The Securities Industry and Financial Markets Association is criticizing Rep. Chris Van Hollen’s just-released tax reform plan calling for a financial transaction tax, which SIFMA says is “effectively a sales tax on savers, mutual fund owners, pensioners and investors.”
While the plan, by the ranking member on the House Budget Committee, includes “innovative ideas to help middle-class Americans,” imposing a financial transaction tax is “an old idea with a long history of negative consequences for savers and investors and for the efficient functioning of capital markets,” said SIFMA President and CEO Kenneth Bentsen Jr., in a statement.
Maryland Democrat Van Hollen stated in his tax reform plan that the United States “can curb the kind of financial speculation that creates no value for the economy by implementing a tiny fee on financial market transactions, and then use the revenue to provide tax relief to American workers and their families.”
But Bentsen argues that such a tax ultimately “would be paid by every American that holds a retirement account, owns a mutual fund or is part of a pension plan,” with retirees likely being “hit the most.” Also, he said, such a tax “will raise the cost of saving and undermine what the congressman seeks to accomplish.”
A spokesperson for the Investment Company Institute told ThinkAdvisor that while ICI awaits the release “of details that would allow us to analyze this proposal more closely, experience tells us that a transaction tax is simply a bad idea.”
No matter how it is structured, “such a tax could harm individual fund investors and create market distortions that would reduce the efficiency of markets for all participants — including middle class investors — by shrinking market volumes, impairing liquidity, and distorting price discovery.”
Efforts to enact a similar tax in the European Union have “hit opposition,” Bentsen added, “as Europeans have come to recognize the disproportionate damage to their own economies that could be caused by the broad-based levy proposed by the European Commission in 2013.”
Van Hollen noted in his plan that the United States already has an “infinitesimal fee” on stock transactions that funds the Securities and Exchange Commission, and many other global financial hubs — including the United Kingdom, France, Singapore and Hong Kong — have trading fees. Bentsen argued in his statement, however, that countries such as France that have gone ahead with smaller levies “have raised less revenue than projected and their markets have been adversely affected. And, major public and private pension plans have raised strong objections as these taxes raise costs to their beneficiaries and adversely affect their ability to efficiently manage assets for their beneficiaries.”
The European Union is moving toward a trading fee of 0.1% that would raise as much as €37 billion (roughly $44 billion) per year, Van Hollen noted. By comparison, the UK already applies a fee that is five times higher (0.5%) on stock trades, he said.
Such a financial market trading fee, Van Hollen continued, “which could raise tens of billions of dollars each year, would be imperceptible to average investors, who already bear transaction costs on every trade that by some estimates are over three times higher than the fee the EU is proposing.”
At the same time, however, such a fee “would rein in the kind of computerized high-speed trading that skims value from regular investors while adding no value to the economy.”
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