For over 300 years, financial transaction taxes (“FTTs”) have been proposed, discussed, and implemented in various forms across global financial markets. And for over 300 years, FTTs have been a failure wherever imposed, frequently failing to raise the promised revenues, while simultaneously damaging the efficiency of the affected markets. Recent proposals for an FTT in the United States would likely have a similar result. Senator Bernie Sanders advocates for an FTT that would impose a 0.5% tax on stock trades, a 0.1% tax on bond trades and a 0.005% tax on derivative transactions. Senator Kamala Harris proposes an FTT that would tax stock trades at 0.2%, bond trades at 0.1% and derivative transactions at 0.002%. Finally, yet another FTT proposal, supported by Senator Elizabeth Warren among others, has been introduced in both chambers of Congress, and would impose a 0.1% tax each on stock, bond and derivative transactions. While the proposals exempt short-term debt and initial issuances of securities (such as IPOs), they do not exempt secondary trading of U.S. treasury securities.
FTT proponents claim unconvincingly that the tax will serve dual purposes – raising several hundred billion dollars in revenue that can be used to fund unrelated campaign proposals, such as free college tuition and student loan forgiveness (Senator Sanders) or healthcare reform (Senator Harris), while simultaneously curbing purportedly excessive speculative trading activity. In fact, neither purpose would be achieved, and the claims themselves belie a fundamental misunderstanding of not only how securities markets function but also the direct link between robust securities market activity and jobs, infrastructure investment, innovation and productivity, retirement savings and overall macroeconomic growth. FTT proponents also ignore the empirical evidence from other countries that have imposed FTTs that universally demonstrates that (i) FTTs fall far short of revenue expectations and (ii) securities markets – and by extension the real economy as well as all investors and taxpayers – are significantly harmed by FTTs due to the wide array of beneficial trading activity that is indiscriminately targeted. In fact, many of the G20 countries that have experimented with FTTs in the past, including Germany, Italy, Japan, the Netherlands, Portugal and Sweden, ultimately repealed such taxes due to the damage that they caused. The U.S. should not ignore these international experiences and engage in its own reckless experiment with an FTT. Overall, the negative impact on securities markets, jobs, retirees, public works, and the economy as a whole would vastly outweigh any benefits from the revenue raised by the tax.
Given the historical failure of FTTs and the potentially negative consequences of the current proposals, the Committee on Capital Markets Regulation (the “Committee”) opposes the implementation of an FTT. Our main concerns are (i) the negative impact on U.S. pension plans, retirement accounts and individual savings, (ii) the damage to U.S. financial markets, (iii) the probable harm to jobs, wage growth and public works, and (iv) unrealistic revenue projections
The Committee’s report can be found here.