|The risk of a short term trade is much less than for a long term trade. If you buy and hold, expecting to take profits in, say, five years, you have not only the risk inherent in the company (debt, earnings or losses, change in demand for products or services, etc.) but a risk from inflation, which could erode the value of the investment, even if earnings improve.|
If the SEC functions that way it did for several years during the period when deregulation was in vogue, then there will be continuing abuses, most of which are hardest on individual investors and give large institutional investors an advantage. In other words, large investors' risks are reduced, while smaller investors assume a higher risk for the same return. That means the expected value of an investment for a small investor will generally be less than for a large investor.
The only way to stop abuses of the free market system is through enforcing laws designed to prevent market abuses. So why not pay at least in part for enforcement out of a tax on short term trades?
For some people, trading in and out of a security, often in just a matter of hours, is just a form of gaming the system. They really aren't interested in the company as an investment but simply in momentary profits from market momentum. In itself, this is not objectionable, but when the trades take place sooner than the average investor can place buy and sell orders, or on the basis of information not readily available to the public, the average investor suffers, either in less profit or greater risk. I've been investing actively for 58 years and have seen these kinds of things time and time again.