So far, 2013 is proving to be a busy year for anyone trying to stay up-to-date on proposed changes to the tax code. One such change, the Wall Street Trading and Speculators Act (the “Act”) was introduced on February 28, 2013 by Senator Tom Harkin (D-IA) and Congressman Peter DeFazio (D-OR). The Act, which was introduced in the last session of Congress but did not make it out of committee, would impose a new tax of three-hundredths of a percent on certain “covered transactions.” This type of financial transaction tax is all the rage in Europe, where earlier this year a group of at least nine EU member states agreed to implement such a tax.17
The proposed tax is .03 percent (three “basis points”) of the fair market value of the security being traded and would apply to securities that are purchased or cleared on a United States facility or transactions with respect to derivatives that are traded or cleared on a United States facility or under which a United States person has rights. Although the tax is generally imposed on transactions with respect to stock, partnership interests, indebtedness and derivatives (including options, futures, forwards, or notional principal contracts), the tax would not apply to transactions with respect to the initial issuance of stock, partnership interests, or indebtedness. Additionally, short-term debt instruments (defined, for these purposes, as indebtedness with a fixed maturity of not more than 100 days), would not be taxed.
In general, the tax on transactions occurring or cleared on a United States facility must be paid by the facility, and otherwise by the broker executing the transaction. In all other cases, the tax must be paid by the purchaser (if the purchaser is a United States person) or the seller (if the purchaser is not a United States person).
The sponsors of the Act cite the need to raise revenues and the desire to curb certain trading behavior as arguments in favor of the bill. According to Congressman DeFazio, “This Wall Street Speculator Tax should be a no-brainer. It will raise significant revenue that we desperately need and reins in the excessive speculative activity that has destabilized our financial system. The only way we can meaningfully address our deficit is by taking a balanced approach that includes revenue raisers and smart, targeted cuts. This bill should be part of that balanced solution.” Senator Sheldon Whitehouse (D-RI) added, “This commonsense proposal will raise billions in new revenue to get rid of the sequester or reduce the deficit while also discouraging the kind of reckless high-volume trading that contributed to the financial crash in 2008.”
The Treasury department has been opposed to this legislation in the past, and Treasury Secretary Jack Lew has reiterated this opposition during questions by the House Ways and Means Committee. Said Lew, “I think the design element you’re describing is very problematic.”