DeFazio, Perlmutter Drafting New Version of Wall Street Transport Tax
Reps. Pete DeFazio (D-OR) and Ed Perlmutter (D-CO) are working on a broader version of the former lawmaker’s plan to pay for U.S. infrastructure investment by imposing a small tax on stock transactions, despite a note of caution sounded last week by House Speaker Nancy Pelosi (D-CA).
Rep. Ed Perlmutter (D-CO) (Photo: AP)The new tax proposal differs markedly from legislation that DeFazio released in August, which focused on speculative oil futures trades. As The Hill first reported today, DeFazio and Perlmutter’s new bill would levy a 0.25 percent tax on general transactions involving "stocks, options, derivatives and futures":
Half of the [bill’s estimated] $150 billion in tax revenue would go toward reducing the
deficit, while the other half would be deposited in a “Job Creation
Reserve” to support new jobs.The job fund would be available to offset the additional costs of the 2009 highway bill and other legislation that creates jobs.
DeFazio and Perlmutter’s approach is attracting increasing interest from fellow House Democrats who have long supported passage of a new six-year federal transportation bill. Still, the tax proposal’s prospects with both the Senate and the Obama administration remain murky.
In a September letter published by the financial blog Reformed Broker, Sen. Charles Schumer (D-NY) expressed concerns that a Wall Street transaction tax could "harm economic recovery efforts by deterring capital investment."
Treasury Secretary Tim Geithner also shot down the notion of a stock trades tax in Scotland earlier this month, although Perlmutter later told the Wall Street Journal that the White House is "beginning to take a look at this in one fashion or another."
Before contending with the Senate and the administration, however, DeFazio and Perlmutter would need to continue making their case in the House. In a Thursday press briefing, Pelosi indicated that any infrastructure tax on Wall Street would need to be adopted as part of a broader international effort.
This is a crazy tax that should and will never pass the senate. The house will be tough as well but the senate, well I have written my senators and already have a few responses from som dems saying they would oppose it.
They can make a case for this tax. But they can’t make a good case because it’s a bad tax. It has two flaws: unlike the capital gains tax, which only applies to gains, this tax also hits losing stock trades. And, unlike the cap gains tax, this is a tax that cannot be collected with any ease from Americans investing in foreign exchanges.
Raise short term cap gains for this money. Don’t create a new category of tax.
These politicans portray scalpers and day traders as cold profit seeking machines whose only goal is to make a penny at anyone’s expense, with no regard for the public good. Even if that is true, it doesn’t mean they don’t help society.
When a pensioner buys a bond for his portfolio he doesn’t know that it’s priced fairly to the relevant market based on coupons, credit risk, company financials, industry rates, and projected treasury rates. He sees “GOOD COMPANY 10% PAYMENT” and tells his broker to buy. The reason it’s usually priced fair is because whenever it gets out of line, scalpers and firms jump in and push the price back. Investors and pensioners don’t care if it’s $.30 more than it should be because they can’t make any money from that small differential, day traders do. Without them, securities could trade mispriced for months.
What sounds like a minor tax would bring about the end of day trading as we know it. This tax would be a disaster for day traders, and as a result, for everyone in the investing public. Day traders are the Ebay sellers of the financial world; it doesnt’ matter if they’re driven by profits, because in the end they keep prices in line. Eliminate them, and you’re left with shopping at whatever price the store tells you is fair.
I needed an enforced retirement. Call it The Multimillionaire Arbitrageurs Retirement Act of 2010.
Thanks, Pete.
A lot of other countries have a stamp tax, but they’ve also eliminated or sharply reduced the tax rate on capital gains, regardless of the holding period, at the same time. If they eliminated the tax on gains, they could eliminate the deduction for contributions to retirement accounts. This alone would raise 80 billion dollars a year and greatly simplify tax preparation.
$150B in revenue? Create jobs? Reduce the deficit? Really? The increased costs of firms own transactions will be passed onto us through higher fees and reduced yield. The bailed out firms will not pay a dime. This tax is purely wealth destruction of the middle class. We have no other options to incrementally accumulate a bit of wealth. The cost of the tax itself is a fraction of the total cost. Consider substantially increased spreads. I say spreads will return to the 1980’s of $0.53 on average. That would be a 2% loss on the purchase of a $25 stock and again on the sale. Imagine the reduced compounding. Yields will be reduced by 1/3 to 1/2 over a lifetime of long-term investing. A study from the Independent Budget Office of New York City concluded that such a tax would result in net Negative revenue with 100’s of thousands of jobs lost if just the NYSE and Amex exchanges were taxed. A few million jobs would be lost if all exchanges and the entire financial sector were to be taxed. All that destruction to “create” a few temporary jobs. This tax will make it much more difficult for businesses to raise capital. They will move out of the US destroying a few million more jobs.