Financial Transactions Tax Idea Creates Buzz Among Democrats

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By Kaustuv Basu and Aaron E. Lorenzo

A confluence of factors in this presidential election cycle is focusing attention on a financial transactions tax and what it can achieve.

And it goes beyond the Bernie effect.

Although presidential candidate Bernie Sanders has talked about a broad FTT, there is also a need for new funding sources to get to a revenue-neutral tax overhaul while there is tentative movement on such a tax in the European Union.

“People are getting frustrated with traditional models of tax reform and looking at other sources of revenue,” said Cameron Arterton, a tax counsel at Steptoe and Johnson LLP.

Party Platform

The Democratic Party Platform supports an FTT to curb excessive speculation and high-frequency trading. “We acknowledge that there is room within our party for a diversity of views on a broader financial transactions tax,” according to the platform (128 DTR G-6, 7/5/16).

Arterton, a former Treasury official, said she was unsure how much weight should be given to the inclusion of the tax in the platform. “That probably is an acknowledgement of the influence of Sanders and what his supporters want,” she said.

Hillary Clinton’s proposal is narrower, taxing high-frequency traders who later cancel orders (135 DTR G-1, 7/14/16).

Steven Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center, said there are a lot of financial transactions and even a small fee can generate a lot of revenue. “The usual revenue sources have dried up. You can close only so many loopholes because of economic and political reasons,” he said.

There has been a focus on “making Wall Street pay” in the aftermath of the 2008 financial crisis, Rosenthal said.

Still, this is new territory for a presidential campaign.

President Barack Obama has never supported taxing financial transactions despite mounting advocacy. Treasury Secretary Jacob Lew has also been opposed to an FTT.

Part of the interest in an FTT comes from the initiative in Europe for such a tax, Rosenthal said.

Ten European countries met in June to discuss an FTT, although efforts in the last four years have been slowed by disagreements.

“I wouldn’t say there is great momentum. As the European experience demonstrates, it is hard to get this tax over the line in any sort of coordinated fashion,” Rosenthal said. “But there is definitely more noise about the issue,” he said.

The Numbers

Arterton said the tax can't stop the behavior and raise a lot of revenue at the same time. “If you are going to stop the behavior, you are not going to raise a lot of revenue,” she said.

Legislation introduced in Congress by Rep. Peter DeFazio (D-Ore.) (H.R. 5745) for a 0.03 percent tax on stocks, bonds and derivatives trades would raise about $41 billion annually.

A proposal for more variable rates—a 0.2 percent tax on stock trades; a 0.1 percent tax on bond trades; and a 0.002 percent tax on derivatives—could raise $105 billion a year, according to a study released in July by Dean Baker, co-director of the Center for Economic and Policy Research. And more aggressive financial transactions tax proposals could exceed $400 billion in revenue annually, according to an Economic Policy Institute study also released this July.

Pushback

Keith Lawson, a senior counsel at the Investment Company Institute,a trade group, said, “we have been very clear both in Europe and the United States about the impact of this tax on middle-income investors.”

“The tax hits the little people. It hits mutual funds investors and others that are saving for retirement through the securities markets,” he said.

An ICI estimate found that a 10 basis point FTT would reduce long-term mutual funds returns by about $25 billion in 2015.

To contact the reporters on this story: Kaustuv Basu in Washington at kbasu@bna.com and Aaron E. Lorenzo in Washington at aaron@bna.com

To contact the editor responsible for this story: Cheryl Saenz at csaenz@bna.com

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