Representative Peter DeFazio and Senators Tom Harkin and Sheldon Whitehouse (left to right) announce a bill to create a financial transactions tax on February 28, 2013, in the US Capitol. Photo by George Zornick.
Thursday morning in the US Capitol, Senators Tom Harkin and Sheldon Whitehouse, along with Representative Peter DeFazio, announced the latest version of a tax on Wall Street trading: it would place a small tax of three basis points (that is, three pennies for every hundred dollars) on most non-consumer trades. Senator Bernie Sanders is also a co-sponsor of the legislation, as are nineteen members of the House.
If enacted, the tax would generate $352 billion in revenue over the next ten years, according to the Joint Committee on Taxation. It would apply to traded stocks and bonds, derivative contracts, options, puts, forward contracts, swaps and other complex Wall Street instruments. It would not cover the initial issuance of any stocks or bonds, nor covers or loans in the form of stock.
Three pennies per one hundred dollars would not be noticeable to most retail operations and average Americans—someone with a 401(k) balance of $60,000 (the median in the United States) would pay $18 per year in financial transactions taxes under this bill, and it contains a tax credit to cover the cost of the tax for contributions to tax-benefitted pension, health and education plans.
This transactions tax would most notably impact high-frequency traders—and this is a feature, not a bug. High-speed trading presents a real threat to the economic system and would theoretically be slowed if the bill is passed. DeFazio said the measure would “bring more stability to the financial markets, favoring long-term value investors—those who want to build an economy.”
Why might this bill succeed, where others have failed? For one, the international landscape is changing—eleven Eurozone countries are planning to implement a financial transactions tax at the beginning of next year, and are urging the United States to join the effort. (The European version calls for ten basis points.)