The financial transaction tax may well be the wall flower of taxes, with so much promise in the area of tax reform yet ignored or passed over for decades by many policymakers, business leaders and economists. But all that may be about to change, as an FTT increasingly is getting a second look and gaining broad support, from labor unions including the AFL-CIO to Goldman Sachs and other leading investment companies.
While bills have languished in Congress since 2004 asking for studies or implementation of financial transaction taxes, new interest by the European Union, which is close to adding a financial transaction tax in 11 nations, seems to be energizing the United States. In addition, high-profile business leaders such as George Soros and Bill Gates are advocates.
Any why not? A transaction tax has the potential to raise significant revenue by levying minuscule fees (of less than 1 percent) on certain transactions, such as stocks, mortgage derivatives and bonds, that are largely invisible to most Americans.
A 2016 study by the Tax Policy Center projected that a 0.1 percent tax rate could yield $66 billion a year, with 40 percent of the revenues coming from the top 1 percent of income earners in the U.S. Three-quarters of revenue would come from the top 20 percent.
Former Labor Secretary Robert Reich, an FTT supporter, has noted that “as most of Europe will now tax financial transactions, generating billions for hard-pressed budgets, [the] U.S. should do the same.”
So it’s worth a look at legislation that has idled before Congress, as these bills may be activated and the basis for future reforms.
The transaction tax movement is born in Congress
Legislation titled the “Transform America Transaction Fee of 2004,” launched the nascent transaction tax movement in the U.S. The bill, introduced by U.S. Rep. Cheka Fattah (D-Pennsylvania) simply asked for a study to replace the federal tax code with a transaction-fee based system.
Comprehensive, it lays out the vision and promise for a financial transaction tax to levy tiny fees from the enormous volume of financial transactions to fund government services, pay off the debt and add new benefits for Americans.
The 2004 legislation also contained this gem at the end of the bill: The study would examine modifying the IRS from collecting taxes and enforcing income tax laws to “uncovering and eliminating waste, fraud and abuse” throughout the federal government. Versions of the same bill were introduced through 2009.
One percent transaction tax promises major benefits
In 2010, a more targeted piece of legislation was introduced by Rep. Fattah titled “Debt Free America Act,” which aimed to pay down the U.S. debt and replace the federal income tax with a 1 percent transaction tax. It would have set a seven-year deadline for eliminating the national debt and repealed individual income taxes by 2017. The bill was referred to the House Appropriations Committee.
In addition, there have been more modest attempts to levy an FTT-style tax. In 2009, Rep. Peter DeFazio (D-Oregon) introduced “Let Wall Street Pay for the Restoration of Main Street.” His bill would have taxed transactions that typically involve the middle class. He would have amended the IRS Code to impose excise taxes on securities in tax-exempt retirement accounts, health savings accounts, educational accounts and regulated investment companies. Revenue would have helped to pay down the deficit. The bill was referred to the Budget Committee.
Kinder, gentler FTT introduced
As if recognizing the hesitation by Americans to embrace a complete overhaul of the tax system, U.S. Rep. Keith Ellison (D-Minnesota) introduced legislation in 2017 that appeared milder in impact without promising sweeping reform. The aim of the FTT would be to reduce market volatility from high-frequency trading and stabilize financial markets. The bill would impose a tax of 0.5 percent tax on stock trades, 0.1 percent on bonds, and 0.005 percent on derivatives and currency. Ellison described investing the revenues of an FTT in rebuilding infrastructure, improving communities and helping the environment. What’s not to like about that?
A year later, the bill sits in committee.