Now that the crisis in the Middle East has made it harder to tax oil or cut defense spending, the Bush administration is ogling a deceptively attractive new tax gimmick.
Unfortunately, with national attention riveted on what seems to be the growing possibility of a shooting war with Iraq, the public is largely unaware of this dangerous fiscal flirtation.The object of the administration's shifting affections is a proposal to impose a "transfer tax" on every stock, bond, commodity, futures and options trade.
What makes the proposal so alluring is that a relatively small tax on security transactions of only 0.5 percent - the figure mentioned most often - would raise an eye-popping amount of money: an estimated $8 billion in the first year and $58 billion over five years.
Another part of the plan's appeal is the notion that a tax on security deals would just soak the rich, leaving ordinary Americans relatively unscathed.
Wrong, wrong, wrong!
Anyone who thinks that only the wealthy are involved in the stock market simply hasn't been paying attention. Just about anyone with a pension, an insurance policy or a mutual fund has a stake in the market.
Consequently, millions of Americans ought to prick up their ears when the Congressional Budget Office warns that the proposed new transfer tax would hammer down stock prices by 9 percent and shrink the volume of trading by 8 percent.
Overnight, all investors would be poorer and pension benefits would be reduced. At the same time, local taxes likely would have to be increased to pay the pensions of state and municipal employees.
In response, many investors - particularly big institutions - could be expected to shift their equity trading away from American markets to foreign stock exchanges.
The tax also might aggravate sharp swings in the market. Reluctant to pay the extra transaction levy, traders could be expected to wait for a large market shift before buying or selling - which means that just about everyone else would be buying or selling at the same time.
No wonder the U.S. Treasury, knowing that the proposed tax would increase its cost of borrowing and lower the price of its securities, is insisting that it be exempted from any stock transfer tax.
No wonder, too, that the stock transfer tax has been abolished by Sweden, is in the process of being eliminated by West Germany and Ireland and is being lowered in Italy and Japan.
Read Americans' lips, President Bush: No stock transfer tax.