It is six months until voters cast their first ballots in the Democrat presidential primary, but candidates have already rolled out a slew of tax increases on the American people.

One of these taxes, a financial transactions tax (FTT), is gaining traction among an increasing number of left-wing presidential candidates. FTTs would be imposed on the sale of any stocks, bonds, and derivatives.Kamala Harris’ plan for socialized healthcare included an FTT as one of the pay-fors. 

She is not alone – Bernie SandersElizabeth WarrenPete Buttigeg, and Kirsten Gillibrand have all floated an FTT of some form. 

These Democrats are wrong to push an FTT – this type of tax has failed when it has been tried before, would harm economic growth and investment, and would fail to raise any significant revenue.  

A financial transaction tax would harm investment & economic growth

An FTT will have broad, negative economic effects. By imposing a barrier to trades, this tax will increase the cost of capital and reduce productivity which would in turn harm wages and jobs. 

This tax would also increase market volatility as there would be fewer buyers and sellers and therefore more price jumps.

An FTT would especially impact fund managers that are responsible for 401(k)s, pensions, and index funds and make frequent trades. As a result, returns on pension funds and other savings would be lower because of the increased the costs of buying and selling and the reduction in value of shares.

In fact, BlackRock has previously estimated a financial transaction tax of 0.1 percent would result in an investor losing $2,300 in returns on a $10,000 investment in a global equity fund over ten years.

A financial transactions tax is bad tax policy

Ideal tax policy should be economically neutral by taxing income once (ideally at the point of consumption).

The FTT violates this principle by imposing an additional layer of taxation on top of existing capital gains taxes, individual income taxes, and corporate taxes. 

Because it is levied on a transaction, this tax could be imposed on the same financial instrument multiple times. In addition, the FTT would often be imposed at the same time as the capital gains tax – tax would be paid on the act of selling the asset and also on the gain of the asset.

A financial transactions tax fails to raise the revenue supporters claim

This tax would have the indirect effect of reducing income tax and capital gains tax revenue because it would reduce trades and cause capital to flee.

Case in point – an analysis by the Congressional Budget Office found that imposing a FTT would “decrease the volume of transactions and would make some types of trading activity” and “probably reduce output and employment.” 

In fact, some have predicted that a financial transactions tax would raise little, if any, net revenue because of these negative impacts.

A financial transactions tax has failed in the past

In 1984, Sweden imposed a financial transaction tax, a proposal that lasted just six years. Even though investors were restricted in moving capital to foreign markets, most trading migrated to London to avoid the tax. 

Not only did this mean the FTT raised little revenue, capital gains tax revenue dropped because of a reduction in sales. When it was abolished in 1990, investment began to return to Sweden.

This is not an isolated incident.

When Italy and France imposed FTTs in 2012, both countries raised less than a quarter of expected revenues.

study of New York State’s FTT that was in effect between 1932 and 1981 found that the tax increased the cost of capital, reduced trading and increased market volatility.