The proposed bill Let Wall Street Pay for the Restoration of Main Street Bill is officially contained in the United States House of Representatives bill entitled H.R. 4191: Let Wall Street Pay for the Restoration of Main Street Act of 2009. [1] It is a proposed piece of legislation that was introduced into the United States House of Representatives on December 3, 2009 to assess a tax on US financial market securities transactions. [2] Its official purpose is "to fund job creation and deficit reduction." [2] Projected annual revenue is $150 billion per year, half of which would go towards deficit reduction and half of which would go towards job promotion activities. [2]
The US imposed a financial transaction tax from 1914 to 1966. The federal tax on stock sales of 0.1 per cent at issuance and 0.04 per cent on transfers. Currently, the US has a very minor 0.0034 per cent tax which is levied on stock transactions. The tax, known as Section 31 fee, is used to support the operation costs of the Securities and Exchange Commission (SEC). In 1998, the federal government collected $1.8 billion in revenue from these fees, almost five times the annual operating costs of the SEC. [3]
U.S. Representative Peter Anthony DeFazio proposed a new financial transaction tax for within the United States in 2009. [4] He first raised the idea earlier in 2009, and then officially introduced it as a bill on December 3, 2009. [2] The day he introduced the bill, DeFazio said, "The American taxpayers bailed out Wall Street during a crisis brought on by reckless speculation in the financial markets. . ... This legislation will force Wall Street to do their part and put people displaced by that crisis back to work." [4] The "bailout" he referred to was the US Emergency Economic Stabilization Act of 2008, and the "crisis" he referred to was the 2007–2008 financial crisis. The day the bill was introduced, it had the support of 25 of DeFazio's House colleagues. [2]
These are the elements of his proposal: [4]
| Tax base | Tax rate | Revenue estimate (US$ billion) |
|---|---|---|
| US stocks/equities | .25% | 54-108 |
| US bonds | .02% | 26-52 |
| US forex spot | .01% | 8-16 |
| US futures | .02% | 7-14 |
| US options | .5% | 4-8 |
| US swaps | .015% | 23-46 |
| US total | 123-246 | |
To ensure the tax is appropriately targeted to speculators and has no impact on the average investor and pension funds, the tax will be refunded for: [6]
Criticism of this bill has included (1) a December 2009 Wall Street Journal op-ed by Burton G. Malkiel and George U. Sauter; [7] (2) a December 2009 online op-ed by Irene Aldridge; [8] and (3) a December 2010 Tulane Law Review article by Richard T. Page, who has suggested that imposing a financial-transactions tax in response to the 2007-2010 economic downturn would be "foolish revenge". [2] Page has instead lent lukewarm support to President Barack Obama's Financial Crisis Responsibility Fee. [2]
On December 8, 2009, criticism came from Burton G. Malkiel and George U. Sauter. Some empirical researchers have expressed concern that financial transaction taxes would in practice become entirely pass-through, ultimately increasing transaction costs for long-term investors, rather than merely creating distortions and reducing market efficiency. For instance, Princeton University Professor of Economics Burton G. Malkiel, author of classic finance book A Random Walk Down Wall Street and several publications on mutual fund performance, predicted that:
Wall Street" would not foot the bill for the presumed $150 billion [transactions] tax. In fact, the tax would simply be added to the cost of doing business, burdening all investors, including 401(k) plans, IRAs and mutual funds. [7]
Professor Malkiel argued that taxing speculators would reduce market efficiency, harming the economy:
Transactions taxes would make most current high-frequency trades unprofitable since they depend on the thinnest of profit margins. Trading volume would collapse, and there would be a dramatic shortfall in the tax dollars actually collected by the government. Market liquidity would decline, bid–offer spreads would widen, and all investors would pay significantly higher costs on their trades. [7]
On December 21, 2009, a financial industry representative, a managing partner at a New-York-based hedge fund and an author of a book on high-frequency trading, Irene Aldridge, argued that a financial transaction tax proposed in the US would lead to job losses in non-financial sectors of the economy through the so-called multiplier effect forwarding in a magnified form any taxes imposed on Wall Street employees through their reduced demand to their suppliers and supporting industries:
100 financial security jobs are estimated to support 27 to 37 jobs in the retail sector, 72 to 91 jobs in the business services sector (think staples and copy machines), 79 to 112 jobs in the services sector (like dentists, nurses and gas station operators), and 5 to 12 restaurant and pub workers. Even the smallest FTT that reduces transaction volume by as little as 10% will, according to Schwabish, result in the loss of over 30,000 jobs just in NYC. [8]
According to Irene Aldridge, there is also concern about the reduced return on investment for individuals, the higher spreads and volatility in the market, and possible increased banking fees, which will need to be increased in order for banks to cover the higher risk associated with holding stocks, all of which will have detrimental effects on the "main street". [8]
Another bill, which remains a proposal, was tabled by DeFazio on February 13, 2010. It is called "H.R.1068 - Let Wall Street Pay for Wall Street's Bailout Act of 2009."
Passive management is an investing strategy that tracks a market-weighted index or portfolio. Passive management is most common on the equity market, where index funds track a stock market index, but it is becoming more common in other investment types, including bonds, commodities and hedge funds.
