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FTT: This Time It's Different. Or Is It?
Traders Magazine Online News, February 25, 2019
As the field of 2020 Presidential candidates unfolds, it is becoming evident that a financial transaction tax (FTT) will be presented as a progressive means of raising funds for government programs. This will not be the first time our industry has faced this issue, and while details have yet to unfold, a proposed FTT will most likely espouse the perceived attributes of past versions. Mainly, that its low rate and broad based design raises reliable revenue while curbing behavior deemed threatening to our markets perpetuated primarily by proprietary trading firms. In the end, an FTT is a tax on capital and the savings of individual investors that causes rippling effects detrimental to our nation’s GDP.
While the arguments for opposing FTTs still exist, the conditions and environment under which they will be presented this election cycle are different enough to cause concern.
Infrastructure Builds vs. Social Programs
In previous versions of FTTs, the expected revenues were to be used towards social programs. For many congressional members and voters, the idea of a new tax that would be used towards free college and healthcare were admirable but non-starters. As such, debate on the practicality of an FTT was limited.
This time however, an FTT will be discussed as Congress begins debate on President Trump’s February 2019 infrastructure build report, Legislative Outline for Rebuilding Infrastructure in America. Infrastructure spending is an issue where both parties can find agreement. While the funding mechanism in Trump's plan is a combination of federal, state and private funds, it begins with an incentive program of federal grants. How these federal grants are funded is not mentioned in the report.
It is also worth highlighting that infrastructure builds have clear winners. Beneficiaries of past FTTs were to be industries such as universities and healthcare providers who were already receiving income from the private sector for their services. These entities did not view the government getting in the middle as resulting in incremental revenues and thus did not support the tax. An infrastructure bill would result in incremental revenues to contracting and manufacturing firms that would view an FTT as a means to an end.
Usual Suspects
For congressional members with ‘no new taxes’ platforms, justifying a new tax to their constituents is difficult. Unless, the entity or group being taxed is unpopular. FTTs have always been presented under the misguidance as a tax on Wall Street. Since its inception, Wall Street has gone through periods of unpopularity.
However, recently there’s been a series of events that have contributed to our market structure being viewed as more unpopular than usual. Whether it’s a government official blaming today's market structure for the extreme volatility we experienced at year end, or a whitepaper sponsored by the Department of Defense claiming investors receive inferior executions, our industry is going through a fresh assault.
Meaningful Figures & Behavior
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