House Populists pushing Wall Street transaction fee bill

Members of the House Populist Caucus held a press conference on Thursday to endorse a bill that would "assess a small fee on Wall Street day traders to pay down the national deficit and invest in America's middle class families." From a press release issued by Populist Caucus Chairman Bruce Braley (IA-01):

"Our nation continues to be crippled by a struggling economy which has resulted in an astronomical unemployment rate of 10.2 percent," [Representative Peter] DeFazio [OR-04] said.  "The American taxpayers bailed out Wall Street during a crisis brought on by reckless speculation in the financial markets.  This legislation will force Wall Street to do their part and put people displaced by that crisis back to work." [...]

The legislation will assess a small securities fee on the following transactions:
·         Stock transactions (tax rate will be 1/4 of 1 percent--0.25%),
·         Futures contracts to buy or sell a specified commodity of standardized quality at a certain date in the future, at a market determined price (tax rate will be 0.02%),
·         Swaps between two firms on certain benefits of one party's financial instrument for those of the other party's financial instrument (tax rate will be 0.02%)
·         Credit default swaps where a contract is swapped through a series of payments in exchange for a payoff if a credit instrument (typically a bond or loan) goes into default (fails to pay) (tax rate will be 0.02%),
·         And options, which are contracts between a buyer and a seller that gives the buyer the right, but not the obligation, to buy or to sell a particular asset on or before the option's expiration time, at an agreed price (at the rate of the underlying asset).

To ensure the tax is appropriately targeted to speculators and has no impact on the average investor and pension funds, the tax will be refunded for:

1)      tax-favored retirement accounts,

  1.      education savings accounts,
  2.      health savings accounts,
  3.      mutual funds and,
  4.      the first $100,000 of transactions annually that are not already exempted.

Braley spokeswoman Caitlin Legacki told me that as of this morning, the bill has 21 co-sponsors, 14 of whom belong to the Populist Caucus.

The bill has at least one champion in the Senate. HELP Committee Chairman Tom Harkin appeared with Populist Caucus members at yesterday's press conference. I don't know whether any Democrat on the Senate Finance Committee is willing to push for this measure.

I haven't seen any reaction yet from the Obama administration. Supporting this bill should be an easy call, but my hunch is that Treasury Secretary Timothy Geithner and senior presidential adviser Larry Summers will have Wall Street's back on this one. Here's hoping I am wrong about that.

Tags: Bruce Braley, Congress, deficit, House, House Populist Caucus, Larry Summers, Peter DeFazio, Tax Reform, Taxes, Timothy Geithner, Tom Harkin, Wall Street transaction fees (all tags)

Comments

26 Comments

Re: House Populists pushing Wall Street

Have stock trades ever been taxed before?

I haven't seen the details, but I do know that many a time you do loose money trading stock - if the selling price is lower than the price you bought at for example. How would this tax work in practice?

Btw, a transaction fee is a bit different from a tax. A fee would indicate a fixed amount. At a time when the Dow is down (from it's highs) I don't think this is a good time to implement such a plan.

by vecky 2009-12-04 11:05AM | 0 recs
major Wall Street trading houses

are doing well while the economy as a whole is not. It seems like an excellent time to implement these fees.

Unless you want the Teabaggers to be able to say that Democrats did nothing Wall Street made a killing.

by desmoinesdem 2009-12-04 12:48PM | 0 recs
Re: major Wall Street trading houses

I can see a lot of folk upset at this decision, and the tea-baggers will give the the Democrats zero credit.

Besides populist outrage is not so much aimed against stock traders/trades as much as executives and million dollar bonuses.

by vecky 2009-12-04 02:51PM | 0 recs
Re: major Wall Street trading houses

Btw I'm OK with taxing CDS, CDOs, derivatives and other financial instruments that are traded between firms. But not regular stocks.

by vecky 2009-12-04 02:58PM | 0 recs
Re: major Wall Street trading houses

You could just exempt the first X number of transactions if you want. Not that many people buy stock outside of a retirement plan. And most mutual funds do not buy or sell all that often.

But why are stock taxed HIGHER than CDOs?

Supporting this bill should be an easy call, but my hunch is that Treasury Secretary Timothy Geithner and senior presidential adviser Larry Summers will have Wall Street's back on this one.

Friendly reminder: the Cossacks work for the Czar.

by bay of arizona 2009-12-04 03:03PM | 0 recs
good points

But personnel also shape policy by the kind of advice they give the guy in charge.

by desmoinesdem 2009-12-04 06:14PM | 0 recs
Re: major Wall Street trading houses

Nah, tea-baggers won't care.

