House Democrat Tries Again With New Bill Taxing Financial Transactions at Tiered Rates

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By Marc Heller

The White House has been cool to a new tax on financial transactions, but a Democratic lawmaker proposing to introduce one has not given up on the Obama administration.

Rep. Keith Ellison (D-Minn.) told BNA April 17 that he believes Treasury Secretary Jacob J. Lew may yet come around to the view that a tax on sales of stock, bonds, and derivatives makes sense as a way to raise revenue and combat distortions in the financial markets.

“I'm going to put him in the category of not having him on board--yet,” Ellison said after a news conference announcing that he has introduced a bill to establish a financial transactions tax.

Ellison's bill, the Inclusive Prosperity Act (H.R. 1579), follows legislation introduced in February by Rep. Pete DeFazio (D-Ore.) and Sens. Tom Harkin (D-Iowa) and Sheldon Whitehouse (D-R.I.), but differs in some respects.

“We've just got to be persistent,” Ellison told BNA.

Approach Varies From Earlier Bill
Ellison's bill would tax stock sales at 0.5 percent, or 50 basis points, meaning a stock sale of $10,000 has a tax of $50. Bonds would be taxed at a 0.10 percent, and derivatives and other investments at 0.005 percent. The bill provides an offset for households with incomes less than $75,000 a year, or $50,000 for individuals.

That approach varies from the legislation backed by DeFazio, Harkin, and Whitehouse, which would tax all of the transactions at a 0.03 percent rate and include an offset for contributions to retirement plans, medical plans and savings accounts.

Supporters--including nonprofit groups advocating for more funding for health programs--said at the April 17 news conference that the tax would generate $300 billion a year for various programs, while curbing the frequent, nearly instantaneous financial trades that critics say are distorting the financial markets.

Financial instruments in such trades are held for only seconds and cause the markets to oscillate around what the true market value should be, said Wallace Turbeville, senior fellow at Demos, a liberal think tank, and former Goldman Sachs investment banker.

Opposition From Administration
But the idea has not gone far with the Obama administration, and former Treasury Secretary Tim Geithner was openly opposed to it. Lew, at a House Ways and Means Committee hearing April 11, said the idea is “very problematic,” even as it has gained traction in Europe.

But in private, Lew has appeared more open than his predecessor to considering the idea, Harkin has said.

The Congressional Budget Office has said a financial transaction tax would probably reduce output and employment, and could diminish the importance of the United States as a major financial market--an assessment the Heritage Foundation, a conservative think tank, embraced in an article on its website.

“These are not minor considerations in an economy that is still recovering. The U.S. financial industry dominates those of most other nations, but it has been feeling competitive pressure from other areas,” Heritage Foundation analysts Curtis Dubay and David C. John wrote Feb. 28.

“As the CBO says, a financial transactions tax would drive major portions of the industry overseas, including the part that conducts high-volume trading,” the analysts said. “This would diminish the importance of the U.S. as a financial center and greatly reduce the economic benefits that come with it. Among other things, thousands of high-paying jobs would leave the U.S., sharply reducing employment at hundreds of non-financial companies that depend on these customers.”

By Marc Heller

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