I think the solution is in reforming capital gains taxes. You should only get the discount on taxes if you hold for 5+ years. And even then, the brackets should be more progressive for extreme (e.g. hundreds of millions) in income.
Overall, these two changes would incentivize holding stocks <1 year more often than people do currently.
Perhaps you could get a longer-term effect if you had another, lower tax level at 5+ years, or raised moderately the 1+ year cap gains rate and moved the current one to 5 years.
Why not just treat all stock investment like 401k’s: taxed as income when selling, tax deductible when buying? The deferred income tax still provides an incentive to invest, yet you don’t get a tax break when selling (unless you happen to be in a lower tax bracket between then and and when you sell).
There are severe market stability issues associated with people gravitating towards <1 year holdings. The cap gains rate exists partially to encourage long-ish holdings.
With that incentive severely reduced as your plan proposes, you’ll see much Miles’s incentive to hold and more volatile markets.
I doubt there is anything specific about an exact one year holding cutoff, but I'd love to see a source. If anything, the fact that we're having this conversation suggests the long term investment theory has been demonstrated to be either false or uncalibrated as it exists now. I'd also be open to a graduated rate (almost like a vesting schedule) of discounts starting at 1-2 years and ending at 5 years. But do we really need more complexity? Just have it be 5 years and public companies can be long-term focused once again. Markets will survive -- day traders tend to lose money and drop out.
