Leading GOP members of the House Financial Services Committee have introduced legislation to block states from imposing financial transaction taxes (FTTs) on stock exchanges and broker-dealers.

The bill, the Protecting Retirement Savers and Everyday Investors Act, was introduced by ranking member Patrick McHenry (R-N.C.) and Rep. Bill Huizenga (R-Mich.), who said FTTs would ultimately be paid by retirement savers and out-of-state investors when the cost is passed onto investors.

New York and New Jersey have both introduced bills to institute a FTT. New Jersey Democrats want to impose a 0.25 cent tax on every financial transaction in the state, Ulrik Boesen, a senior policy analyst with the Tax Foundation said. “In New York, some lawmakers have proposed a rate as high as 5 cents per share (1.25 cents for stocks worth less than $5),” Boesen said.

“Imagine a California investor who purchases equities on the New York Stock Exchange, which processes the transaction at a data center in New Jersey. Imagine the cumulative levies incurred on a single transaction if California levies an FTT on the individual trader, New York levies a tax on the exchange, and New Jersey levies a tax on data processing,” Boesen said.

“We know the FTT will hurt retirement savers,” McHenry said. “We know the FTT has been proven unworkable in countries around the world. And we know that New Jersey Democrats’ state-level FTT proposal will be a new tax on savers across the country. As Democrats continue to push their false claim that the FTT is only a tax on the wealthiest, Republicans will continue to fight for middle-class Americans saving for their future."

Huizenga said in a statement that New Jersey is single handedly penalizing middle-class families across America in an attempt to solve its budget shortfall.

“New Jersey’s misguided financial transaction tax penalizes those saving for retirement, saving for college, and saving for a down payment on a house. Michiganders and Americans across the nation who are investing and saving for their future should not be forced to pay New Jersey’s transaction tax."

States that implement FTTs do so expecting to raise significant revenue, but the uncertainties surrounding this revenue are large—even at the federal level, Boesen said.
An estimate by Urban Institute economist James Nunns suggest that a 0.5% federal FTT on stocks would reduce stock trades by as much as 85.1%.

“Since it is easier to avoid a state FTT than a federal one, the volume decline may be even more substantial for states, generating revenue well below expectation,” Boesen said.

“Reduced volume does not, moreover, only affect revenue collected from the FTT; it would also offset some of that revenue by lowering state income tax revenue on capital gains.”

FTT levies could result in several taxes being levied on the same transaction and would “certainly” lead to taxes being levied on the investments of individuals who do not live in the taxing state, Boesen added.