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Transaction Tax Gets Boost from Gillibrand

Traders Magazine Online News, July 9, 2018

John D'Antona Jr.

If some in Congress can get their way, stock investors will pay a tax on their executions.

In an article that first appeared in the New York Post, Sen. Kirsten Gillibrand now favors a new charge on Wall Street and investors that could cost billions. The Securities Transaction Tax (STT) is also backed by Sen. Bernie Sanders.

Here’s a link to the tax bill in the Senate, introduced by Bernie Sanders, S.805.  

The tax, which has been proposed and defeated several times, has been called a progressive measure. Advocates say the tax is a good idea because it is relatively small and could be spread across a broad investor base, the Post noted.

Also known colloquially as the “Robin Hood tax,” this measure if passed into law would add 0.5 of a percent to every securities trade, she said that “the greatest risk we have to our democracy now is income inequality.”

The tax on equities is Section 4475(b)(1). 

Also the tax on bonds is 0.10%, and futures/derivatives is 0.005%.

This equates to $500 on a $10,000 order that investors may place directly, the big fund managers that manage our 401(k)s or pensions trade in much larger sizes than that — and those costs can add up quickly.

Put another way, the average price of an S&P 500 stock is $80.00 which equates to tax approximately of $0.40/share! That compares to transaction fees that are only $0.003/share or less.

Gillibrand, in a prepared statement said the tax would help the economy grow. It is an idea, she added, “that has worked in other countries.”

One market veteran told Traders Magazine that this tax would hurt everyone - including the people Gillibrand is trying to help - smalller investors.

"The insidious part is that brokers will have no choice but to pass the tax on to their customers, such as pension funds, and it will end up hurting the people that Gilibrand hopes will vote for her.," the veteran said. "Raiding the pensions of retired firefighters, cops and nurses is bad public policy and she’ll hopefully realize that."

Gillibrand contends the STT “is one example of how Congress can ensure that we reward companies that reward work, not hedge funds using high-frequency trading.”

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