The New York Stock Transfer Tax: Myths & Facts

SIFMA strongly opposes the proposed reinstatement of the stock transfer tax in New York state.

While some see this as a tax on the securities industry itself, it is actually a tax on working families saving for retirement and college, pension funds that secure retirement for millions, as well as many individual investors, foundations and endowments.  The STT also runs counter to many longstanding policies promoting savings and economic growth.

Here we present some myths and facts on the STT:

Myth:  The NY stock transfer tax is a tax on Wall Street.  It will not impact me.

Fact:  The tax would harm investors and decrease retirement savings

A stock transfer tax is a sales tax on investors which will hurt retirement savers, investors, businesses and the economy.

Because the tax is passed on with each trade, the STT would reduce the return-on-investment of savings and could require many middle- and lower-income citizens to significantly delay their retirement.

For a typical investor saving for retirement through an index-based target date fund, the tax would be applied across his or her portfolio numerous times. For example, if a person saves $10,000 per year over 40 years in a balanced portfolio of actively managed stocks (60%) and bonds (40%), a 10-basis-point tax imposed on purchases of securities would cost the investor some $36,000 — more than 3 ½ years of investor savings.

If levied on purchases and sales, the tax would be more than $56,000.  Some proposals call for STT rates as high as 50 basis points.  Such a levy could cost the retirement saver as much as $200,000— equivalent to 20 years of an investor’s annual contributions.

Myth:  I am a buy and hold investor; I don’t trade stocks.  The STT won’t affect me.

Fact:  The STT impact would be wide ranging, encompassing funds and passive investments.

An STT would not just tax single stocks, it would hit exchange traded funds and passive investments such as investment-based products that have higher turnovers due to redemptions and portfolio rebalances.

When a fund is rebalanced, the tax would apply.  Many retirement accounts, including pension funds, 401ks and IRAs, are invested in target date funds, which have an embedded asset allocation.  Those funds would be hit with the tax every time they are rebalanced and every time the asset mix is changed.

Myth:  Wall Street jobs will never leave New York.

Fact:  Real world case studies show that this is false.

Because no other state in the country imposes a STT, it would be a logical consequence for New York firms to execute and process at least a portion of their trades elsewhere to find the lowest costs for their clients.  Accelerating the trend of securities industry jobs moving to other states would cause further devastation to the New York economy, which is already suffering from the impact of the Covid-19 pandemic.

The national landscape of the securities industry has changed significantly over the past twenty years.

The securities industry experienced nationwide growth of 96,000 jobs (10.9%) between 2000 and 2020, with all the growth happening outside of New York State.  Despite the nationwide growth, securities industry employment in New York State decreased by 30,700 jobs, or 6.5%, in the past 20 years.

Out of the NYS total, 89.1% of securities industry jobs were in New York City, where securities industry employment shrunk by 11,200 jobs, or 6.2%, to 170,900 in December 2020.

The COVID-19 pandemic, and the associated business closures, event cancellations, and work-from-home policies, has had a devastating impact on the labor market.  As of December 2020, the securities industry employed 191,800 individuals in New York State, a decrease of 10,500 positions, or 5.2%, year-over-year.

Changes in securities industry employment impact not only those directly employed in the sector but also have a spillover effect for the City and the State economies overall. According to the Office of the State Comptroller, each job added in the securities industry leads to creation of three additional jobs in other industries in New York State.  Further, 1 in 10 jobs in the NYC area and 1 in 15 in NYS overall is either directly or indirectly associated with the securities industry.  In fiscal year 2020, the total estimated tax collections derived from the securities industry totaled $15.1 billion in NYS and accounted for 18% of NYS’s tax revenue. In NYC, estimated tax collections derived from the securities industry totaled $3.9 billion, or 6% of NYC’s tax revenue.

There are real consequences to instituting bad policy and shrinking the presence of the industry even more in New York.

Myth:  There are success stories from other countries imposing a similar tax.

Fact:  Revenue generated is below expectations and investor costs are high.

In jurisdictions where a transaction tax has been implemented, it has never raised the expected revenue, yet it has resulted in a migration of trading volume to other jurisdictions which have not imposed such a tax, which is a predictable result in today’s predominantly electronic and globally connected markets.  The nonpartisan Citizens Budget Commission estimated, if the New York STT was in place in the most recent fiscal year, just one-third of the estimated revenues would have collected and, “In fact, the State would likely amass even less, since firms might avoid the tax by using new technology or relocating the trading portion of their businesses outside New York.”

Sweden raised just 3% of expected revenue when it instituted such a tax, and Italy just 20%; France achieved half of what it anticipated. However, in each of these countries, trading volumes declined when the tax was imposed.  Once the tax was implemented, Sweden’s market saw 30% of its total trading volume shift out of the country to London.  In France, after implementation of the tax, the New York Stock Exchange Euronext Paris volume declined on average 16% within two months and the French CAC 40 declined 21% in the first 10 days and 16% in the first 40 days.  One third of the trading in French public companies moved to London and other European securities markets.

The European Union has 27 countries with some barriers to move businesses.  However, New York is not a country and is one of 50 states within the U.S, and there is nothing preventing businesses to move to a state without an FTT.

We believe the facts are clear:  the shrinkage of an industry that is the largest contributor to New York’s economy and tax base, combined with the negative impact on New York’s savers, make the STT a terrible policy move for the state.

Kenneth E. Bentsen, Jr. is president and CEO of SIFMA, the voice of the nation’s securities industry. He is also chief executive officer of the Global Financial Markets Association (GFMA).