Another member of Capitol Hill has chosen budget season as the time to call for some form of transaction-based penalty for Wall Street. And a lobbying group for brokers and investors reiterated that such a penalty would end up hurting the wrong people at a critical period of the economy’s nascent recovery.
Sen. Bernie Sanders, I-Vt., in an interview on PBS NewsHour on Wednesday mentioned the need for a "transaction fee on Wall Street." Sanders, who caucuses with the Democrats and is a member of the Senate Budget Committee, made his comments during an interview with Judy Woodruff concerning his take on how to rein in the growing U.S. deficit.
"Want to know a way to raise money?" he asked. "Put a transaction fee on Wall Street, so maybe we can curb some of the speculation and raise some money."
But Sanders declined in the interview to elaborate on what such a transaction fee should entail.
The Securities Industry and Financial Markets Association, which represents securities firms, banks and asset managers, said that even without specifics it is opposed to the idea of a transaction tax. A transaction tax on investors and investments that would take capital out of the system at a time when the U.S. economy is trying to grow and create jobs is a bad move, said Andrew DeSouza, a spokesperson for SIFMA. What’s more, he added, a transaction tax that is imposed solely in the U.S. will drive offshore the capital that is sorely needed for economic growth and job creation.
"Those are outcomes that we don’t want to see happen," DeSouza said.
Others in the industry agree with SIFMA. At its worst, industry experts say, a tax of between 0.10 and 0.25 percent on each securities transaction, as has been proposed, would dramatically increase trading costs, widen bid-ask spreads, kill off high-frequency market-making firms, slash volumes and move trading to overseas markets.
No legislation has yet appeared before the appropriate House or Senate committees this year. It is unclear if any is expected, either, DeSouza said.
Regardless if any bill is immediately forthcoming, Sanders strongly supports such a tax, said Warren Gunnels, a senior policy advisor to the senator. In the face of so enormous a financial crisis, for which the senator feels Wall Street speculation is significantly responsible, Sanders wants to make sure the biggest banks pay an equitable amount to narrow the budget.
Any legislation Sanders supports will likely resemble the December 2009 bill Sen. Tom Harkin, D-Iowa, submitted: SB 2927, the Wall Street Fair Share Act. That bill called for a transaction tax of 25 basis points that would apply to a broader class of derivatives and would offer different tax exemptions. The bill, of which Sanders was one of three co-sponsors, was read twice and then referred to the Committee on Finance–where it stalled.
"We worked very closely with Sen. Harkin and his staff to put [SB 2927] together," Gunnels said. "We’ll continue to work with them, and others. We’ll just see what the best opportunity is to advance this legislation in the future."
The idea of a transaction tax has had an active recent history. In September 2008, Rep. Peter DeFazio, D-Ore., introduced a "Let Wall Street Pay for Wall Street’s Illiquid Assets Act." The bill also called for a transaction tax of 25 basis points "of the value of the instruments involved in such transaction."
In February 2009, DeFazio proposed another 0.25 percent transaction tax to offset the federal government’s Troubled Asset Relief Program. But the bill was poorly conceived and not thought through, critics argued. In addition, it lacked sufficient support on the Hill. Both bills were referred to the House Committee on Ways and Means. Both went nowhere.
Last year Sen. Michael Crapo, R-Idaho, a member of the Senate Banking Committee said he saw no chance for a securities-related tax before the November elections. But he added that the need to finance the federal deficit would keep the transaction tax on legislators’ radars as a potential way to raise revenues.
For its part, SIFMA remains wary of transaction taxes, in any form.
"When [a transaction tax] was first discussed two years ago, we thought it was important and something we should keep an eye on," DeSouza said. "And that remains true this year, as well."
