With a Republican-controlled Senate and President Trump, there’s virtually no chance The Wall Street Tax Act of 2019, introduced last week by the democrats that critics argue amounts to “an across-the-board fee increase on 401k plans,” will pass this year as written.
But its introduction could raise the profile on the controversial issue of taxing investors, and a similar bill could gain serious consideration down the line if Democrats gain power in Washington.
Sens. Brian Schatz (D-HI) and Chris Van Hollen (D-MD) along with Rep. Peter DeFazio (D-OR) introduced the bill March 5, which seeks to tax the sale of stocks, bonds and derivatives at a rate of 0.1%, which equates to 10 cents per $100 of transactions.
“Over the last decade, Wall Street has made record profits from high-risk trades that have made the market dangerously volatile, while doing nothing to add real value to our economy or raise wages for workers. My bill will help discourage this kind of risky, volume-based trading and bring in billions in new revenue.” Sen. Schatz said.
“Risky financial behaviors like near-instantaneous high-volume trades have destabilized our financial markets while contributing nothing to the economy,” said Rep. DeFazio. “This legislation will curb unnecessary speculation and generate much-needed revenue to help the federal government fund national priorities and invest in the real economy to benefit all Americans.”
Supporters, including Rep. Alexandria Ocasio-Cortez (D-NY) and Sen. Kirsten Gillibrand (D-NY), say the bill would curb short-term speculative activity among high-frequency traders while generating an estimated $777 billion in new tax revenue over a decade.
Charles Schwab Chief Investment Strategist Liz Ann Sonders said it is premature to start worrying about the bill, telling FOX Business last week, “It is a longshot that this bill will pass as it is written now.”
Plenty of other critics have lit up the cable news shows and released statements opposing the bill.
“This is a tax that again supposedly is aimed at Wall Street that’s going to hit Main Street,” said Jeb Hensarling, former chair of the House Financial Services Committee.
Speaking on CNBC last week, Hensarling said such a bill would drive a lot of transactions overseas and would hurt our own economic growth. “Over half of the money that is invested in the market is 401ks, it’s in pension plans, it’s in mutual funds—all that’s going to be more costly to middle-income families. It’s a bad idea whose time has not come. Fortunately we have President Trump, we have a Republican Senate to make sure it’s not going to happen.”
Kevin Fromer, Financial Services Forum President and CEO, said in a statement: “Imposing a tax on the sale of stocks and bonds takes money out of the pockets of individual investors as they save for their children’s college education, their retirement, or to pay for other household needs, all of which have a positive impact throughout the economy.”
American Retirement Association CEO Brian Graff released a March 6 statement opposed to the proposed bill, saying the Wall Street Tax Act is really a Main Street savings attack.
“Every week millions of Americans sacrifice to set aside part of their hard-earned pay for retirement, investing those savings to help provide a secure financial future,” Graff said. “After years of attacking 401k plan fees, some members of Congress now want to charge 10 basis points every time a hard-working American contributes out of their pay into their 401k. And then charge another 10 basis points every time the account is rebalanced. And then, another 10 basis points when that worker retires and sells some of those investments so they can maintain their standard of living.
“We’re talking about the equivalent of an across-the-board fee increase on 401k plans,” Graff said, citing a 2015 report by the Obama Administration’s Council of Economic Advisors on the impact of 401k fees that found a tax like this could reduce an American’s retirement savings by as much as 3% over their working life.
“It appears that some in Congress may think that the only people who invest are super rich,” Graff said. “But there are 80 million American workers who are investing for their future in their 401k. At a time when there is so much concern about retirement income adequacy and the impact of 401k fees, it’s stunning that some members of Congress would attack the retirement savings of hard-working Americans.”
National Review’s David Bahnsen, who reiterates the current bill is going nowhere but admits it could have life in a post-2020 world if Democrats are able to consolidate power, said middle-class investors are the ones who really would pay the 10-basis-point fee on every single transaction under the proposed bill. “A $10 additional charge on a $10,000 stock purchase adds 200% to the average trading cost of $4.95 per trade,” Bahnsen said. “The massive volume of stocks and bonds bought by mutual fund investors, 401k participants, pension funds and other investors with an average balance of below $250,000 will marginally suffer the most.”
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
