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Financial-transaction Tax Reintroduced in House as H.R. 1068

February 19, 2009

The potential transaction tax was reintroduced in the House last Friday, Feb. 13th by U.S. Congressman Peter DeFazio (D-Ore.). Here is a link to the bill: http://thomas.loc.gov/cgi-bin/query/z?c111:H.R.1068.IH: It’s titled ”Let Wall Street Pay for Wall Street's Bailout Act of 2009”.

As I mentioned in my in-depth article on this proposed tax — on my blog on Jan. 14, 2009 and for my upcoming article in Active Trader (April 2009 issue) — the logic stated in this proposal makes no sense. H.R. 1068 includes the same flawed reasons used in H.R. 7125, which was defeated by leadership. Read about that logic in detail in my comments below.

Lots of traders are saying “no” to this transaction tax by signing an online petition:
http://www.rallycongress.com/no2tradertax/1536/tell-congres-to-block-trader-tax/. I strongly suggest you do the same and spread the word.

From one of our readers, "I also just found out the transaction tax is mentioned as a source of funding in HR 676 (The National Health Care Act), Section 211, Sub-Section C - "Funding"." Here is a link to that:"
http://www.govtrack.us/congress/billtext.xpd?bill=h111-676&version=ih&nid=t0%3Aih%3A173

This proposed new financial-transaction tax on traders will not go away any time soon. At every juncture of fiscal (tax) and budget legislation — including TARP I and II, and newer versions coming soon, along with other bailout legislation — DeFazio and his co-sponsors have included (and are expected to include again) their pet pork-barrel taxing project.

This legislation involves taxing traders out of business, and/or making traders clean up the mortgage mess in America. Traders are not responsible for the mortgage mess; home owners, mortgage brokers, banks, CDO sellers and buyers share that responsibility. If anything, tax that group — not traders.

But there is one big problem with taxing the people who caused the mess. Congressional leadership and President Obama’s administration are trying very hard to save home owners and the mortgage market, so taxing the culprits makes no sense. DeFazio’s mistargeted, poorly thought out and populist tax attack against Wall Street hurts Wall Street, just as Congress is also trying to help Wall Street get the credit markets functioning properly again.

Shooting a shotgun at Wall Street at the same time unfairly targets and kills off traders by asking them to pay a good portion of the bill, and this is simply wrong. Hurting traders also hurts Wall Street and the financial markets. Say goodbye to much of the liquidity that helps all investors. Most business traders and their families will be put out of business overnight, and they can’t qualify for most government handouts.

Thankfully to date, Congressional leadership has said “no” to DeFazio and his co-sponsors. Please keep saying no.

H.R. 7125: Law Sec. 1. SHORT TITLE; FINDINGS.
110th Congress - Pending Legislation (RIA)
with comments from Green.

Sec. 1. SHORT TITLE; FINDINGS.
(a) Short Title. This Act may be cited as the “Let Wall Street Pay for Wall Street's Illiquid Assets Act of 2008”.
(b) Findings. Congress finds the following:
(1) The Bush Administration is asking Congress to authorize $700 billion to cover the “illiquid” assets of Wall Street. This will further worsen our budget deficit.
(2) The $700 billion is to protect Wall Street investors; therefore, the same Wall Street investors should pay for this infusion of taxpayer money.

Green comment: Business traders are not investors in TARP assets and they have no responsibility or interest in the toxic-asset mess. Homeowners took out mortgages, mortgage brokers sold them aggressively, Wall Street packed mortgage-backed securities, and that market crashed. Cleaning up this toxic-asset mess is the responsibility of homeowners, mortgage brokers, and Wall Street mortgage-backed securities packagers/sellers and the buyers of those assets. Active traders — especially business traders — should be exempt from this cost.

(3) The easiest method to raise the $700 billion from Wall Street is a securities transfer tax; a tax that has a negligible impact on the average investor.

Green comment: Easy to do, yes. But very unfair, making it an unacceptable easy out.

(4) This transfer tax would be on the sale and purchase of financial instruments such as stock, options, and futures. A quarter percent (0.25 percent) tax on financial transactions could raise approximately $150 billion a year.

Green comment: No mention of forex, ETFs, and plenty of other financial products. I imagine this is just the short list.

(5) The United States had a transfer tax from 1914 to 1966. The Revenue Act of 1914 levied a 0.2% tax on all sales or transfers of stock. In 1932, Congress more than doubled the tax to help overcome the budgetary challenges during the Great Depression.

Green comment: America did not have a thriving online trading business in the early 1900s to 1960s.

(6) The United Kingdom currently has a modest financial transaction tax of 0.5 percent.

Green comment: The UK also attracts traders from around the world to move to London and then only taxes their UK earnings, not their offshore trading account gains. The UK financial-transaction tax at least gets a partial tax payment from these foreign traders living in the UK. Is the U.S. prepared to stop taxing worldwide income on foreigners who move to the U.S.? Doubtful, so raising this precedent is only half the story and therefore not appropriate.

(7) The Securities and Exchange Commission currently implements a very small tax per transaction to cover its costs, therefore this additional transfer tax is easy to implement.

Green comment: SEC efforts do help business traders.

(8) All revenue generated by this transfer tax shall be directed to the general treasury.

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