Chamber of Commerce argues against Democratic proposals for financial transaction taxes

Chamber of Commerce argues against Democratic proposals for financial transaction taxes
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The U.S. Chamber of Commerce on Monday released a paper that makes the case against financial transaction taxes (FTTs), which several Democratic presidential candidates have floated as part of their campaigns.

“While some people may think that they’re trying to take a shot at Wall Street, they’re actually going to take a shot at Mr. and Mrs. 401(k), as well as the business community that depends on capital markets to start businesses, expand and create jobs,” Tom Quaadman, executive vice president of the Chamber’s center for capital markets competitiveness, said on a call with reporters.

FTTs are taxes on financial trades, such as trades of stocks, bonds and derivatives. This type of tax has gotten interest from Democrats in Congress and the 2020 presidential race as they look for ways to raise taxes on Wall Street and the wealthy to pay for their campaign proposals.

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For example, Sen. Bernie SandersBernie SandersSaagar Enjeti says Buttigieg's release of McKinsey client list shows he 'caved to public pressure' Sanders endorses Young Turks founder Cenk Uygur for Katie Hill's former House seat Biden hires Clinton, O'Rourke alum as campaign's digital director MORE (I-Vt.), one of the higher polling candidates in the 2020 race, has floated taxes of 0.5 percent on stock trades, 0.1 percent on bond trades and 0.005 percent tax on derivatives trades to pay for his higher education plan.

Another prominent 2020 contender, Sen. Kamala HarrisKamala Devi HarrisOvernight Health Care — Presented by That's Medicaid — House passes sweeping Pelosi bill to lower drug prices | Senate confirms Trump FDA pick | Trump officials approve Medicaid work requirements in South Carolina Sanders endorses Young Turks founder Cenk Uygur for Katie Hill's former House seat Kamala Harris dropped out, but let's keep her mental health plan alive MORE (D-Calif.), has called for instituting taxes of 0.2 percent for stock trades, 0.1 percent for bond trades and 0.002 percent for derivative transactions as a way to help pay for her health care plan.

Supporters of the taxes argue that they could help to curb volatility in financial markets and address economic inequality.

But the Chamber, a prominent business group, argues they are problematic for a host of reasons.

The group’s paper, which was written by Georgetown University finance professor James Angel, argues that the tax would directly and indirectly be paid by ordinary investors, such as retirees and those saving for college, rather than by Wall Street. The paper estimated that under Sanders’s proposal, the average individual retirement account investor would have about $20,000 less when they retire.

“FTTs are not actually a tax on financial intermediaries; they are a tax on investors,” the Chamber argued in its paper. 

The Chamber also argued that the new taxes would increase home mortgage costs, mutual fund and pension fund expenses and corporate financing costs. And the group argued that government borrowing costs would increase, which would increase the costs of capital for infrastructure and other public projects.

The group pointed out that the U.S. previously had an FTT but got rid of it in the 1960s, and said that foreign countries’ FTTs have raised less revenue than expected because trading activity was shifted to other jurisdictions. 

“An FTT will depress economic activity in several ways. The higher cost of capital will result in less investment and thus less economic growth, fewer jobs, and less income tax revenue,” the Chamber’s paper argues. “At the same time an FTT will depress trading activity and send it offshore, resulting in a loss in jobs and tax revenue, consistent with what has occurred in other countries that have experimented with FTTs.”

The paper also argued that in some other countries market volatility increased rather than decreased after the enactment of FTTs, because of shifts in trading activity and declines in liquidity.

Public Citizen, a consumer advocacy organization, issued its own report on FTTs on Monday in an effort to counter the Chamber's paper.

In its report, Public Citizen argued that only about half of U.S. families would experience any costs from the new taxes, because only about half of families have retirement accounts. And the group argued that families could end up saving money because "their savings from reduced trading activity by their funds would exceed the costs that families experience from an FTT."

The group also argued that higher-income taxpayers would have more costs related to the new taxes than lower-income taxpayers.

“Because it would apply primarily to those with substantial financial holdings, the tax mostly would steer clear of the middle class, while it would surgically target resources being tied up by the wealthiest Americans to be repurposed for better uses,” Susan Harley, deputy director of Public Citizen’s Congress Watch division, said in a statement.