A small sales tax on Wall Street reaps big rewards

One has to wonder if Paul Schott Stevens’ “Don’t enact financial transaction taxes,” December 20, 2012, is more about protecting the turf of billion dollar Wall Street banks and enormous investment firms, including their lucrative mutual fund businesses, than protecting the average people who invest and save.  

In his column, Stevens argues against the enactment of a financial transaction tax (FTT) in the U.S., as follows: “[A]ny benefits … would be dwarfed by the harm it would inflict on America’s savers, particularly its 90 million mutual fund shareholders.” Stevens is president and CEO, Investment Company Institute (ICI), a trade association comprised of more than 7,500 mutual funds, with names like Wells Fargo CoreBuilder and Morgan Stanley Global, as well as other investment entities.

What’s raised Stevens’ ire of late is legislation introduced in Congress in September by Rep. Keith Ellison (D-Minn.), H.R. 6411, “The Inclusive Prosperity Act,” an FTT now with 16 co-sponsors and the backing of the Robin Hood Tax Campaign, a coalition in the U.S. of more than 125 labor, religious, consumer, health advocacy and other groups, with combined memberships in the many millions. 

Scores of leading economists and businessmen support passage of an FTT, as they, too, see it as a legitimate way to raise revenue. Backers include Bill Gates, Warren Buffett, David Stockman, Nobel Prize-winning economists Joseph Stiglitz and Paul Krugman, to name several.

The fact is that for the majority of Americans Ellison’s FTT should cost nothing, hence Stevens’ principal contention that FTTs “will produce a constant drag on shareholder returns… [and] make it all the harder for fund investors to achieve retirement security and other goals” is very misleading. 

HR 6411 is a tiny tax; it is 50 cents per $100 on stock trades - that’s $50 on a stock trade of $10,000 - and even lesser rates on bonds, derivatives and currency dealings. Here’s what’s critical, and conspicuously absent from Stevens’ column: the facility or broker is levied the tax, not the investor. Thus Stevens’ argument that an FTT constitutes double, triple, even quadruple taxation is way off base.  

Here’s the rub for investors: The sales tax is paid by the investor only if the mutual fund passes it along. We would urge the mutual funds Stevens represents not to pass along this small sales tax to the very savers whose interests Stevens says he seeks to guard.

The point here is that mutual fund profits are more than ample to absorb this very tiny tax. Just look at the billions in wealth gathered by top mutual fund managers. According to Forbes, Fidelity Investments’ chairman is worth $11 billion; Charles Schwab’s wealth is approaching $5 billion, some attributable to fund activity; and Charles Johnson, chairman of Franklin Resources, has made $4 billion from his mutual fund business.

As a final protection to investors, per the Ellison law Americans with incomes of up to $50,000, $75,000 for households, would be rebated any FTT paid.   We do not share Stevens’ concern that a tax rebate is an unworkable administrative burden, as credits and rebates are hardly new concepts.

Stevens’ worries extend overseas, where the European Commission, he points out, is moving forward on a unified FTT scheme, with the support of 11 member countries. Forty countries now have some FTT in place. As for the U.K. and its decision to stay out of the EC scheme, we would reiterate that a tax on stock trades – the Stamp Tax - is in place in that nation and the London Stock Exchange remains one of the biggest in the world — even with an FTT on stock transactions.

A unified scheme in Europe and around the world, at all the major exchanges, avoids capital flight. So when Stevens raises that issue in the context of Sweden a generation ago, he seems behind the times.

In France, cautions Stevens, “large players are able to skirt the tax using an array of techniques, leaving small investors to bear the burden.” Unlike many taxes, Ellison’s proposal is difficult to evade because the tax is collected at the point of transaction and title is withheld until marked paid. With automation, trades are easy to track and tax collected. 

Stevens shares our concern that “high frequency trading” needs regulation, but he believes an FTT  “seems an awfully blunt tool for achieving that goal.”  But the same top economists who support the FTT cite its usefulness in helping curb these destabilizing trading practices. 

By one estimate, for every gallon of gasoline purchased in the U.S. today, $1 of cost can be attributed to speculative activity in the markets. We think that’s a national shame. An FTT can help to lower levels of speculative trading, according to numerous studies.  

To the  millions of Americans who are members of organizations calling for an FTT, some of whom are also mutual fund investors, the Ellison bill’s goal of raising an expected $350 billion annually serves an overwhelming national need. The FTT would expand state and federal investments in communities still very much experiencing harm from the 2008 financial collapse. The Inclusive Prosperity Act identifies job creation, the rebuilding of infrastructure, investment in transportation, education and healthcare, and environmental protection among its goals. It would also direct funds to international research and treatment of HIV/AIDS and to address climate change. 

FTT supporters believe there is no time to delay, as the enduring harm faced by countless communities drags America deeper into poverty and forestalls a real recovery.

Given the amounts our Treasury expended on Wall Street bailouts, not to mention substantial profits racked up in the finance sector today, an FTT at these small rates and under these well-defined conditions seems eminently fair. Wall Street’s debt to Main Street is past due.

Jennifer Flynn is managing director, Health GAP, a founding member of the U.S. Robin Hood Tax Campaign.



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