Reuters
As the summer rolls on and a crowded field of Democratic presidential candidates tries to stand out from the pack, fresh policy proposals appear nearly every week. There are nuances, of course, but one theme runs through many of the proposals: the finance industry should pay, whether it’s for health care, student debt, or, even just for being Wall Street.
On Monday, California Sen. Kamala Harris unveiled a plan for, in her words, “comprehensive health insurance that covers every American.” Harris wants an expanded version of Medicare, popularly known as “Medicare For All,” to accomplish that. And she wants to pay for it in part by taxing financial trading.
Harris says her plan — including taxing stock trades at 0.2%, bond trades at 0.1% and derivative transactions at 0.002% — would raise “well over $2 trillion” over 10 years.
‘Think of it like this: that’s a $2 fee on a $1,000 trade by investors and big banks.’
Unlike an earlier proposal from Vermont Senator Bernie Sanders, another 2020 candidate, the Harris plan would not tax families making under $100,000, and her trading tax would, Harris says, be “more than enough to make up the difference from raising the middle-class-income threshold.
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Some analysts argue that it’s impossible to tax “Wall Street trading” without also impacting the retirement savings of millions of ordinary Americans, the funds they need to operate small businesses, and so on, as the tax could be passed on through fees, impacting overall returns.
The Securities Industry and Financial Markets Association, a trade group, wrote up an analysis of what it calls “financial transaction tax,” in June. Among other things, SIFMA points out that “a typical mutual fund investor will have to save an additional $600 per year (a 12% increase in savings) or work an additional two years over their career to achieve his/her retirement goals” if the tax were 0.1% — and more if the tax were higher.
“Investors in an active small-cap equity mutual fund would see returns diminished by up to 1.62% annually,” the trade group said.
What’s more, points out Steve Blitz, chief U.S. economist for TS Lombard, some investors can look elsewhere if they don’t like the U.S. tax landscape. “I can trade anywhere in the world and markets can open up anywhere in the world and I can just move my money offshore,” he said.
Market maneuvering aside, Blitz thinks there are bigger problems with, as he puts it, “this idea of ‘I’m gonna tax this activity to pay for that.’”
Sanders, for instance, has his own proposal to “cancel all student debt” to be paid for by a “tax on Wall Street speculation.”
Democrats should be talking more about creating a strong, resilient economy, Blitz told MarketWatch. Instead, “they want to take this from the perspective of leveling the playing field across socio-economic groups. They should attack each problem on its own instead of trying to say, here’s a pot of money.”
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Representatives of another financial market regulator, the Commodities Futures Trading Commission, did not respond to requests for comment. The Financial Industry Regulatory Authority declined to comment.
The idea of providing health-care coverage, as Harris sets out to do in her Medicare For All proposal, is a sound one, Blitz said. “But the solution to health care is really getting a stronger and younger work force.”
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