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April 30, 1999

Hearings on Transaction-Fee Tax

By William Hoffman

Congress may hold hearings later this spring to discuss capping 31(a) transaction fees that fund the Securities and Exchange Commission.

"This is a tax on investment and a tax on capital," said Craig Donner, spokesman for Rep. Vito Fossella (R-N.Y.), who is sponsoring legislation (H.R. 1256) to cap transaction fees at least through 2006. "It's not helpful to the economy. It doesn't encourage [the public] to invest and save."

Fossella's bill, The Savings and Investment Relief Act of 1999, introduced on March 24, had been assigned to a House subcommittee for consideration. The bill was co-sponsored by Rep. Robert Menendez (D-N.J.).

At press time, Donner said hearing dates had not been set yet.

The 31(a) transaction fees, currently collected at the rate of 1/300th of one percent on each New York Stock Exchange and Nasdaq stock transaction, have been controversial since the mid-1980s, when fee collections started to accumulate in excess of their stated purpose - funding the SEC.

Attorney Ian S. Thompson, whose law firm, William & Jensen, acts as Washington lobbyist for the Security Traders Association, said the desire for relief stems from traders' understanding that 31(a) fees were intended to be user fees.

The fees were designed to be collected specifically to fund the SEC, and not as a tax to be spent by the federal government's general fund, Thompson said.

Yet that's what's been happening for at least a decade, he added. Total SEC fee collections topped $1.76 billion in fiscal 1998, he noted, compared to an SEC budget of about $330 million.

"Just from a public-policy perspective, it doesn't seem to make sense to have a user fee bringing in five-and-a-half times the amount of money necessary to run the SEC," Thompson said.

Fossella's proposal would cap how much the SEC collects in fees by setting aggregate collection amounts that the commission would need congressional approval to exceed.

The limit would be set at $463 million in fiscal 2000, and rise gradually to $889 million by fiscal 2006. Some of the funds would be deposited in a general fund, and would not be automatically appropriated by the SEC.

At least one other fee-relief measure is planned. Rep. Rick Lazio (R-N.Y.) plans to introduce legislation that would reduce the percentage on which fees are calculated for collection.

At press time, a spokesperson for Lazio's office said details of the proposal were still being finalized.

"What we're looking for is meaningful and timely relief," Thompson, the STA lobbyist, said. "We're not wedded to a particular approach."

A rate cap is better than a rate cut, SEC Chairman Arthur Levitt told the Senate Banking Committee in March.