market, small businesses or farms - all very worthwhile reasons. But there is a difference between speculation and investment, and in any particular situation none of us would have any problem telling one from the other. However writing an all-inclusive definition is more difficult. While not perfect, the easiest distinction is the time that an asset is held. We can be pretty certain that buying and selling stocks within a few hours is certainly not investment nor is reselling a house before the initial purchase has even closed. These blatantly speculative transactions should be taxed at 100% in order to take all the profit out of it. (Note that I'm proposing that such short term profits are added to actual tax payable rather than to taxable income.) I would propose that this formula would apply to any asset ownership of less than a month. Beyond a month there would be a sliding scale starting with 100% of the gain added to income down to 0% for an asset that's been held for 25 years or so. Obviously if there are no profits in short-term trading, it would disappear. True long-term investment would be encouraged by a better-than-current tax treatment and farmers and small businesses get the tax treatment they need as well. There might need to be some exemptions to this (short term trading in some commodity markets does serve a useful function - there are probably other examples as well) but on the whole I like to keep things simple. The fewer exemptions and regulations, the fewer bureaucrats you have to pay. Wouldn't it be nice to have a tax system that legitimate business people were not afraid of? A sidelight to this is that it should help alleviate economic disparities to some degree. At the top end, a lot of the income of the very wealthy comes from speculation, and at the middle level we would be protecting poor suckers from themselves - the ones that get drawn into 'hot' markets just before they fall, leaving them holding the bag. (Instead of gambling on stocks they can invest in lottery tickets in which case we know that 50% is going into public coffers.) (*rolls eyes*) And it would eliminate one of the main drivers of inflation. One result would be that speculation would move offshore and I'm not equipped to guess the impacts of that. But speculation is a worldwide problem and if Canada did it, other countries might follow suit. A second impact would be that the brokerage industry would be decimated. (I once tried to find out if anybody had ever tracked stock market buys to see how long, on average, assets were being held but nobody had any answers - I would guess that at least 90% of the brokerage business is speculative.) Stock markets could get back to their original intent of bringing potential investors in contact with businesses needing capital.