by toss1 | 2026-01-06 16:01:05+00:00
>>Transaction taxes are a huge incentive for assets to stay put

I'm sure that is true at high rates. But we can look at several scenarios and see how sensitive people actually are to a transaction tax.

But have you ever bought or sold a house? In most states there is a Real Estate transfer tax, which is essentially the same thing as I'm proposing for all transactions. These range from zero in TX and WY up to 5%. In Massachusetts it is $4.28/$1000 of valuation or 0.428% [0], while in adjacent New Hampshire it is over 3X the rate at $1.50/$100 or 1.5% [1]. I've lived in one state or the other for several decades, bought and sold houses in both, and been adjacent to friends/family buying/selling there. Yet I have NEVER heard even a single word in any discussion about hesitating to make a transaction on either side because of the transfer tax, or any difference in rates. I've never even read of anyone expressing any such hesitation, or heard of anyone even expressing theoretical hesitation.

Stockbroker fees in the 1990s were in the $40-$100/trade or /100 shares. So with a mean price of a DJI share of ~$56, a $70 fee would be a rate of 1.25% for a round lot. But to buy 20 shares, the $70/trade would be $6.25. These fees did not slow down investing and any significant investor, but they certainly prevented day-trading of small lots, which became more prevalent after fees went to zero.

Similarly, the common practice in auctions for antiques, estate sales, or industrial goods is to charge a "buyers' premium", which is basically the income for the auctioneer, behaving exactly as a transfer tax. You win the auction at $100, and the buyers' premium is 18%, so you pay $118. These premiums were typically closer to 10-12% a few decades ago and are now in the 18-20% range. At the newer higher rates, I have heard people express hesitation when considering bidding on an item they don't much care about.

In municipalities which have both state and local sales taxes like LA total 9.5% and NYC at 8.875%, people complain a lot, but it doesn't stop them buying, but may shift buying at the borders. Similarly, in Massachusetts there is a 6.25% sales tax but zero in neighboring New Hampshire, there are a surplus of stores right on the NH side of the border people nearby will drive to NH to purchase large items but surprisingly little; a wholesale club <15min south of an identical store across the border still does very strong volume of large TVs etc, with people not willing to bother driving another 15min to save 6.25%

So, yes, people are sensitive to significant fees approaching double digits. High-frequency traders would also be sensitive to low rates, but that is because they are in a high-transaction/low margin business of shaving pennies off every transaction, so that would be an issue for them, but if HFT disappeared it would be a net positive for the markets as they are basically front-running transactions and shaving profit from real investors.

But for most transactions, as long as the rates are sub-1%, a transaction tax will make zero practical difference, which is why the base needs to be across all transactions.

[0] https://massrealestatenews.com/transfer-tax/

[1] https://legalclarity.org/new-hampshire-transfer-tax-what-buy...