Middle class Americans saving for college, retirement and other life milestones would see a “backbreaking tax bite” if federal proposals to tax stocks, bonds and derivatives investments are enacted, according to a new study released Jan. 27 from the Modern Markets Initiative.
A financial transaction tax (FTT), which has been introduced by some lawmakers but not yet embraced by President Biden’s Administration, would be nothing more than “a retirement tax” on Americans’ nest eggs and will burden savers at all income levels who invest in securities, says Modern Markets Initiative, a bipartisan education and advocacy organization founded in 2013, devoted to the role of technological innovation in creating the world’s best markets.
MMI’s latest report, A Study of the Effects of a Financial Transaction Tax on Savings and Retirement Security and Risk to Market Stability During COVID-19 Volatility, reveals that the FTT would pose a threat to the security of the retirement and lifetime savings of millions of Americans.
For example, the 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.”
MMI’s data exhibits that this tax on financial transactions would harm institutional investors who are responsible for the financial savings of many Americans, including pension funds and university endowments, and pooled savings vehicles such as mutual funds, index funds and ETFs which are continuously rebalanced and hit multiple times by a FTT. Ultimately, the tax would be borne by the end-user of such funds, as well as the millions of Americans invested in the markets through 401k plans, IRAs and 529 College Savings Plans.
“We encourage bipartisan support for savings and retirement for Main Street investors during these trying economic times,” said Wegner, a vocal advocate for the efficiency and cost savings of automated trading, particularly as it relates to retail investors and those saving for retirement. “We invite lawmakers at the federal and state levels to learn more about the negative impact of a retirement and savings tax on Middle Class investors saving for college and retirement.”
Key metrics of a financial transaction tax include the following impact on American savers:
- $5 million to $19 million in annual FTT on for an average state 529 College Savings plan with $12 billion AUM, or the equivalent of a year of full in-state tuition for over 440 to 1,900 students at a public university.
- $840,000 to $24 million in annual FTT for a single public university endowment (depending on AUM), or the equivalent of nearly 3,500 college scholarships each year.
- $45,000 to $65,000 in FTT over the lifetime of a 401k account, or the equivalent of delaying the average individual’s retirement by approximately two years.
- Over $75 million to $100 million in annual FTT for the typical state public pension plan with approximately $2 billion to $80 billion AUM.
A full version of the report can be viewed and downloaded here, or visit https://noretirementtax.org/ for more information on the retirement and savings tax.