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Debate: Should Members of Congress Be Barred From Trading Stocks?

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Stock trading by members of Congress has gained significant public attention. A number of proposals designed to ban individual stock trades by members of Congress have been proposed — and some ideas have received significant pushback.

One of those proposals would require all members of Congress, their spouses and their dependent children to place certain investment assets in a blind trust within 90 days of taking office. The law would also allow a deferral period to pay capital gains taxes if assets must be divested under the new rules.

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about banning individual stock trades for members of Congress.

Below is a summary of the debate that ensued between the two professors.

Their Votes:

Bloink

Byrnes

Their Reasons:

Bloink: This is an issue that’s gained widespread attention in recent years — and not in a good way. We need a system that limits the ability of members of Congress to profit from their inside knowledge when they have obtained that knowledge due solely to their role in Congress. This type of insider trading not only reduces public confidence in our government, but also violates U.S. securities laws. 

Byrnes: We already have a system in place, under which we require members of Congress to disclose their stock ownership — including spouses’ stock ownership. That includes purchase and sale of individual securities. That type of transparency is sufficient. If the SEC and other government agencies fail to take action based on these disclosures, that’s another problem. 

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Bloink: Requiring all congressional members and their spouses to put stock assets into a blind trust within 90 days of taking office is completely fair. The law wouldn’t actually prohibit stock ownership for these individuals — but would prevent members of Congress from making individual trades while serving in Congress and while privy to inside information.

Byrnes: Creating a system that requires a 100% across-the-board ban on trading in individual stocks, prohibiting these individuals from participating in the stock markets, would be an administrative nightmare. This system would also discourage highly qualified, yet lower-earning, individuals from running for office and serving the government. The fact is, many lawmakers don’t rely on their public salary alone for their livelihood.

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Bloink: This isn’t a new concept. Members of Congress and their spouses have benefited from information that isn’t publicly available — allowing them to make significant profits based on purchases of individual stocks. We aren’t saying that members of Congress should be banned from profiting from the stock market generally.

What these rules say is that members of Congress shouldn’t be able to use nonpublic information derived solely from their official role in Congress for that purpose — so that while they opt to serve in Congress, their assets should be held by a blind trust.

Byrnes: Of course members of Congress shouldn’t be able to use confidential, nonpublic information for their own personal gain. The fact is, many — if not most — congressmen and women aren’t regularly privy to this type of information in the first place. Those members of Congress are still required to disclose their stock trading activities.

The vast majority of the time, members of Congress are able to participate in the public equity markets on the same footing as any other American and without using nonpublic information. The issue here is the use of nonpublic information for personal gain. Banning individual stock trades across the board is an overly broad solution to that problem, to say the least.


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