While nothing is as certain as death and taxes, it does not mean that one has to like either. Sometimes, though, at least for taxes, you can make it a bit more appealing if you tell folks what the tax can get you in return.
In the world of financial investments, a type of tax that has been bandied about more and more since the financial crisis some 10 years ago is what is called a financial transaction tax (or FTT). FTTs are generally imposed at a relatively low tax rate on a broad base of financial transactions – the result of which is the potential to generate significant revenue without sounding all that unreasonable to a tax-sensitive public. Plus, given the backdrop of the financial crisis, one often hears that this is a tax directed at the financial institutions that caused the crisis in the first place and, as the argument goes, would also tamper the sort of high-frequency trading that destabilizes the market. The latter points are debatable but the former – that the FTT can be a revenue generator – is likely true according to a Congressional Budget Report issued at the end of last year.
FTTs have been instituted in Italy and France, and Spain seems on its way to adopting one. Other jurisdictions have similar taxes called securities transactions taxes or stamp taxes. In the U.S., we’ve heard a couple proposals this year already, including from Senator and Presidential candidate Bernie Sanders, who, interestingly, has coupled an FTT with a proposal to eliminate student loan debt.
Sanders introduced the Inclusive Prosperity Act of 2019 in May and the FTT incorporated into the act features a 0.5% tax on sales of stocks, a 0.1% tax on sales of bonds and a 0.005% tax on payments under certain derivative contracts. Covered transactions include purchases of securities occurring or cleared on a “facility” (likely including an exchange or board of trade) in the U.S. or those where the purchaser or seller is a U.S. person. For derivative transactions, the tax would apply to derivatives traded or cleared on a facility in the U.S. or where any party with rights under the derivative is a U.S. person.
The bill provides that the FTT is generally paid by the U.S. facility where the transaction occurs or is cleared but, in other cases where there a U.S. facility is not involved but the trade is executed through a broker, the broker may be left to pay it.
The mechanics of this proposal are very similar to another FTT proposal, the Wall Street Tax Act, that was proposed earlier in the year. That earlier FTT proposal would have imposed an 0.1% tax on security purchases and payments on derivatives.
In late June, Senator Sanders linked the new FTT with a proposal to eliminate student loan debt. The new bill proposed the elimination of some $1.6 trillion of U.S. student loan debt. It relied on the FTT as the means to pay for this spend.
With presidential candidates proposing ideas that will need to be paid for, this may not be the last time we hear of the FTT in the U.S. Its popularity with candidates? A potentially significant revenue generator and with a storyline that the new tax would be imposed on somewhat faceless institutions. In the end, the fate of the FTT here may be tied to the popularity or lack thereof of one or more of the proposals it may be slotted to pay for – be it the elimination of student loan debt or otherwise – and the candidate espousing it.