Liberal Democrats plan to target hedge fund managers and corporations with a push for Senate floor action on a proposed financial transaction tax that has been embraced by two presidential candidates: Sen. Bernard Sanders and former Maryland Gov. Martin O’Malley.
Sanders, I-Vt., said in an interview he was working with allies such as Brian Schatz, D-Hawaii, to press for a vote on attaching his proposal to other legislation. Supporters say the levy on stock and bond sales would be structured to raise the most revenue from high- volume traders, including hedge fund managers.
“We would like to get a vote. The American people understand that Wall Street is getting away with murder. It’s a way to raise substantial sums of money. And it would also put a damper on speculation,” said Sanders, the ranking member on the Budget Committee.
Leaders and senior tax writers in both parties have largely spurned the idea of a transaction tax, arguing instead for continuing talks in both chambers on a possible business tax overhaul. But Sanders and his allies say they hope to seize momentum from the effort that slowed action on Trade Promotion Authority for President Barack Obama and boost the idea of a transaction tax in Congress and on the campaign stump.
In the House, Rep. Keith Ellison, D-Minn., co-chairman of the 69-member Congressional Progressive Caucus, echoed Sanders’ call for floor action on a transaction tax similar to one the group has included in its fiscal 2016 budget plan. “I think that this idea is going to gain traction. There needs to be a combination of necessity, crisis and just a changing of the guard,” Ellison said.
The Sanders proposal would put an excise tax of 50 cents on every $100 of stock shares sold while providing a tax credit equal to any taxes owed for small investors with gross incomes up to $50,000 for individuals or $75,000 for couples. The Sanders bill is projected to raise more than $1 trillion over 10 years, with the proceeds set aside for individual subsidies for higher education. A draft proposal by Rep. Chris Van Hollen of Maryland, ranking Democrat on House Budget and a 2016 Senate candidate, would impose a smaller tax of about 0.1 percent on stock sales.
Proponents such as Dean Baker, co-director of the Center for Economic and Policy Research, a liberal think tank, say the transaction tax proposals resemble rates already in effect in Europe. Such levies could provide a source of revenue for liberal priorities of the Democratic presidential front-runner, former Sen. Hillary Rodham Clinton of New York.
“This proposal has populist appeal,” Baker said. “Many Democrats would be hard-pressed to vote against it, and I think there is a chance the idea could be picked up by Clinton. She has a problem because she is close to Wall Street people that would be hit by it. She could use the revenue for things such as education, child care and tax breaks for the middle class.”
But other political observers, such as Wendy Schiller, a professor of political science at Brown University, said they doubted the transaction tax would resonate as Sanders and O’Malley vie with Clinton.
“Putting taxes in a stump speech or in the party platform would render Democrats vulnerable,” Schiller said. “Republicans aren’t going to raise taxes on anyone. There is limited political gain in looking to tax.”
Echoing such concerns, lobbyists for stock brokers, fund managers and banks have pushed back hard against transaction tax proposals. Payson Peabody, tax counsel for the Securities Industry and Financial Markets Association, attacked the tax credit for small investors in Sanders’ bill, charging it “will be difficult to administer and will not fully reimburse taxpayers for the cascading effect of the proposed tax or its indirect impact on the U.S. economy.”
“Retirees who have set aside savings in 401(k) plans and IRAs should not have to pay an additional tax to withdraw their savings,” Peabody said. “In general, studies have shown that financial transaction taxes have the potential to impede the efficiency of markets, impair their depth and liquidity, raise costs to issuers, investors and retirees, and distort capital flows.”
The nonpartisan Tax Foundation has also questioned whether Sanders’ proposal would reduce trading volume and capital gains tax collections. When Sweden introduced a 2 percent transaction tax in the 1980s, trading volume in the most actively traded shares migrated to London, reducing Sweden’s overall tax revenue, the group noted in a recent blog post.
“It would end up raising less overall revenue for the federal government than the senator expects,” according to the post.