Today, it was suggested that a new “Medicare for All” plan be funded by a tax on trades of stocks, bonds and derivatives. Once again, this is a proposal that hits the people it claims to help. The people who will pay this tax are not “big banks” but rather everyday investors and consumers through their savings in IRAs, 401k plans, pension plans and retail brokerage accounts.

There is no upside to a tax which impacts Americans who are working hard every day to boost their savings or who are actively saving for retirement, college, or homeownership.

A retirement saver who invests $10,000 per year over 40 years in a balanced portfolio of actively managed stocks (60%) and bonds (40%) with a 10-basis point tax imposed on purchases of securities would cost the investor some $36,000, more than 3 ½ years of annual savings.  Some proposals call for FTT rates as high as 50 basis points. Such a levy could cost the retirement saver as much as $200,000—20 years of annual contributions.

Parents saving for children’s college tuition will need to save more than an additional $200 per year (4% increase). Pension plans, endowments, charities and donor-advised funds will all have to find the resources to increase funding levels to meet liabilities and payout goals.

Furthermore, the actual cost to investors is effectively much higher than the 0.1% rate of the proposed tax. If an investor purchases an asset for $10,000 that produces a 5% annual rate of return and holds it for a year before selling, the pretax return is $500. If a 0.2% FTT is assessed upon sale, the tax bill is $21.00 (0.2% of $10,500). The 0.2% FTT actually represents more than 4% of the income generated.

An FTT would substantially reduce market liquidity and impair the strength of the U.S. capital markets, a move that runs counter to strong, sustainable, and balanced growth, and the financial impact of such a tax is not just on markets.

Major economies that have adopted such taxes have had overwhelmingly negative results, including reduced asset prices, trading moving to other venues, market dislocation and decreased liquidity. Past experience also suggests that it would raise less revenue than supporters often claim.

We have more detail on real-world examples here: The Facts Don’t Support the FTT.

But the bottom line is imposing an FTT, which is effectively a sales tax on investors, savers and consumers, runs counter to many longstanding policies on savings and promoting economic growth espoused by Democrats and Republicans.

Kenneth E. Bentsen, Jr. is president and CEO of SIFMA, the voice of the nation’s securities industry. He is also CEO of the Global Financial Markets Association (GFMA), of which SIFMA is the U.S. regional member.

—

This post was originally published on October 19, 2019; it was updated on August 17, 2020 to reflect new data from Vanguard.