Pension and financial industry executives are fighting a legislative proposal that could force all investors — including pension funds — to start paying taxes on trades of stocks, commodities and other financial products.
Proponents contend the new tax is critically needed to help slash the nation's soaring budget deficit — and to put a damper on the same sort of frenzied speculative trading by hedge funds and others that many analysts believe contributed to the nation's financial meltdown.
But pension and financial industry executives charge that the proposed tax would unfairly hammer investment returns and would drive U.S. investors overseas to exchanges where they could avoid the tax.
“A stock transaction tax would increase costs for American investors, increase the cost of capital for American companies, and drive activity offshore from America's transparent, well-regulated exchanges,” said Ray Pellecchia, a spokesman for NYSE Euronext, New York.
“You discourage what you tax,” added Judy Schub, managing director of the Committee on the Investment of Employee Benefit Assets, Bethesda, Md. “Do we really want to discourage investment activity?”
Still, proponents of the tax insist that pension industry concerns about the proposal are misplaced.
“This (the proposed tax) is going to hit the short-term speculators,” said Dan Pedrotty, director of the office of investment, AFL-CIO, Washington, which supports the proposed tax. “Pension funds should be in this (investment) for the long term,” Mr. Pedrotty added.
Among the key public policy groups in Washington that have endorsed the proposal is the left-leaning Economic Policy Institute.
In testimony Oct. 8 before the House Ways and Means Subcommittee on Income Security and Family Support, Lawrence Mishel, EPI president, asked lawmakers to adopt a permanent tax that would apply to all financial transactions, including stocks, bonds and derivatives.
Mr. Mishel said a tax levied at the rate of anywhere from 10 basis points to 25 basis points per financial transaction could raise $150 billion a year for the U.S. Treasury.
“The finance sector not only caused the recession and the need to generate jobs, but it has also helped to drive up the deficit because of the costs of the financial bailout, some of which will not be repaid,” Mr. Mishel testified.
“A financial transaction tax seems an entirely sensible vehicle to provide the revenues we need to support federal spending and for offsetting the costs of a current jobs package,” Mr. Mishel added.