Stock Trading Ban
Recent proposals would ban trading in individual stocks by public officials and their families. The ban would extend to the president, vice president, members of Congress and their spouses and dependents. One such proposal would prevent these individuals from buying or selling individual stocks, cryptocurrency, commodities and futures—creating penalties for violations. Penalties could include any of the profits on transactions that violate the ban and, in some cases, penalties equal to three times the value of the prohibited investment. Covered individuals would also be required to give public notice between seven and 14 days in advance of any sale of a stock they already owned prior to the ban.
We asked two professors and authors of Tax Facts with opposing political viewpoints to share their opinions about proposals to bar members of Congress from trading in individual stocks.
Below is a summary of the debate that ensued between the two professors.
Their Votes:
Their Reasons:
Bloink: An outright ban on individual stock trades is the only way to prevent members of Congress from profiting based on inside information--or making decisions that impact the American public based on their own profit motivation, in terms of stock trading and investing. Political officers simply should not be able to profit from information they only obtain because of their roles as public figures.
Byrnes: An across-the-board 100% ban on trading individual stocks is not justified. We already have mechanisms in place that force members of Congress to disclose their stock trades and penalize those who violate the law. Congressional leaders are already required to disclose any stock trade valued at more than $1,000—an extremely low threshold that prevents politicians from making "secret" trades for profit.
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Bloink: The existing disclosure obligations don't prevent members of Congress from entering transactions that can result in conflicts. It's the conflicts themselves that we should also be concerned about preventing. We want members of Congress to vote and act based on what is in the best interests of the American public--and to avoid situations where they might be influenced by their own bottom lines.
Byrnes: Existing disclosure requirements force members of Congress to own up and admit it when they execute stock trades based on conflicts of interest or inside information. Politically speaking, trades based on conflicts of interests simply don't work in the politician's favor when those trades must already be disclosed to the American public.
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Bloink: The prohibition would only involve individual investments. Many sound investment strategies are geared toward funds and other types of investment opportunities. Currently, we have a situation where members of Congress are raking in huge profits based on inside information--and the existing disclosure requirements don't go nearly far enough, especially given the extremely weak penalties for violations. In fact, some studies have found that members of Congress routinely ignore their disclosure obligations because Congress does not always impose even the weak penalties that do exist.
Byrnes: We have to recognize that not all investment decisions involve inside information or conflicts even when they're executed by political leaders. Existing disclosure obligations effectively prevents those trades that are improper due to the political implications of entering investment strategies based on public information or making decisions based on profit motivation rather than the public's best interests. These new proposals simply go too far.