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Editorial

Financial transaction tax will hurt funds

Given the amount of debt the federal government has accumulated, more than $22 trillion, and the unwillingness of Congress to balance the federal budget, new revenues are certain to be needed in the near future.

Many of the announced Democratic candidates for the 2020 presidential election have proposed tax increases to boost revenues and to promote economic equity. Some have proposed higher top rates for the income tax. Sen. Elizabeth Warren has proposed a tax on the wealth of the very rich. Sen. Corey Booker has proposed higher estate taxes and a higher capital gains tax.

Early in March, Democrats in the Senate and the House introduced measures aimed at imposing a 0.1% tax on securities transactions, and the measure has a dozen co-sponsors. At first glance, this tax would appear unlikely to raise much resistance from the average taxpayer because it would seem to hit only Wall Street and wealthy investors, and therefore is likely to be popular with politicians, especially as it could raise significant amounts of money.

Unfortunately, it would have a negative effect of retirement savings because it would hit the transactions in pension funds and defined contribution plans unless they were specifically exempted from the tax. Pension fund managers and mutual fund companies would no doubt pass on the securities transactions tax to the clients, slowing the rate of growth of the assets, and this information should be passed on to the millions of defined contribution plan participants.

A financial transactions tax has been proposed in Congress previously, most recently 2016, and has gone nowhere, but its time may be coming. At least 40 other countries have some version of such a tax.

No doubt the financial services industry will resist the imposition of such a tax, but it is likely to be one of the favorite sources of new revenue when the Democrats next gain control of the White House and Congress.