I am an attorney that works with a lot of small businesses.  I know how government regulation crush them on a daily basis.  People have no idea how thin the margins are for these guys and they cannot afford lawyers to help them through every friggin' regulatory hurdle or spend weeks out of the year trying to decipher from the law books what the hell is required of them.

This is not one of those regulations.  

Any idea how much money it will generate?

by dMarx 2009-12-05 10:37AM | 0 recs
Re: major Wall Street trading houses

The conservative estimate is $150 billion per year. Additionaly, and to answer the primary question , yes , this is something that was done before. It was called a "step tax" it actually was standard practice until 1964. Also, many other countries (Like England.) already do this. Like the VAT, or purposeful protection of vital industries through trade policy (We are the ONLY G-20 country that does not have legal mechanisms to protect it's manufacturing sector in place.)we, the good ol' US of A are purposefully behind the curve. There is NOrationalargument for many of the things that we allow to occur in this country. Like, dis-allowing shareholder from having a major say in how board members are compensated.Or, a lack of universal, single payer, health care. These should just be common sense measures that really don't merit the histrionics that we allow the right-wing to inject into the conversation about them.

by onlinesavant 2009-12-05 06:25PM | 0 recs
Re: House Populists pushing Wall Street

When you buy a stock, you already pay a commission to somebody, win or lose.  The tax serves the effect of increasing the vig you need to beat by a small amount.

The fact that you get a free $100,000 of trades every year is an important point.  Normal people - even well-off people - who merely buy and hold stock are hardly going to be touched by this.  I suppose you could add an exemption for liquidating stocks which were held at the time the tax was implemented, but it's hardly even worth worrying about.  Only the most active traders - which basically means the large brokerage houses that use computer programs to trade in high volume - are going to be touched by this in any material way.

by Steve M 2009-12-04 05:22PM | 0 recs
especially since

they say the tax will be refunded for certain retirement accounts, education savings accounts, mutual funds, etc. The average investor is not going to feel this at all.

by desmoinesdem 2009-12-04 06:15PM | 0 recs
Transaction fee

I don't think it is a bad idea but the aim of the measure is to curtail speculation and I am not sure that speculators are necessarily put off by a transaction fee.

Why is it that every time one numbers in a set, the first bullet point is always off. I have the same problem.

Well-written post.

by Charles Lemos 2009-12-04 11:09AM | 0 recs
I don't know

whether the primary aim is to curtail speculation. It may be just to generate additional revenue for speculation that would happen anyway.

I don't know why that happens with the formatting. It didn't happen at Bleeding Heartland, and I played around with it here before posting.

by desmoinesdem 2009-12-04 11:25AM | 0 recs
Re: Transaction fee

Is the goal to curtail speculation or to raise revenue?  I think if people keep on trading actively, that's a feature and not a bug.

by Steve M 2009-12-04 05:24PM | 0 recs
In brief:

Good.

by NoFortunateSon 2009-12-04 11:51AM | 0 recs
No

The answer to every liberal concern is tax. Another stupid idea intended to punish americans for earning money....morons...

by BuckeyeBlogger 2009-12-04 04:06PM | 0 recs
Re: No

What nonsense. If there exists an under taxed country its ours. Conservatives have managed to transfer money to their masters for 30 years without protest and now insist that its all just the natural order. If you want to use rich people's money to stimulate the economy, you have to tax it away from them and spend it on public goods. Otherwise they'll stuff it in the mattress, the definition of sequestering wealth. The morons are on your side of the argument.

by johnmorris 2009-12-04 07:26PM | 0 recs
Re: No

Yes, the OECD just issued a report this past week showing that among OECD nations only Turkey, Mexico and South Korea have a lower tax burden than we do.

by Charles Lemos 2009-12-04 09:16PM | 0 recs
Re: No

What nonsense. If there exists an under taxed country its ours. Conservatives have managed to transfer money to their masters for 30 years without protest and now insist that its all just the natural order. If you want to use rich people's money to stimulate the economy, you have to tax it away from them and spend it on public goods. Otherwise they'll stuff it in the mattress, the definition of sequestering wealth. The morons are on your side of the argument.

by johnmorris 2009-12-04 07:33PM | 0 recs
Re: No

The morons are people like you who believe that the government and the so called underprivileged have a right to other peoples money. The idea that those who have are evil and should give more of their money to the government. The founders are rolling over in their grave over al this government intrusion into our pockets and our lives......its sad that I have to give nearly 1/3 of my modest income to the Government.....and for what in return?

by BuckeyeBlogger 2009-12-05 11:05AM | 0 recs
Re: No

What nonsense. If there exists an under taxed country its ours. Conservatives have managed to transfer money to their masters for 30 years without protest and now insist that its all just the natural order. If you want to use rich people's money to stimulate the economy, you have to tax it away from them and spend it on public goods. Otherwise they'll stuff it in the mattress, the definition of sequestering wealth. The morons are on your side of the argument.

