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Industry voices

Pension funds cannot afford Sanders’ tax on financial transactions

Institutional investors continue to navigate a challenging landscape marked by geopolitical risks, low yields and sizable long-term obligations. Now, coming from Sen. Bernie Sanders, I-Vt., is another challenge posed by the so-called financial transaction tax included in the Inclusive Prosperity Act of 2017.

Mr. Sanders continues to mistakenly point to a FTT as a way of ensuring Wall Street "pays its fair share" toward low-cost colleges, accessible health care and increased regulatory budgets. But despite his belief that the FTT is a silver bullet, the reality is that any tax on institutions trading large volumes of securities would dramatically harm public and private pension funds that represent the interests of millions of American workers.

Instead of becoming a way to collect a pound of flesh from Wall Street, the tax on trades ultimately would become an additional tax on savings for anyone participating in a pension plan or similar fund. They would pay the tax directly, and market intermediaries would need to charge more to pass the additional cost through to investors. We might as well consider it a one-two punch.

The Modern Markets Initiative's study of the potential impact on pension plans suggests there could be startling costs. New York City and California employee pension funds would owe more than $1 billion and $500 million, respectively, in yearly FTT fees. The federal Thrift Savings Plan would be hit with $250 million in annual fees, while a hypothetical local public pension fund portfolio with $2 billion in assets would be on the hook for an additional $4 million in an average year.

As the numbers suggest, the real-world impact on pension funds and — in turn — individuals would be substantial. That is why institutions and individuals alike should take exception with the way Mr. Sanders is continuing to promote the FTT as a symbol of his solidarity with the middle class.

The goals of establishing affordable college, increasing access to health care and improving regulatory oversight are all commendable. However, the senator's road to getting there — one paved by a new tax on current and future retirees — is an impassible one.

Perhaps it is easy to overlook that America's public pension plans currently invest more than $3.2 trillion in the economy through stocks, bonds, alternative assets and other securities. These funds put capital to work across markets, effectively helping companies grow, creating jobs, and contributing more than $137 billion in tax revenue to state and local governments. Moreover, they are the backbone of retirement security for countless educators, firefighters, police officers and public workers.

When recipients of public pension benefits agree to work for a school system or another government body at a below-market salary, while often putting their personal safety on the line, we as a society enter into a social contract that we will take care of them when they retire. Hitting up their pension funds like an ATM machine equates to breaking the contract.

It is time for constituents of Mr. Sanders to realize all of this. In what is a twist of irony, his proposed FTT is a threat to the very constituency he has spent a lifetime serving. The senator should know better than anyone that we cannot fund universities and pay for better health care on the backs of institutional investors that are managing money on behalf of folks on Main Street.

And if policymakers like him and Sen. Elizabeth Warren, D-Mass., really want to curtail excesses on Wall Street, they can start by working to increase funding for the Securities and Exchange Commission and the Commodity Futures Trading Commission. There is growing bipartisan consensus that both agencies require modernization of their funding if they are to hire more staff, bolster technology and become the toughest cops on the enforcement beat.

Congress needs to — and can — find a way to balance effective Wall Street oversight and support for the middle class without piling on to existing challenges with a new tax on pension plans. There is still enough time between now and the 2020 election cycle for sound policy to preside over politics in the pursuit of this solution.

Kirsten Wegner is CEO of the Modern Markets Initiative, an advocacy group representing the interests of financial technology companies. This content represents the views of the author. It was submitted and edited under P&I guidelines but is not a product of P&I’s editorial team.