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Wall Street Transaction Tax Wins Backers on GameStop Furor (1)

Feb. 19, 2021, 10:03 PM

Some Democrats in Washington are seizing on the recent frenetic trading in GameStop Corp. to push the financial transaction tax long favored by progressives, setting up a battle with Wall Street firms that bitterly oppose the idea.

After a House hearing Thursday to examine the GameStop issue, Representative Maxine Waters, the California Democrat who chairs the committee, said she is considering such a tax, which came up several times during testimony.

Investment firms and stock exchanges are lining up lobbyists and public-relations firms in hopes of stopping the tax, which could decrease trading activity and lower earnings. They see it as harmful to the average American trying to save for retirement.

Maxine Waters
Photographer: Daniel Acker/Bloomberg

Robinhood Markets Inc., whose popular, commission-free trading app helped ignite the stock frenzy, this month registered its first in-house lobbyists and said the proposed tax is one of the issues they will tackle. At Thursday’s Financial Services Committee hearing, Robinhood Chief Executive Officer Vlad Tenev said the tax would be a bad idea but wasn’t given a chance to explain why.

Exacting a tiny sum from every securities trade is a concept that liberal Democrats, including Senators Elizabeth Warren and Bernie Sanders, have pushed for years. They see it as a way to curb the kind of speculative betting that led to last month’s chaotic swings in the market and to fund Democratic priorities such as increased public-works spending.

A financial transaction tax hasn’t garnered support from some top Democrats, including Senate Majority Leader Chuck Schumer of New York, who has been wary to back an idea targeting a key industry in his state. To become law, bills that include a financial transaction tax would likely need united support from Democratic lawmakers, making the effort an uphill climb.

The tax failed to gain steam a decade ago because of uncertainty over how it would affect the returns of retail investors and markets recovering from the financial crisis.

Wall Street lobbyists and Republican lawmakers also opposed the idea, often pointing out that some European countries that imposed transaction taxes later withdrew them. The tax mostly failed to raise the amounts proponents promised; it also drove securities trading and jobs to other countries.

Chuck Schumer
Photographer: Graeme Jennings/Washington Examiner/Bloomberg

Efforts to adopt an EU-wide levy also foundered, though some European Union member countries are again floating the tax as a way to raise funds to bolster economies hit by the pandemic.

One measure now gaining traction, by Oregon Democrat Peter DeFazio, proposes a levy on trading firms of 10 cents for every $100 of securities traded, though other proposals have gone as low as 5 cents and as high as 50 cents.

In January, South Carolina Representative James Clyburn, the No. 3 Democrat in the House, threw his support behind the tax. Clyburn noted that the DeFazio proposal was projected to raise $777 billion over 10 years, money that could be used to fund spending on job-creation initiatives and health care.

“The speculation that we’ve seen in the market, not just around GameStop but in all of the casino that is Wall Street, has raised the attention,” said Susan Harley, a lobbyist and managing director of the Congress Watch division of Public Citizen, a progressive advocacy organization. “Those dollars are very attractive.”

Waters said she hadn’t come to a conclusion on whether to support a transactions tax. “I’m very interested and I do think it portends possibilities for revenue that may be desperately needed,” she said.

A smaller financial transaction tax, such as one targeted to certain securities or with an extended phase-in period, is a “very real possibility,” said Compass Point Research & Trading analyst Isaac Boltansky, noting that it could generate revenue to pay for Democrats’ policy priorities.

As a candidate in 2019, President Joe Biden expressed support for the tax but he never released a detailed proposal. The White House didn’t respond to a request for comment.

Peter DeFazio
Photographer: Andrew Harrer/Bloomberg

During Thursday’s hearing, Michigan Democrat Rashida Tlaib sparred with Citadel founder Ken Griffin over the tax, which she framed as a way to address inequality. She called it “one way to ensure that this enormous wealth generated on Wall Street actually reaches the real economy.” Griffin argued that it “will injure Americans hoping to save for retirement.”

A financial transaction tax would eat into the returns of Griffin’s Citadel businesses -- a hedge fund and a market maker -- that would be dinged every time they make a trade. Investment funds and firms that trade the most, such as high-frequency traders, could face the highest costs.

Public Citizen and other groups are circulating a letter in support of DeFazio’s bill. The levy is “an important step toward having Wall Street pay its fair share of taxes,” says the letter, whose signatories so far include the liberal Economic Policy Institute and unions such as the AFL-CIO and International Brotherhood of Teamsters.

In addition to efforts in Congress, lawmakers in New York, New Jersey and Illinois have proposed local taxes on financial transactions. In response, exchanges such as the New York Stock Exchange and market makers including Virtu Financial Inc. have threatened to move operations out of those states to avoid the tax. A national tax would undercut those threats.

Wall Street firms are girding for battle. Investment giants and trade groups including Vanguard Group, the Securities Industry and Financial Markets Association and the Investment Company Institute said they’re lobbying on the issue.

“Financial transaction taxes at the federal or state level unfairly target America’s mom-and-pop investors and working families saving for retirement,” said Chris Iacovella, chief executive of the American Securities Association, a trade association for regional financial services firms.

Rashida Tlaib
Photographer: Daniel Acker/Bloomberg

The U.S. had a stock transactions tax between 1914 and 1965. Today, a small fee is still levied against stock transactions to help fund oversight by the Securities and Exchange Commission.

A group of nonprofits in the U.K. in 2010 organized to support a financial transaction tax, even dubbing it the “Robin Hood tax,” with the idea that it would take from the rich to help the less fortunate. It caught on in the U.S. as Democratic lawmakers proposed their own bills, which never moved forward once Republicans regained control of the House in 2010.

A financial transaction tax also took the stage during the 2020 Democratic primaries. As a candidate, Vermont Senator Sanders, who now helms the Senate Budget Committee, proposed a levy on all trades as a way to finance his plan for tuition-free college.

Michael Bloomberg, the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News, also offered aversion during his presidential primary effort.

At the time, lobbyists circulated research by Vanguard that claimed a measure similar to DeFazio’s would reduce investor returns by more than one percentage point per year. Vanguard came under fire for its assumptions, such as basing its calculation on the high turnover rate of an actively managed small-cap stock fund. The company later released estimates for more typical types of mutual funds and said in many cases the tax would hurt returns by less than 0.3 percentage point.

Vanguard spokesman Charles Kurtz said a broad financial transaction tax would do “unintended damage to everyday families saving for retirement or higher education.”

One advocacy group, the Partnership to Protect Our Retirement Future, planted paid consultants at candidates’ town hall-style meetings to frame the tax concept as an affront to retirees, the public relations firm that formed the group acknowledged to Reuters. Locust Street Group, the PR firm, didn’t respond to a request for comment.

North Carolina Representative Patrick McHenry, the lead Republican on the House Financial Services Committee, in October introduced his own bill, the Protecting Retirement Savers and Everyday Investors Act. It would prohibit states from imposing taxes on transactions.

(Updates with analyst quote in 14th paragraph)

--With assistance from Laura Davison, Ben Bain, Saleha Mohsin and Sam Mamudi.

To contact the reporter on this story:
Joe Light in Washington at

To contact the editors responsible for this story:
Sara Forden at

Paula Dwyer

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