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March 1, 2000

Washington Viewpoint - Give Investors a Break

By Rep. Vito Fossella

The tempo on Wall Street has accelerated in recent years. The markets have soared to record heights, producing an explosion in wealth, opportunity and prosperity never before seen in our nation's history.

But it's not only the American people who are experiencing the good times. A series of user and transaction fees imposed on investors in the 1930s has emerged as an economic boon for the federal government as well.

One of the fees collected by the Securities and Exchange Commission, authorized under Section 31 of the Securities Exchange Act of '34, is levied on investors every time they sell a position. It was intended to generate only enough revenue to fund the annual operating budget of the SEC. This year Section 31 fees are expected to raise $622 million, or $159 million more than the regulatory agency's budget of $463 million. In 1998, Section 31 and other fees totaled $1.7 billion, or roughly 550 percent more than was needed.

Unrelenting Tax

Section 31 fees have grown into a massive and unrelenting tax on investors and capital. The fees hinder productivity, limit investment, reduce the efficiency of the markets and restrain economic growth. As Spear, Leeds & Kellogg's Andrew Cader told the House Finance subcommittee in 1998, "[The fees] are creating a near-billion dollar drag on the capital markets. That drag represents a cost paid by investors, including the huge numbers of individually small participants in mutual funds, pension plans and other forms of retirement accounts." And because virtually all the revenue is diverted to the Treasury, it opens the door to more government spending and less freedom and opportunity for the American people.

The fees are particularly onerous on investors who sell a stock or mutual fund for a loss. They are still required to ante up their share to the SEC.

Reducing Section 31 fees will increase the amount of capital available for investment, which will improve the efficiency of our markets. Ultimately, it will spur increased economic growth across America.

Overtaxed Americans

While there is no debate that we must maintain full funding of the SEC, we must not continue to overtax the American people. That is why I introduced legislation, The Savings and Investment Relief Act of 1999 (H.R. 1256), that places a cap on the amount of revenue the SEC can collect through Section 31 fees.

The bill, which enjoys bipartisan support among 55 members of Congress, as well as organizations like the United States Chamber of Commerce and Americans for Tax Reform, limits the amount of revenue the SEC can collect in any given year. But it includes provisions to remove the cap if future revenues fail to cover the SEC's budget.

Even SEC Chairman Arthur Levitt acknowledged the need to address the issue, telling the House Finance subcommittee last year that the cap is "the most reasonable" option and that it "appears to be the most likely one to produce a consensus."

Consensus Apparent

There also appears to be a growing consensus in Congress to take action. Another House bill introduced last year takes an alternative approach, seeking to reduce the tax rate for Section 31 fees. A compromise bill, incorporating both a cap and a rate cut, paves the way for Congress to pass legislation returning money to the people.

Congress last attempted to remedy the situation in 1996 under the National Securities Markets Improvement Act. That sought to reduce the amount of revenue collected from Section 31 fees and it established a funding plan for the SEC. Since then, however, the unexpected surge in market activity has again swelled collections and prompted Congress to readdress the matter.

The positive reception for the bills indicates that they strike the right balance, fully funding the SEC while allowing families to keep more of their money to save for college, open a small business or invest for the future.

Most important, the bills would reduce the cost of investing, minimize the tax on capital and increase the efficiency of our capital markets, allowing them to remain the envy of the world.

Vito Fossella is a Republican Congressman in the 13th District in New York.