Death by a thousand cuts—a little here, a little there, who’s gonna know?
It’s the thinking behind the Wall Street Tax Act, which would take a small haircut of every trade made. Representative Peter DeFazio, D-Ore., and Senator Brian Schatz, D-Hawaii, introduced the bill in March, and, no surprise, it’s an idea on which socialists have seized.
Presidential possibility Bernie Sanders, not content with “Medicare for All” and free college, kicked it up a notch, increasing the proposed 0.1% levy on stocks, bonds, and derivatives to as high as 0.5%.
It’s the problem with electing (or at least entertaining) septuagenarian candidates. Like hairstyles and music tastes, their prejudices haven’t changed. The man who honeymooned in Moscow still sees financial professionals as little more than fat-cat caricatures, smoking cigars and laughing maniacally as the widow begs for rent.
Yet if high fees in the form of an extra half a percent are a devasting detriment to the long-term prospects of mom and pop savers, wouldn’t the same apply to taxes?
As Nicole Kaeding of the Tax Foundation rightly notes, a financial tax of this type results in “pyramiding,” meaning the same investment is taxed twice.
“For example, an individual might sell a stock worth $100 to diversify her portfolio and then purchase stock in a new company with that same $100,” Kaeding explains. “The $100 is being taxed twice: first, when the individual sells the stock, and then again when the money is used to buy the new security. Imagine this happening thousands of times a day. The tax pyramiding quickly adds up. That is why this tax would generate nearly $770 billion over a decade.”
The $770 billion is a CBO estimate. The University of Massachusetts pegged it as high as $2.4 trillion over the same 10-year period.
Yes, it’s aimed at hedge funds, high-speed traders and others unlikely to be saving for a 30 to 40-year time horizon, but it’s still an institutional cost. It invariably ripples through the ecosystem, landing squarely on those it was supposedly intended to help.
Just ask anyone impacted by the AMT.
Supporters aren’t even trying to argue its economic sense, instead making a moral play.
“It would pick up some revenue while discouraging dangerous activity,” one Forbes contributor wrote.
We’ve been down this road (many) times before, one paved with good intentions, and we all know where it ends.