Progressives Introduce Bill to Impose a $2.4 Trillion Tax on Stock and Bond Trades

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Posted by Isabelle Morales on Wednesday, April 21st, 2021, 3:55 PM PERMALINK

Today, Sen. Bernie Sanders (I-Vt.) and Rep. Pramila Jayapal (D-Wash.) introduced a bill which would impose a $2.4 trillion financial transaction tax (FTT), harming retirees and savers and restricting economic growth. This is just one of many taxes progressives have proposed. 

This tax would be used to fund tuition-free community college and tuition-free, debt-free public college for families earning under $125,000 a year. The FTT would impose a 0.5% tax on all stock trades, a 0.1% fee on bonds, and a 0.005% fee on derivatives. According to Sanders' press release, the tax would raise up to $2.4 trillion over the next decade.

Most FTT proposals prior to this would have imposed a 0.1% tax on all stock trades, making this a particularly radical proposition. 

An FTT will harm American retirees and savers including those that have their investments in 401(k)s, pensions, and index funds. While the Left claims this tax will make wealthy hedge funds pay “their fair share,” the FTT is really a tax on American savers and investors, including the 53 percent of American households that own stock and the 80 to 100 million Americans that have a 401(k). 

This tax will fall especially hard on public sector pensions including those used by teachers, firefighters, and police officers rely that rely on hedge funds for retirement security. In fact, an FTT would cost pension funds billions of dollars every year, leading to fewer savings, less retirement income for retirees, and underfunded pensions. 

Further, a study by BlackRock found that 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. Keep in mind, Sanders’ proposed FTT would cause even more harm, as his proposed rate is 0.5 percent. 

It would also cut deeply into retirement accounts. A 2021 study conducted by the Modern Markets Initiative found a financial transaction tax from 0.02 to 0.5 percent would cost $45,000 to $65,000 over the lifetime of a 401(k) account. 

FTTs have a history of failure. 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, but capital gains tax revenue dropped because of a reduction in sales. When it was abolished in 1990, investment began to return to Sweden.  

In fact, several countries have experienced the same FTT process: an FTT is made law, the tax is reduced, the tax is finally eliminated. According to the Center for Capital Markets, this has happened in Spain (1988), Netherlands (1990), Germany (1991), Norway (1993), Portugal (1996), Italy (1998), Denmark (1999), Japan (1999), Austria (2000), and France (2008). It was even repealed here in the United States in 1965 through a bipartisan vote, due to its failure. In the years following the repeal, trading volume in the United States increased substantially.   

An FTT does not raise the revenue supporters claim it does. The Congressional Budget Office found that imposing a FTT in the U.S. would “decrease the volume of transactions” and “probably reduce output and employment.” Some have predicted that a financial transactions tax would raise little, if any, net revenue because of these negative impacts.   

FTTs also cause capital to flee to jurisdictions that do not tax transactions, further reducing revenues. When Italy and France imposed FTTs in 2012, both countries raised less than a quarter of expected revenues.    

As reported in Politico, Congressman Gregory Meeks (D-NY) recently argued that an FTT “hurts New Yoek in a big way” because it would cause trading to leave the State.

Similarly, Rep. Bill Foster (D-Ill.) argued that an FTT would reduce trading volumes and fail to raise revenue. He said:  

“My suspicion is that when you would actually score something like that, you'd look at the drop in trading volume that would happen and you'd find that the revenue raised would be small.” 

His suspicion is correct. The tax simply would not raise the revenue supporters claim it would. This is because it would reduce the volume of transactions, output, and employment.

Voters opposes a financial transaction tax by a margin of three-to-one. The U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness conducted a national polof 2,000 likely voters. According to this data, 63 percent of voters opposed an FTT including 49 percent of voters that were “strongly opposed.” Just 23 percent of voters supported an FTT.

Americans for Tax Reform, along with a coalition of 30 conservative and free market organizations, released a letter opposed to an FTT, urging all members of Congress to reject any proposal to implement this tax. As the signatories note, the FTT is the latest attempt by the Left to take advantage of a “crisis” to implement a massive new tax on the American people. Contrary to their rhetoric, this tax would be borne by the American people, not Wall Street. 

Additionally, Republicans on the House Financial Services Committee, led by Ranking Member Patrick McHenry (R-NC), released a resolution condemning attempts to impose this new tax. As Rep. McHenry noted, this tax would harm Americans saving for retirement, cost jobs, and reduce access to new capital.  

A $2.4 trillion financial transactions tax would punish investment, leading to market volatility and a reduction in output and employment. This proposal would certainly hurt our recovery coming out of the pandemic.

Photo Credit: Lorie Shaull

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