GOP lawmakers are pushing legislation that would bar states from imposing financial transaction taxes on stock exchanges and broker/dealers.
As states continue to grapple with the financial fallout of the COVID-19 pandemic, legislators around the country have begun to consider taxing financial trades that are processed or executed within their state's borders as a way of generating new income.
In New York, State Sen. James Sanders Jr., a Democrat from Queens, has advocated for the state to begin collecting on its long-dormant stock transfer tax. New Jersey Democrats were pushing for a financial transaction tax in the fall of 2020, as the Garden State is home to the main data centers where U.S. equity trades are executed. And in Illinois, progressive lawmakers called for a LaSalle Street tax.
But both Democrats and Republicans have been hesitant to enact the taxes, which some academics say would end up hitting retail investors rather than the financial industry. Critics have also pointed to the legal difficulty of taxing trades that may originate in one state but be executed in another.
Reps. Patrick McHenry of North Carolina and Bill Huizenga of Michigan are now aiming to address such state-level issues in Congress. The two Republicans reintroduced a bill on March 3 that would block states from enacting financial transaction taxes on stock exchanges and broker/dealers, as they would end up being "paid by out-of-state investors when the FTT is passed onto them," according to a press release.
McHenry and Huizenga introduced the legislation during the last Congress in October 2020, according to congressional records.
"These FTTs would penalize Americans saving for retirement, their first home, or their child's education, all at a time when they can least afford it," said McHenry, who is the ranking member on the House Financial Services Committee, in a statement. "As we come out of the COVID-19 crisis, we should be expanding everyday investors' access to our markets, not holding them back from investing in their future."
The U.S. already has a small transaction tax on trading that helps fund the Securities and Exchange Commission.
Financial transaction tax proposals are no stranger to Capitol Hill and have found little success there, but their proponents continue to champion the idea. Rep. Rashida Tlaib recently pressed for a tax on trading in a hearing to discuss the meme stock craze. The Michigan Democrat said a tax of just 0.1% would help raise almost $800 billion over a decade while also discouraging "risky and unfair high-frequency trading."
"Let's not gaslight the American people — you all would be fine with the tax, and it's fair," Tlaib said at the hearing.
When the New Jersey proposal began to gain steam in 2020, Wall Street revved up its fight against the state-level tax.
About a dozen of the largest financial institutions including the Intercontinental Exchange Inc.-owned New York Stock Exchange, Citadel Securities Americas LLC and TD Ameritrade Holding Corp. banded together at the time to create the Coalition to Prevent the Taxing of Retirement Savings. The group threatened to move data center operations out of New Jersey in protest of the tax, which has since lost momentum.
In February, NYSE President Stacey Cunningham and Virtu Financial Inc. CEO Doug Cifu re-upped those threats as a result of the proposed New York stock transfer tax, though.
"The NYSE understands what COVID-19 has done to New York," Cunningham wrote in an op-ed published by The Wall Street Journal. "We all want the city and state to emerge from the pandemic stronger than ever. That's why we oppose the return of the stock-transfer tax. The last thing we want to do is leave a place we love, especially because of a flawed policy."