Trading Activities Tax Introduced to Help Reduce Deficit

March 4 - Legislation introduced by Sen. Tom Harkin, D-Iowa, and Rep. Peter DeFazio, D-Ore., would place a tax on certain trading activities undertaken by banking and financial firms. The measure would not harm ordinary middle-class investors or long-term investing, the lawmakers said, but instead targets financial trading and complex transactions undertaken by financial and investment firms. In the last Congress, the Congressional Joint Tax Committee scored a similar proposal as raising $352 billion over 10 years.

Joining Harkin and DeFazio in cosponsoring the legislation were Senators Bernie Sanders, I-Vt., and Sheldon Whitehouse, D-R.I., along with 19 House cosponsors.

“We need the new revenue that would be generated by this tax in order to reduce deficits and maintain critical investments in education, infrastructure and job creation,” said Harkin. “This Wall Street Speculator Tax should be a no-brainer. It will raise significant revenue that we desperately need and reins in the excessive speculative activity that has destabilized our financial system,” said DeFazio.

Added Waterhouse, “This common sense proposal will raise billions in new revenue to get rid of the sequester or reduce the deficit while also discouraging the kind of reckless high-volume trading that contributed to the financial crash in 2008.”

The measure would place a tax of three basis points on most non-consumer financial trading including stocks, bonds and other debts, except for their initial issuance. For example, if a company receives a loan from a financial company, that transaction would not be taxed. But, if the financial  institution traded the debt, the trade would be subject to the tax. The tax would also cover all derivative contracts, options, puts, forward contracts, swaps and other complex instruments at their actual cost. The measure excludes debt that has an original term of less than 100 days.

By setting the tax rate low, the measure is not likely to impact the decision to engage in productive economic activity, according to the lawmakers. It would, however, reduce certain speculative activities like high-speed computer arbitrage trading, they added. The proposed tax would take effect after Dec. 31, 2013.