by johnmorris 2009-12-04 07:35PM | 0 recs
This is like taxing bullets to punish the criminal

This is like taxing bullets to punish the criminal. Or like my dad used to say, punishing all the kids to make sure the bad one gets punished. A transactions tax on all stock purchases AND sales is like building a two-way toll on the capital markets. Yes, exempting mutual funds + retirement accounts would slightly reduce the impact of this tax on ordinary investors, but a $100,000 limited exemption is fairly laughable. Any investor with $50,000 or more in the market will face the tax after one round trip. Millions of small investors will be affected, and yes, daytrading would be destroyed.

Sounds good, you say? Consider that this tax would massively erode liquidity on Wall Street. With fewer buyers and sellers in the market, spreads would rise. Investors would be incentivized to transfer capital to overseas exchanges, buying stock in foreign corporations. American companies would probaly be tempted to list overseas to have access to cheaper capital.

Volume at many brokerages would decline significantly, leading to further job losses. The tax would erode volume so greatly the projected revenues are probably overstated. And America's position as the king of capital exchange would be threatened, putting further pressure on the dollar.

And for all that it wouldn't hurt the banks at all. It would hurt the brokerages and trading outfits like Goldman Sachs, but it would harm so many others just as badly. We need to be encouraging capital investment now, not penalizing it. This tax is a surefire recipe for prolonging the recession.

If Democrats really want to "punish" Wall Street there are a dozen better policy proposals: a windfall profits tax, a tax on bonuses, shareholder rights on compensation, or raising the capital gains tax (which would actually be fair and economically rational, since it wouldn't tax losing trades like this bill would). The stock "transactions tax" is bad public policy and fails to achieve its stated purpose without the risk of massive collateral damage. It's like swatting flies with a machine gun.

by Jonathan Gelling 2009-12-04 06:28PM | 0 recs
Re: This is like taxing bullets

This is a baffling post.  Would you make the same sweeping claims if the proposed tax were an eighth of a percent?  A hundredth of a percent?

The idea that you instantly destroy day trading if you add even a penny to the transaction costs is crazy.  There are all sorts of transaction costs baked in already, and somehow those are okay, but another quarter of a percent would somehow be a dealbreaker?  You need to cite something empirical for a claim like that.  To me it's a gross overstatement of the extent to which marginal tax increases impact human behavior.

by Steve M 2009-12-04 06:41PM | 0 recs
Pennies?

How is .5% of the TOTAL value of the investment in any way comparable to "pennies" or ordinary transaction costs? The last time I checked it was about $10 a trade, but if you're investing any substantial amount of money the tax could be huge.

If the tax were a penny a trade, it'd make a lot of sense. If it was only a tax on derivatives rather than a tax on capital investment (you know, in companies that are raising money in the capital markets to finance growth, expansion and JOBS) then it would make sense. But the tax is not small in any sense, and it will certainly scare away big foreign investors who would otherwise be willing to finance the next Google here in America.

The tax on $1 billion, for example, would be $25 million each way win, lose or draw (and of course losing is always a very real probability). Now, if you're a big investor, would you buy stock here facing that cost, or go overseas to an exchange that has no such tax.

That's why even Pelosi wants a global deal on something like this, because otherwise American capital markets will suffer badly. But I doubt the capital-hungry markets in China, India or Brazil will agree to any such thing, so it's a moot point if she sticks to her guns.

by Jonathan Gelling 2009-12-04 07:49PM | 0 recs
Re: Pennies?

Your math is wrong.  1% of a billion is $10 million, a quarter of that is $2.5 million  not $25 million.  Unless I misunderstood a quarter percent.  And the way you offset this is to have your broker reduce his commission a little bit.  This is a feature of the program, not a bug.  One of the reasons to institute this type of fee structure is to reduce the parasitical nature of commissions nad increase governmental revenue.

by Demo Dan in Dayton 2009-12-05 04:36AM | 0 recs
Re: Pennies?

If I'm investing a billion dollars, $2.5 million is indeed pennies to me.  I certainly expect to make far more than $2.5 million with that billion-dollar investment.

You sound exactly like the people who say that if we raise the marginal tax rate from 36% to 39%, no one will go to work any more.

by Steve M 2009-12-05 06:57AM | 0 recs
Preaching to fools

Your arguing with idiots. There belief is that the government has a right to our money for the betterment of all. If thats what they want let them move to Europe where they can forfeit most of their income.....

by BuckeyeBlogger 2009-12-05 11:07AM | 0 recs

Diaries

Advertise Blogads