It’s hard to imagine Congress wanting to tax Americans who are diligently saving for retirement by investing automatically in company retirement plans, but that’s what Democrats new “transaction tax” appears to do.
Called the “Wall Street Tax Act,” the new legislation introduced Tuesday would tax every stock, bond and derivative transactions at 0.1 percent or $1 per $1,000 in trade.
The legislation’s sponsors say it targets “unproductive and speculative” trading, but American Retirement Association (ARA) CEO Brian Graff said the financial transactions tax would apparently eat away at the trillions of dollars of retirement savings invested in mutual funds and collective investment trusts by pensions and 401(k)s.
Lawmakers simply didn’t think through the implications on retirement plan investors. “It’s called the Wall Street Tax Act, but it’s really a Main Street savings attack,” Graff said.
“Every week millions of Americans sacrifice to set aside part of their hard-earned pay for retirement, investing those savings to help provide a secure financial future,” Graff said.
“After years of attacking 401(k) plan fees, some members of Congress now want to charge 10 basis points every time a hard-working American contributes out of their pay into their 401(k). And then charge another 10 basis points every time the account is rebalanced. And then, another 10 basis points when that worker retires and sells some of those investments so they can maintain their standard of living.”
The long-term costs to retirement investors would be significant. “We’re talking about the equivalent of an across-the-board fee increase on 401(k) plans,” Graff noted.
According to a 2015 report from the Obama Administration’s Council of Economic Advisors on the impact of 401(k) fees, a financial transaction tax could reduce an American’s retirement savings by as much as 3 percent over their lifetime. Older employees have just $200,000 on average in their 401(k) plans, according to U.S. Census data. Younger employees have $95,000.
“It appears that some in Congress may think that the only people who invest are super rich,” Graff concludes. “But there are 80 million American workers who are investing for their future in their 401(k). At a time when there is so much concern about retirement income adequacy and the impact of 401(k) fees, it’s stunning that some members of Congress would attack the retirement savings of hard-working Americans.”
The Joint Committee on Taxation has estimated the financial transaction tax would raise $777 billion over the next 10 years.
Sen. Brian Schatz (D-Hawaii) and Rep. Peter DeFazio (D-Ore.) introduced the bills Tuesday and a number of progressive lawmakers, including Sen. Kristen Gillibrand (D-N.Y.), a 2020 presidential contender, and Rep. Alexandria Ocasio-Cortez (D-N.Y.) have already become co-signers.
“Over the last decade, Wall Street has made record profits from high-risk trades that have made the market dangerously volatile, while doing nothing to add real value to our economy or raise wages for workers,” Schatz said. “My bill will help discourage this kind of risky, volume-based trading and bring in billions in new revenue.”