In recent months, prominent Democrats like Bernie Sanders, Kamala Harris, and Alexandria Ocasio Cortez have proposed implementing a new financial transaction tax (FTT) on stock and bond trades as well as derivative transactions. Using Wall Street as a punching bag, these Democrats argue that an FTT will force bankers to pay for the sins of creating the 2008 financial crisis.
Sanders has been pushing the new FTT as a way to pay for free college and pay off people’s student debt obligations. Harris, meanwhile, has proposed an FTT to finance her “Medicare for All” bill. While Harris’ bill does not have as high of rates as Sanders’, it still places a supplemental burden on top of the transaction fee already implemented by the SEC. Earlier this year, Ocasio Cortez cosponsored “The Wall Street Tax Act,” which would place a 0.1 percent tax on the sales of stocks, bonds, and derivatives.
The United States had a financial transaction tax in the 1960s, but it was eliminated in 1965 for the simple fact that it was bad policy. In fact, a Democratic-controlled Congress repealed it, claiming it was “not developed on any systematic basis” and was “discriminatory” in its application. Outside analysis has found that reviving the FTT would have devastating effects on the U.S. economy and would actually hurt the average American more than Wall Street.
Earlier this week, the U.S. Chamber of Commerce’s Center for Capital Markets released a new report showing that a financial transaction tax would hit American’s retirement accounts. According to their analysis, under Sanders’ plan, “a typical retirement investor will end up with 8.5% less in his or her 401(k) or IRA after a lifetime of savings. In dollar terms, the average IRA investor would have $20,000 less at retirement as a result of this tax.” Additionally, the report finds that an FTT would drive up the cost of mortgage payments for homeowners. The tax would likely have rippling effects on the U.S. economy, the Chamber argues, reducing GDP and causing stock prices to fall.
A September study by the Modern Markets Initiative (MMI) found that an FTT would also impact college savings plans and university endowments. Using the tax percentages proposed by Sanders, MMI found that an FTT would impact 529 college savings plans and a top 5 public university would owe about $19 million annually to an FTT – equal to the cost of in-state tuition for more than 1,900 students each year.
Despite their claims that reviving a financial transaction tax would only impact Wall Street bankers, Democrats are actually proposing a tax on the investments that many Americans rely on to hold and grow wealth.