Much to the chagrin of high-frequency traders, the idea of a transaction tax on stock trades has surfaced again, though few think such a tax will ever be levied. 

The Occupy Wall Street movement finally has a specific request that it can rally around. Unions are starting to press for such a tax. Political leaders in Germany and France have been vocal in their support and would like to make it an issue at the G-20. Two congressmen are planning to revive the issue in Congress. Chances are good that the issue will be right back in the headlines soon. 

High-frequency traders, of course, abhor the idea, and suggest that it threatens all the positives they bring to the modern markets. The tax would thwart liquidity, widen spreads and drive trading abroad, they say. They often point to Sweden as an example of how a transaction tax, which was imposed in 1984, led to an exodus of trading business. 

Critics of the high-frequency traders of course tick off a long laundry list of why high frequency traders, with their very short-term trading mentality, are bad for the markets. In their view, anything that reins them in would be a good thing. These critics deride the liquidity high-frequency traders bring to the markets as undesirable, drawing the distinction between volume and liquidity. They also support the tax in part to tamp down speculative trading volume, which they believe helped create the conditions that allow for Flash Crashes. To be sure, there's not a lot of hard evidence that high frequency trading caused the May 6, 2010 Flash Crash. 

In any case, for better or worse, this old debate has been revived with gusto. 

In one big way the issue is moot: The transaction tax has virtually no chance of ever becoming a reality. 

Congress is simply not going to allow that to happen, even in this era of tight budgets. The idea has no chance. In fact, it's unclear whether the current Treasury secretary even supports the idea. The best hope for such a tax may rest with the Super Committee that is tasked with solving the countries' budget woes. A small tax of just 0.1 percent on all transactions would generate $200 billion a year by one estimate. That's a lot.   

Tabb Group estimates that a three basis point tax on stock transactions, as has been proposed, would generate $17.6 billion in revenue annually. That's a lot--likely too much---when you consider that the amount is nearly twice the amount asset managers pay their brokerages and three times the amount high frequency traders pay. 

I just can't see such a tax ever become reality, even though a transaction fee is already levied by the SEC. The best bet may be to piggy back on that with a small token transaction fee to finance regulatory initiatives.  -Jim