The Tax Foundation is the nation’s leading independent tax policy nonprofit. The existing array of taxes have limited revenue potential, can be inefficient, and place an excessive burden on low earners. As Democratic presidential candidates have been calling for FTTs, Republicans and business groups have been stepping up their efforts against this type of tax. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and global levels. Included in a variety of other financial policy reforms to combat income inequality, Bloomberg’s Wall Street FTT would levy a fee of 0.1 percent on all transactions, including stocks, bonds, payments, and derivatives contracts. Financial transaction taxes (FTTs) aren’t a new idea. The exact reduction in trading volume in response to an FTT is unpredictable. The financial transaction tax is similar to a 2019 proposal from Sanders, the Vermont independent, who says the funds could be used to pay for health care and free college. Democratic presidential candidates across the ideological spectrum are calling for taxes on financial trades, breathing new life into an idea that for many years was promoted primarily in progressive circles. Perhaps most importantly for the economy, an FTT creates significant behavioral distortions. FTTs are sometimes called “Robin Hood” taxes, as the tax burden is predominantly borne by the wealthy. “I think it has been sold as a tax on the wealthy, but actually it’s a tax on savings for all Americans,” said Kirsten Wegner, chief executive officer of the Modern Markets Initiative. Proposals for taxes on financial trades show “how Democratic candidates are all committed to raising tax revenues progressively,” said Jared Bernstein, a senior fellow at the left-leaning Center on Budget and Policy Priorities. Biden’s plan would raise tax revenue by $3.8 trillion over the next decade on a conventional basis. Now it is time for Wall Street to come to the aid of the middle class of this country,” Sanders said in June when he announced his plan. Our work depends on support from members of the public like you. The Modern Markets Initiative, which represents automated traders, including high-frequency traders, released a document on Friday pushing back on Democrats’ arguments in support of FTTs. While an FTT may be rhetorically powerful on the campaign trail and well-received as a hypothetical, it ought to remain an unrealized ambition. The Bloomberg campaign argues that “two-thirds of the burden” would fall on the top 10 percent of Americans. Under his plan… Prior to each annual adjustment, the U.S. Department of the Treasury would consult with other regulatory agencies to monitor the effects of the FTT. Post was not sent - check your email addresses! “Such taxes can also help address inequality.”. However, the existing literature is inconclusive as to whether an FTT would increase or decrease volatility. Bernstein said the argument from critics that FTTs would hurt people saving for retirement is a “knee-jerk reaction.” He said that the investors who would be most affected by an FTT are those who trade a lot. As Alan Cole, a former Tax Foundation economist, explained: “In a way, one should sometimes be most wary of taxes with a very, very, very low rate. The report below is a chapter from the book, "Tackling the tax code: Efficient and equitable ways to raise revenue." However, in the long run, investors in the bottom 90 percent will pay some of the incidence of any FTT. The group argues that high-frequency trading has led to cheaper trading costs and should be encouraged and that an FTT would hit Americans across the income spectrum with investments in capital markets. Sanders is calling for an FTT with rates of 0.5 percent on stock trades, 0.1 percent on bond trades and 0.005 percent on derivative trades in order to finance his higher-education plan. The Tax Foundation works hard to provide insightful tax policy analysis. Prominent progressives in the presidential race also back FTTs. Sen. Bernie SandersBernie SandersArizona voters approve ballot measure to raise taxes on high-income households Former Sanders adviser: Biden did not do enough 'intentional organizing' in Florida Latino community Wall Street adjusts to election uncertainty, lack of blue wave MORE (I-Vt.), who won the Nevada Democratic presidential caucuses on Saturday, floated such a tax during his 2016 campaign. The authors did not receive financial support from any firm or person for this article or from any firm or person with a financial or political interest in this article. Due to the higher transaction costs, investors and institutions would be incentivized to avoid rebalancing their portfolios and leave risk unhedged, meaning an FTT would fail to meet its goal of discouraging risky financial activity. To raise revenue, Antonio Weiss and Laura Kawano propose a new tax: a financial transaction tax (FTT). Sen. Elizabeth WarrenElizabeth WarrenCongress considers sending antitrust law back to the Middle Ages Wall Street adjusts to election uncertainty, lack of blue wave Deutsche Bank seeking to offload three Trump loans: report MORE (D-Mass.) The tax would start at 2 basis points and be phased in over four years until it reached its target level of 10 basis points. Another presidential candidate, Rep. Tulsi GabbardTulsi GabbardNative Americans elected to Congress in record numbers this year Kahele wins Hawaii House race to replace Gabbard Harris faces biggest moment in spotlight yet MORE (D-Hawaii), has co-sponsored legislation to create an FTT. has proposed an FTT with a 0.1 percent rate as part of her plan to pay for her “Medicare for All” proposal. As a result, the level of GDP would be reduced under an FTT. With high and rising public debt, an aging population that will place increasing demands on federal spending, and a need for new investments in public goods like infrastructure and R&D, the federal government requires more funding to sustain economic growth and opportunity. Certain assets (such as U.S. government bonds and new equity issuances) would be exempted for efficiency reasons. The U.S. Chamber of Commerce recently echoed this point, arguing that an FTT would drive up the amount everyday investors pay on their retirement funds. As the 2020 presidential campaigns gear up, our experts provide leading tax policy research and analysis on the latest proposals, including a wealth tax, a financial transactions tax, a universal basic income, and a surtax on corporate profits. Despite a seemingly miniscule rate, the FTT violates good tax policy on multiple grounds. Tom Quaadman, an official at the Chamber, said the group has been speaking with lawmakers and the press “to ensure that people understand both sides of the issue.”, Quaadman said that if it becomes more difficult for companies to raise money, “that also has implications throughout the rest of the economy as well.”. A renowned singer lost her voice after a sexual assault. Following the 2007-2008 financial crisis, FTT proposals have gained steam globally as the FTT tax base—financial markets—is very broad. And progressive lawmakers have offered legislation to create such a tax for years. The calls for FTTs come as Democrats have been broadly concerned about income and wealth inequality and have been offering a variety of proposals aimed at increasing taxes on the rich in order to finance new investments targeted to the middle class. “Some of the world’s leading financial centers, such as the United Kingdom and Hong Kong, have found that taxing financial transactions can raise significant revenue, both to defray the costs of overseeing markets and to address other social needs,” Bloomberg’s campaign said in a document released last week. Supporters of FTTs say they would primarily affect wealthy taxpayers, since high-income people hold most of the value of stocks. Despite the stock market reaching all-time highs, Bloomberg claims the majority of gains are concentrated among the wealthy few. Even though the proposal adheres to the tax principle of a low rate on a broad base, it functions similarly to a gross receipts tax in that it taxes the same activity multiple times, creating tax pyramiding.

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