Financial Transactions Tax Would Cost Most People Little, Be Paid by the Wealthy, Discourage High-Frequency Trading

Most middle- and low-income families would pay little or nothing if Congress were to levy a 0.1% tax on stock market trades, according to a report Public Citizen released today. Instead, the proposed tax would raise $777 billion over a decade, likely end the unfair and systemically risky practice of high-frequency trading and be paid mainly by wealthy families, the report finds.

The report refutes a spate of misleading claims that the financial industry has made in recent months about a financial transactions tax, which are likely to be repeated at a Capitol Hill event on Monday afternoon sponsored by the U.S. Chamber of Commerce.

"A modest financial transactions tax would finance public investments, strangle the pernicious high-frequency trading industry and help tackle the growing economic inequality in society," said Susan Harley, deputy director of Public Citizen's Congress Watch division. "Because it would apply primarily to those with substantial financial holdings, the tax mostly would steer clear of the middle class, while it would surgically target resources being tied up by the wealthiest Americans to be repurposed for better uses."

Here are some of the report's key findings:

• Only about half of all families in the U.S. would experience any costs at all under a financial transactions tax, because only about half of all families own retirement accounts or nonretirement securities;
• A financial transactions tax likely would save families money by encouraging mutual funds to trade stocks less frequently, cutting overhead and eliminating other transaction costs. These factors might completely offset the costs from a financial transactions tax or even save consumers money overall;
• A 0.1% financial transactions tax would be progressive. Among families who invest in stocks and own retirement accounts, the average family:
  • In the bottom 20%, with a median annual income of around $15,000, would experience costs of about $4 a year;
  • In the middle-class, with a median annual income of around $53,000, would experience costs of about $13 a year; and
  • In the top 10%, with a median annual income of $260,000, would experience costs of about $155 a year relating to their retirement accounts while many would owe additional taxes for trading in nonretirement securities.
• The tax would strongly discourage high-frequency trading, which involves buying and selling securities in intervals of milliseconds based on computer algorithms. High-frequency trading is estimated to account for more than half of all stock trades and was blamed in part for the 2010 "flash crash," in which the Dow Jones Industrial Average lost about 10% of its value in 10 minutes.

The financial transactions tax studied in the report is nearly identical to the one proposed in The Wall Street Tax Act, introduced by U.S. Sen. Brian Schatz (D-Hawaii) and U.S. Rep. Peter DeFazio (D-Ore.), which would tax the sale of most stocks, bonds and derivatives at 0.1% percent. Congress' Joint Committee on Taxation evaluated a similar proposal in 2018 that the committee estimated would raise $777 billion over a decade.

"Our nation is grappling with health care and climate crises, and Congress should be tapping Wall Street speculators and high rollers to help meet our needs," said Harley. "Eleven years ago, Wall Street crashed our economy. A financial transactions tax is a clear way for the financial industry to begin repaying the debt it owes to society."