Recent calls from Democrats for a financial transaction tax in the wake of the GameStop saga were met today by the introduction of proposed legislation from House Republicans intent on preventing states and municipalities from enacting a FTT.
The Republican leader of the House Financial Services Committee, North Carolina Rep. Patrick McHenry, and the Republican leader of the Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets, Michigan Rep. Bill Huizenga, earlier today reintroduced legislation “to protect American savers and investors from Democrats’ harmful tax proposals,” according to a statement from McHenry.
“Democrats continue to ignore the facts by pushing a financial transaction tax. They claim their state-level FTTs would only be paid by the wealthiest, but Americans saving for their futures across the country would end up footing the bill,” McHenry said.
The Protecting Retirement Savers and Everyday Investors Act would block states from imposing financial transactions taxes on certain industry participants, including stock exchanges and broker-dealers, which would be paid by out-of-state investors when the FTT is passed onto them. This includes Main Street investors saving for retirement, their first home, or their child’s education.
“These FTTs would penalize Americans saving for retirement, their first home, or their child’s education, all at a time when they can least afford it,” McHenry continued. “As we come out of the COVID-19 crisis, we should be expanding everyday investors’ access to our markets, not holding them back from investing in their future. Republicans will continue to fight for savers and everyday investors, while Democrats push progressive policies to hurt these hardworking Americans.”
Huizenga added that the federal government should not be making it harder for Americans to save for their future. “A financial transaction tax would clearly break President Biden’s promise to not raise taxes on middle class families and would negatively impact retirement savers, pensioners, families saving for college, and everyday investors,” he said.
Retirement industry no fan of FTTs
In the 116th Congress last year, this legislation introduced by McHenry and Huizenga received support from the American Retirement Association, Americans for Tax Reform, the National Taxpayers Union, and others.
The ARA cited a recent study from the nonpartisan Modern Markets Initiative, which found an FTT would be nothing more than “a retirement tax” on Americans’ nest eggs and will burden savers at all income levels who invest in securities.
The MMI report found the proposed FTT would cost $45,000 to $65,000 over the lifetime of a 401k account, or the equivalent of delaying the average individual’s retirement by approximately two years.
“Our comprehensive analysis plainly displays that the so-called financial transaction tax is really a tax on the savings and retirement of average Americans,” said Kirsten Wegner, CEO of MMI. “The tax, which has been touted by some in Congress as a tax on Wall Street, actually takes aim squarely at Main Street investors.”
GameStop revives progressive push for FTT
The recent GameStop frenetic trading chaos revived calls among progressives for a financial transaction tax, which they argue would reduce speculative betting while also boosting government revenues.
GameStop stock’s wild roller coaster ride—fueled by an army of Reddit-informed traders buying it as a counter to Wall Street short-sellers betting the price would fall—saw the company’s stock surge from $19.95 on Jan. 12 to $347.51 on Jan. 27 before cratering the next day to $193.60, rising once again to $325 on Jan. 29 and then falling back down to $53.50 by Feb. 4. After spending most of February between $44 and $64, the GameStop stock has since climbed back to $124.18 as of March 3.
During a hearing last week to examine the GameStop episode, House Financial Services Committee Chair Rep. Maxine Waters (D-CA), said she is considering proposing a financial transaction tax, long supported by high-profile progressives like Sens. Bernie Sanders (I-VT) and Elizabeth Warren (D-MA), as well as Reps. Alexandria Ocasio-Cortez (D-NY) and Ilhan Omar (D-MN).
In the early midst of the GameStop saga, on Jan. 28 Omar tweeted:
“Wall Street has made billions on the back of the worst recession since the Great Depression, and fought to deregulate finance to pre-2008 levels. And the moment regular folks beat them at their own rigged game, it’s ‘SHUT IT DOWN.’ How about this: financial transaction tax. Now.”
She followed that up with another Jan. 28 tweet:
“A small tax—0.1%—on each Wall Street trade would reduce high frequency trading, a practice which drains profits from retail investors and benefits only the very rich. We could use the close to $1 trillion it would generate to cancel all student debt and make college free.”
A 2018 analysis by the nonpartisan Congressional Budget Office found that imposing a 0.1% tax on stock, bond and derivative transactions would raise an estimated $777 billion over 10 years.
401k savers would pay
Critics contend that instead of the ultra-wealthy, it would be Main Street retirement savers contributing much of that $777 billion.
McHenry and Huizenga argue a financial transaction tax could decrease trading activity, lower earnings and ultimately hurt average Americans trying to save for retirement. An FTT on stock trades would be applied each time a financial transaction is conducted, including mutual funds owned by roughly 45% of U.S. households—largely inside of 401k plans.
A SIFMA study from 2019 (and updated in Aug. 2020) found that a financial transaction tax would cause a “cascade of taxation that will accumulate during the standard operations of a mutual fund portfolio, resulting in significant reductions in overall returns.”
The study said an FTT would erode retirement security by subjecting 401k plan participants to double taxation and penalizing individuals for activities such as moving assets from a 401k to an IRA. “Imposing a de facto sales tax on the $28 trillion Americans have saved for retirement only compounds the problem of too little retirement savings in our country,” the report said.
As it did when McHenry and Huizenga introduced it last year, the “Protecting Retirement Savers and Everyday Investors Act” still figures to face an uphill battle in the Democrat-controlled House.
SEE ALSO:
- How a Financial Transaction Tax Would Hamstring 401k Savers
- Republican Reps Introduce Bill to Block Financial Transaction Taxes
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.
