Updated: Aug 20, 2019
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In this article we'll discuss how Bernie Sanders' proposed .5% tax on stock trades could easily cost you 39% of your retirement.
Bernie Sanders has some radical ideas for every part of our economy. I'm going to start by questioning the sentiment towards "Wall Street."
There's a prevailing sentiment about Wall Street, Stock Brokers, and investing in general. The stock market is just a bunch of evil, greedy old white men that are skimming off the top of our economy, right?
It's true, there are evil and greedy people involved in the market, but those people don't make up the bulk of the money in the market. In actuality, nearly 120,000,000 Americans have money in the market in one way or another. That number balloons again if you consider employee stock options/bonuses.
What Bernie means when he says "Wall Street Bankers," are the people who manage your money. A large portion of the stock market is made up of Pension's, IRA's, 401K's, and other private retirement accounts.
That's why I take offense when he speaks of punishing Wall Street, and denounces Stock Market investors. There's a great chance that either you, or someone in your family has money in the market.
Bernie Sanders has a couple detrimental plans for the Stock market.
1. He would most definitely raise corporate taxes to previous levels, or higher (most likely higher).
2. He is calling for a tax on all stock trades.
The so-called "Trump Tax Cuts" did wonders for the corporations, and the stock market. Profits are up, as well as the market. By up, I mean UP. The market is up 40% since Trump was elected, and that’s meant big money for investors. Remember, everyone who's up big right now is waiting for the right time to take their profit off the table.
Raising taxes on businesses will not only take a bite out of corporate profits, but they'll hurt those that are invested in US companies, as well. The average net profit of a Fortune 500 company is 8% yearly. With Sanders screaming for higher wages, and trillions of dollars in new spending (Paid for by trillions of dollars in new taxes), the market is going to get extremely tight. With higher expenses, and lower profits, what direction would you think the market will go?
Bernie Sanders normally rails on the Wall Street bankers who received a bailout while normal families suffer. I agree, the government should not have bailed out the banks when the market turned in 2008.
Let's look at a little known fact about the bailouts, though. The bailouts totaled $623 billion dollars, but the companies returned $698 billion to the Government. The much demonized Wall Street bailouts earned the US Government $75 billion. The actual problem is that they (Government) took the debt out in your name, and then when it was paid back..they kept all the money.
Now for the tax on stock trades.
Bernie Sanders' tax on stock trades could easily cost you 40% of your retirement.
It’s difficult to stress through text, but this has a lot of potential to go very poorly. Investing, by it's very nature is a risky business. Even if we just take the tax on stock trades, excluding the proposals for taxes on derivatives, we've got a .5% tax on every stock purchase. That doesn't sound like much, does it? Bernie Sanders says that with just a little tax like this we could raise $2.4 trillion dollars over 10 years and pay for free college for everyone.
As usual, he's flat wrong.
I don't think we've hidden the fact that I'm not a fan of Bernie Sanders. Actually, you might have even typed BernieLies.com to reach this article. I do, however, remain truthful about my analysis of his policies- and that's why I feel the way I do about him.
The average return for a great investment fund is around 7% annually. If you invest $10,000 this year, making 7% annually would give you over $31,000 in 25 years. That equals about a 200% gain on your initial investment. That's the amazing power of compound interest. Of course, after taxes you'd end with around a 184% gain. Now not only will you have to contend with the fact that IF you gain money, the government will take a piece of it (meaning you have to develop a strategy based on a smaller take home profit), but with the B.S. stock tax, you'll be starting 'in the hole.'
Let's talk about the idea of a tax on each stock trade. Those investment funds that bring in the "7%" average do so because they find a perfect balance between their "safe vs. aggressive" portfolio's. Aggressive means they make more trades, and stay in those trades for a smaller amount of time. With a new tax adding a fee to each and every stock trade, do you think there will be more, or less stock trades taking place?
This tax will lower the "aggressiveness" of the investment firms, meaning they'll be less likely to shift in and out of trades to make higher gains. Not to mention the other unintended consequences, the fact that money will gradually flow towards safer bets, hurting smaller start-up companies considered too risky for investments.
So what happens if you take the 7% annual return firms are making while trading aggressively on some stocks, and lower it to 5% after they become more "safe" (it will probably be lower than 5%). Keep in mind that fees from the brokers will go up as well, now that they are incurring higher costs for trading.
Your compound interest landed you at +184% after 25 years of making 7%. After the rate is reduced to a 5% annual return, you'd end up with a 112% gain after 25 years.
This means that Bernie Sanders' .5% tax on stock trades could realistically cost you 39% of your potential retirement.
Before all of this has the chance to play out long term, we will more than likely incur another massive stock market crash. If Bernie Sanders is elected president, the money in the market will disappear. The big money invested in corporations will take their profits and run- waiting for a perfect time to buy low. People like you will also be inclined to withdraw because you know other people will withdraw. The market runs on emotions. Often fear of a crash will actually cause a crash, just like fear of a run on the bank will cause a run on the bank.
If Bernie is elected president, the fear will be legitimate, and the market will reflect accordingly. The sad part is that after your retirement is wiped out by the fear of these policies- Bernie will just blame the banks and the brokers, recommending that the US Government have even more control over the economy.