A financial transaction tax would eat into the returns of Citadel, which operates both a hedge fund and a market maker that would be dinged every time they make a trade. Investment funds and firms that trade the most, such as high-frequency traders, could face the highest costs.
Public Citizen and other groups are circulating a letter in support of DeFazio’s bill. The levy is “an important step toward having Wall Street pay its fair share of taxes,” says the letter, whose signatories so far include the liberal Economic Policy Institute and unions such as the AFL-CIO and International Brotherhood of Teamsters.
In addition to efforts in Congress, lawmakers in New York, New Jersey and Illinois have proposed local taxes on financial transactions. In response, exchanges such as the New York Stock Exchange and market makers including Virtu Financial Inc. have threatened to move operations out of those states to avoid the tax. A national tax would undercut those threats.
Wall Street firms are girding for battle. Investment giants and trade groups including Vanguard Group, the Securities Industry and Financial Markets Association and the Investment Company Institute said they’re lobbying on the issue.
“Financial transaction taxes at the federal or state level unfairly target America’s mom-and-pop investors and working families saving for retirement,” said Chris Iacovella, chief executive of the American Securities Association, a trade association for regional financial services firms.
The U.S. had a stock transactions tax between 1914 and 1965. Today, a small fee is still levied against stock transactions to help fund oversight by the Securities and Exchange Commission.
A group of nonprofits in the U.K. in 2010 organized to support a financial transaction tax, even dubbing it the “Robin Hood tax,” with the idea that it would take from the rich to help the less fortunate. It caught on in the U.S. as Democratic lawmakers proposed their own bills, which never moved forward once Republicans regained control of the House in 2010.
A financial transaction tax also took the stage during the 2020 Democratic primaries. As a candidate, Vermont Senator Sanders, who now helms the Senate Budget Committee, proposed a levy on all trades as a way to finance his plan for tuition-free college.
Michael Bloomberg, the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News, also offered a version during his presidential primary effort.
At the time, lobbyists circulated research by Vanguard that claimed a measure similar to DeFazio’s would reduce investor returns by more than one percentage point per year. Vanguard came under fire for its assumptions, such as basing its calculation on the high turnover rate of an actively managed small-cap stock fund. The company later released estimates for more typical types of mutual funds and said in many cases the tax would hurt returns by less than 0.3 percentage point.
Vanguard spokesman Charles Kurtz said a broad financial transaction tax would do “unintended damage to everyday families saving for retirement or higher education.”
One advocacy group, the Partnership to Protect Our Retirement Future, planted paid consultants at candidates’ town hall-style meetings to frame the tax concept as an affront to retirees, the public relations firm that formed the group acknowledged to Reuters. Locust Street Group, the PR firm, didn’t respond to a request for comment.
North Carolina Representative Patrick McHenry, the lead Republican on the House Financial Services Committee, in October introduced his own bill, the Protecting Retirement Savers and Everyday Investors Act. It would prohibit states from imposing taxes on transactions.
—With assistance from Laura Davison, Ben Bain, Saleha Mohsin and Sam Mamudi.
This article was provided by Bloomberg News.