Financial trade tax gains traction with 2020 Democrats
Democratic presidential candidates across the ideological spectrum are calling for taxes on financial trades, breathing new life into an idea that for many years was promoted primarily in progressive circles.
“It’s moving more into the mainstream,” said Steve Wamhoff, director of federal tax policy at the left-leaning Institute on Taxation and Economic Policy.
Financial transaction taxes (FTTs) aren’t a new idea. Sen. Bernie Sanders (I-Vt.), who won the Nevada Democratic presidential caucuses on Saturday, floated such a tax during his 2016 campaign. And progressive lawmakers have offered legislation to create such a tax for years.
But the 2020 election is putting a new spotlight on FTTs, particularly because it’s not just progressive candidates who are calling for them on the campaign trail.
Most notably, former New York City Mayor Mike Bloomberg has proposed an FTT as part of his financial reform plan.
Bloomberg — a billionaire founder of a financial information company who was previously a Republican and an independent — is calling for an 0.1 percent tax on transactions of stocks, bonds and derivatives, which he thinks should be phased in gradually.
“Some of the world’s leading financial centers, such as the United Kingdom and Hong Kong, have found that taxing financial transactions can raise significant revenue, both to defray the costs of overseeing markets and to address other social needs,” Bloomberg’s campaign said in a document released last week. “Such taxes can also help address inequality.”
Another moderate Democratic candidate, former South Bend, Ind., Mayor Pete Buttigieg, has also called for an FTT with a 0.1 percent rate. The Buttigieg campaign expects it would raise about $800 billion over 10 years, referencing an estimate from the nonpartisan Congressional Budget Office (CBO). The campaign also said that it anticipates spending up to $100 billion to offset fees incurred under the tax by the middle class.
Prominent progressives in the presidential race also back FTTs.
Sanders is calling for an FTT with rates of 0.5 percent on stock trades, 0.1 percent on bond trades and 0.005 percent on derivative trades in order to finance his higher-education plan. The Sanders campaign has said the proposed tax would raise $2.4 trillion over a decade, referencing an estimate from researchers at the University of Massachusetts.
“The American people bailed out Wall Street. Now it is time for Wall Street to come to the aid of the middle class of this country,” Sanders said in June when he announced his plan.
Sen. Elizabeth Warren (D-Mass.) has proposed an FTT with a 0.1 percent rate as part of her plan to pay for her “Medicare for All” proposal.
“The tax would be assessed on and collected from financial firms, and would likely have little to no effect on most investors,” Warren said in her plan, which also references the CBO revenue estimate. “Instead, according to experts, the tax could help decrease what Americans pay in fees for their investments and reduce the size of relatively unproductive parts of the financial sector.”
Warren spokeswoman Saloni Sharma said in a statement to The Hill that the candidate’s proposed FTT “would generate $800 billion to put towards paying for Medicare for All without raising taxes on the middle class by one penny.”
Another presidential candidate, Rep. Tulsi Gabbard (D-Hawaii), has co-sponsored legislation to create an FTT. Former Vice President Joe Biden expressed support for an FTT in a December CNBC interview, and his campaign said that more details would be put forward when Biden releases a spending proposal that the tax would finance. Biden’s campaign said he would ensure that his FTT is designed so that it doesn’t affect low- and middle-income taxpayers.
The calls for FTTs come as Democrats have been broadly concerned about income and wealth inequality and have been offering a variety of proposals aimed at increasing taxes on the rich in order to finance new investments targeted to the middle class.
Proposals for taxes on financial trades show “how Democratic candidates are all committed to raising tax revenues progressively,” said Jared Bernstein, a senior fellow at the left-leaning Center on Budget and Policy Priorities.
Supporters of FTTs say they would primarily affect wealthy taxpayers, since high-income people hold most of the value of stocks. They also argue that FTTs would cause financial institutions to reduce high-frequency trading that isn’t in investors’ best interests and that investors could end up saving money if funds have reduced fees because they are trading less.
As Democratic presidential candidates have been calling for FTTs, Republicans and business groups have been stepping up their efforts against this type of tax.
The U.S. Chamber of Commerce issued a report in September making arguments against FTTs, claiming that such a tax could significantly reduce the amount of money people have in their retirement accounts when they retire. Representatives of the organization have been meeting with lawmakers on both sides of the aisle about the issue.
Tom Quaadman, an official at the Chamber, said the group has been speaking with lawmakers and the press “to ensure that people understand both sides of the issue.”
Quaadman said that if it becomes more difficult for companies to raise money, “that also has implications throughout the rest of the economy as well.”
The Modern Markets Initiative, which represents automated traders, including high-frequency traders, released a document on Friday pushing back on Democrats’ arguments in support of FTTs.
The group argues that high-frequency trading has led to cheaper trading costs and should be encouraged and that an FTT would hit Americans across the income spectrum with investments in capital markets.
“I think it has been sold as a tax on the wealthy, but actually it’s a tax on savings for all Americans,” said Kirsten Wegner, chief executive officer of the Modern Markets Initiative.
House Republicans highlighted their concerns with FTTs during a hearing in December, also asking Treasury Secretary Steven Mnuchin for his thoughts on the issue. Mnuchin said he was “very concerned that that would destroy our capital markets.”
“Bottom line: Republicans have worked to lower burdensome taxes for Americans from all walks of life, Democrats want to take those hard-earned dollars back and use them to fund their socialist agenda,” Rep. Patrick McHenry (N.C.), the top Republican on the House Financial Services Committee, said in a statement to The Hill on Friday.
Supporters of FTTs have pushed back at the attacks. The consumer advocacy organization Public Citizen issued a report the same day that the Chamber issued its paper in order to counter the business group’s arguments. Several weeks later, the Institute on Taxation and Economic Policy issued a report arguing that those taxes would be beneficial.
Bernstein said the argument from critics that FTTs would hurt people saving for retirement is a “knee-jerk reaction.” He said that the investors who would be most affected by an FTT are those who trade a lot.
A 2016 paper from the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution that is now led by an Obama administration official, backs up Democrats’ arguments that the tax burden of an FTT would primarily fall on the wealthy.
The group estimated that about 75 percent of the burden of an FTT would fall on those in the top fifth of the income distribution and about 40 percent of the burden would fall in particular on the top 1 percent.
Howard Gleckman, a senior fellow at the Tax Policy Center, said that FTTs are garnering interest because they could raise taxes in a progressive manner, but he cautioned that there are tradeoffs between maximizing the revenue raised by an FTT and maximizing the extent to which high-frequency trading is reduced by such a tax.
“There are challenges that I think people need to recognize,” he said.