Independent Vermont Sen. Bernie Sanders — a 2020 presidential candidate — on Wednesday introduced a tax on Wall Street that aims to stem speculation by targeting trades of stocks, bonds, and derivatives.
This tax on Wall Street speculation, also known as a financial transaction tax, is estimated to generate up to $2.4 trillion in public revenue from wealthy investors over 10 years. Sanders said these funds could be used to make college tuition-free, reduce student debt, and repair the nation’s infrastructure.
The plan states that an added benefit of the proposed tax is deterring the high-frequency trading that increases the instability of the financial sector and produces no economic value, according to a press release issued by Sanders on Wednesday.
The bill calls for a tax of 0.5% for stocks, 0.1% for bonds, and 0.005% for derivatives. A $1,000 stock trade would be taxed $5, while a $1,000 trade in derivatives would be taxed $0.05.
Financial analysts say that the concept of taxing financial transactions is not a new idea. In fact, the United States had such a tax until 1966.
“The problem is that it’s difficult to project an amount that could be raised because we can’t tell exactly how Wall Street would respond to such a tax,” Ronald Chakler, senior managing director, American Portfolios, told CFO.
“On one hand, it would have a positive effect on much of the unproductive computer-driven trading, which would be a good thing for the economy,” he said.
“On the other hand, raising the cost of investment would mean getting capital to businesses would now be more expensive, and that’s a negative for our economy,” Chakler added. “Although the tax is aimed at big banks and financial institutions, I can’t see how some of the pain won’t eventually wind up getting passed on to the small investor.”
Sanders calls the measure a “speculation tax” because it is designed to discourage speculation within the market, meaning it is not aimed at middle-class investors who tend to leave their money in the market to grow over longer periods of time.
“Although the tax is aimed at big banks and financial institutions, I can’t see how some of the pain won’t eventually wind up getting passed on to the small investor.”
“Wall Street enjoys record-breaking profits despite its role in triggering the financial crises of 2008,” said Sanders. “Meanwhile, a typical middle-class family in America has seen its net worth decline by 30 percent from 2007 to 2016.”
Sanders introduced a previous version of this bill in 2017.
Rep. Barbara Lee, California Democrat, is a co-sponsor on the bill called the “Inclusive Prosperity Act.” According to Lee, “taxing Wall Street is not an extreme idea.”
Lee added that “the government already taxes everyday families for basic items like food, clothes, and housing. Wall Street gets away with no taxes, even when conducting high-risk financial transactions.”
Sen. Kirsten Gillibrand of New York and more than a dozen House Democrats are behind the bill. “This legislation would bring much-needed revenue to Main Street,” she said, “which never should have been handed over to bail out Wall Street.”