VIEWPOINTS : RAISING TAX REVENUE ON WALL STREET : A 10-cent transfer tax on stock trading could also bring some stability to a volatile market.

One new t-x (stop reading my lips) could close the gap between the revenue growth that Congress has promised this year to meet Gramm-Rudman targets and the new money that the House Ways and Means Committee has actually been able to find after shining the flashlight in all corners. This revenue raiser would hit only a tiny and legitimately unpopular group of people and discourage only one rather undesirable business.

It’s a transfer t-x on stock trading at, say, 10 cents a share. No need to worry that it would push business abroad: London and Tokyo both have transfer taxes that work out to about 20 cents a share on average. Nor is it an innovation in American finance: New York State imposed a 5-cent-a-share transfer tax until 1975 (and 5 cents in 1975 was worth more than 10 cents today), when the New York Stock Exchange bullied the legislature into repealing the long-established levy by threatening to move to New Jersey.

If trading volume stays about the same as it has been this year, a 10-cent-a-share federal tax would yield the government $6 billion a year. Assuming that in-and-out trading, program trading, and “index arbitrage” transactions would be considerably reduced by such a tax, the net to the government might be about $4 billion a year, which is the size of the shortfall that Congress is struggling to overcome.

At a conference at Columbia University in June, Lawrence Summers of Harvard, who has advocated such a tax, admitted under pressure that it would be a tax on investment. But in fact, oddly enough, it wouldn’t be. The investor would probably wind up better off because the volatility of stock market prices--their tendency to spike up and then down, or vice versa, in a matter of minutes--now costs more than 10 cents a share. The tax would reduce that volatility. If more stable prices during the trading day saved the investor one-eighth of a point, or 12.5 cents, which is the smallest possible move in the price of a stock, he would be 2.5 cents a share ahead of the game after paying the tax.

In actively traded stocks, intra-day price volatility (the difference between the highest and lowest prices paid for a stock in one day’s trading) runs about 1.5%. Brokerage houses trading for their own account typically buy in the lower half of that range and sell in the upper half. That’s why such “proprietary trading” has become such a popular activity among the big firms. Because they don’t pay commissions, big firms can make money on tiny price differentials, as trading in the futures pits briefly pushes stock prices up or down.

Intra-day trading is, of course, a zero-sum game. For everyone who wins by buying in the bottom half of the day’s range and selling in the top half, there are customers who buy in the top half or sell in the bottom half, and lose. If the insiders are winners, the outsiders--the public and institutional investors--must be (and are) losers.

About a year ago, I. W. (Tubby) Burnham, former chairman of Drexel Burnham and president of the Securities Industry Assn., wrote in a letter to the Wall Street Journal that a transfer tax would produce even worse volatility because the big houses would need bigger up-and-down price movements to make their intra-day trading profitable. And, Burnham argued, they can create such quick swings whenever they want. “Those who really handle the large amounts of institutional money,” he wrote with rather breathtaking candor, “have the discretion to buy and sell whenever they wish and increase the volatility on both sides.”

But the market is probably smarter than that. Any sizable expansion of daily price swings would attract a large number of speculators and investors, who would spot what appear to be opportunities and place orders that would tend to stabilize the prices.

Cutting the capital gains tax is, in large part, designed to encourage investors to make longer term decisions. For congressional budgeteers mired in the political swamp of such a proposed reduction, a transfer tax reinforces that goal while retrieving some of the windfall that capital gains tax reductions would give to the very rich.

If profits are harder to come by through very fast in-and-out trading, large investment funds (and professors of finance) will pay more attention to long-term investments and the desirability of “picking winners”--which is, after all, what the stock market is supposed to do. Pension funds and charitable endowments, the fastest-growing investors in our stock markets, now pay no taxes and are the natural prey for peddlers of computerized nostrums that guarantee better-than-average returns through frenetic trading activity.

The nostrums don’t work even now. Pension funds still underperform the stock market indices by about 1 percentage point, just as they always did. Factor in a transfer tax, and the strategy will be obviously defective.

Meanwhile, if the capital gains tax is cut, government revenue from that source will decline, especially after the old firm of Lawyers, Lobbyists and Influence Peddlers begins drawing new lines between what is income and what is capital gain for tax purposes. But there will be money from the transfer tax to maintain the government’s yield from Wall Street. There are, indeed, strong arguments for reducing taxes on profits from investments held for some decent interval, but it makes no sense at all to make the rest of us pay more taxes so that the financial community can pay less.

DR, FRED SMITH / for The Times