Taxes, like other user fees, are sometimes the right way to make the beneficiaries of a service pay for it. Not paying for a service leads to ‘tragedy of the commons‘ issues – abuse and overuse to the detriment of all users.
There is currently talk in Europe about a transaction tax in the financial markets. Does this fit with the above definition of a ‘good’ tax? Not really. The proceeds of the tax won’t go to maintaining the financial markets, that is already paid for by the bourses through order flow charges. Instead, it will pay for other parts of the financial regulatory apparatus. That disconnect of payors and beneficiaries is problematic.
More problematic is that the tax can be easily avoided by shifting away from European markets. Instead of helping capital markets in Europe, the tax will hurt them.
On the other hand, we really need transaction taxes, or something like them, in the algorithmic high frequency trading (HFT) markets. Here, classic overuse issues are coming up every day as algorithms clog the network with messages. This is spam. This is a denial of service attack on other algorithms. In the case of the Kraft Spike, this is pumping and dumping a stock. Making orders and then cancelling, thousands of times over in a second, is not bargaining in good faith.
I learned about investing from people like Leon Cooperman, Bill Kealy, and Steve Einhorn at Goldman Sachs. Investing is all about fundamentals and the long term. Algorithms have a place, but they need to play by the same rules as human traders.