A Tobin tax was originally defined as a tax on all spot conversions of one currency into another. It was suggested by James Tobin, an economist who won the Nobel Memorial Prize in Economic Sciences. Tobin's tax was originally intended to penalize short-term financial round-trip excursions into another currency. By the late 1990s, the term Tobin tax was being applied to all forms of short term transaction taxation, whether across currencies or not. The concept of the Tobin tax is being picked up by various tax proposals currently being discussed, amongst them the European Union Financial Transaction Tax as well as the Robin Hood tax.
In finance, speculation is the purchase of an asset with the hope that it will become more valuable shortly. It can also refer to short sales in which the speculator hopes for a decline in value.
Burton Gordon Malkiel is an American economist, financial executive, and writer most noted for his classic finance book A Random Walk Down Wall Street.
Peter Anthony DeFazio is an American politician who served as the U.S. representative for Oregon's 4th congressional district from 1987 to 2023. He is a member of the Democratic Party and is a founder of the Congressional Progressive Caucus. A native of Massachusetts and a veteran of the United States Air Force Reserve, he previously served as a county commissioner in Lane County, Oregon. On December 1, 2021, DeFazio announced he would not seek reelection in 2022.
The January effect is a hypothesis that there is a seasonal anomaly in the financial market where securities' prices increase in the month of January more than in any other month. This calendar effect would create an opportunity for investors to buy stocks for lower prices before January and sell them after their value increases. As with all calendar effects, if true, it would suggest that the market is not efficient, as market efficiency would suggest that this effect should disappear.
A collateralized debt obligation (CDO) is a type of structured asset-backed security (ABS). Originally developed as instruments for the corporate debt markets, after 2002 CDOs became vehicles for refinancing mortgage-backed securities (MBS). Like other private label securities backed by assets, a CDO can be thought of as a promise to pay investors in a prescribed sequence, based on the cash flow the CDO collects from the pool of bonds or other assets it owns. Distinctively, CDO credit risk is typically assessed based on a probability of default (PD) derived from ratings on those bonds or assets.
Active management is an approach to investing. In an actively managed portfolio of investments, the investor selects the investments that make up the portfolio. Active management is often compared to passive management or index investing.
Buy and hold, also called position trading, is an investment strategy whereby an investor buys financial assets or non-financial assets such as real estate, to hold them long term, with the goal of realizing price appreciation, despite volatility.
The Dogs of the Dow is an investment strategy popularized by Michael B. O'Higgins in a 1991 book and his Dogs of the Dow website.
The Emergency Economic Stabilization Act of 2008, also known as the "bank bailout of 2008" or the "Wall Street bailout", was a United States federal law enacted during the Great Recession, which created federal programs to "bail out" failing financial institutions and banks. The bill was proposed by Treasury Secretary Henry Paulson, passed by the 110th United States Congress, and was signed into law by President George W. Bush. It became law as part of Public Law 110-343 on October 3, 2008. It created the $700 billion Troubled Asset Relief Program (TARP), which utilized congressionally appropriated taxpayer funds to purchase toxic assets from failing banks. The funds were mostly redirected to inject capital into banks and other financial institutions while the Treasury continued to examine the usefulness of targeted asset purchases.
The Dodd–Frank Wall Street Reform and Consumer Protection Act, commonly referred to as Dodd–Frank, is a United States federal law that was enacted on July 21, 2010. The law overhauled financial regulation in the aftermath of the Great Recession, and it made changes affecting all federal financial regulatory agencies and almost every part of the nation's financial services industry.
A financial transaction tax (FTT) is a levy on a specific type of financial transaction for a particular purpose. The tax has been most commonly associated with the financial sector for transactions involving intangible property rather than real property. It is not usually considered to include consumption taxes paid by consumers.
A currency transaction tax is a tax placed on the use of currency for various types of transactions. The tax is associated with the financial sector and is a type of financial transaction tax, as opposed to a consumption tax paid by consumers, though the tax may be passed on by the financial institution to the customer.
A Spahn tax is a type of currency transaction tax that is meant to be used for the purpose of controlling exchange-rate volatility. This idea was proposed by Paul Bernd Spahn in 1995.
The Robin Hood tax is a package of financial transaction taxes (FTT) proposed by a campaigning group of civil society non-governmental organizations (NGOs). Campaigners have suggested the tax could be implemented globally, regionally, or unilaterally by individual nations.
A bank tax, or a bank levy, is a tax on banks which was discussed in the context of the financial crisis of 2007–08. The bank tax is levied on the capital at risk of financial institutions, excluding federally insured deposits, with the aim of discouraging banks from taking unnecessary risks. The bank tax is levied on a limited number of sophisticated taxpayers and is not especially difficult to understand. It can be used as a counterbalance to the various ways in which banks are currently subsidized by the tax system, such as the ability to subtract bad loan reserves, delay tax on interest received abroad, and buy other banks and use their losses to offset future income. In other words, the bank tax is a small reimbursement of taxpayer funds used to bail out major banks after the 2008 financial crisis, and it is carefully structured to target only certain institutions that are considered "too big to fail."
This article is a list of all notable reaction to James Tobin's 1972 proposal of what is now known as the Tobin tax.
The European Union financial transaction tax is a proposal made by the European Commission to introduce a financial transaction tax (FTT) within some of the member states of the European Union (EU).
The Mortgage Choice Act of 2013 is a bill that would direct the Consumer Financial Protection Bureau (CFPB) to amend its regulations related to qualified mortgages to reflect new exclusions made by this bill. The CFPB released new regulations regarding the definition of a Qualified Mortgage that took effect in January 2014, a definition that this bill would modify.
