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TAX TAKE: A "Perfect Storm" for Consideration of a Financial Transaction Tax?

Tax Alert

Congressional Democrats have long supported the enactment of a financial transaction tax (FTT) on stock and other securities transactions as a means of generating significant revenue to fund unrelated policy proposals, such as student loan forgiveness or healthcare reform, as well as to address economic inequality. According to opponents of the FTT, however, imposition of the tax would have negative economic effects on retail investors, retirement savings, and the financial markets. Despite these concerns, a "perfect storm" may be brewing in the current legislative environment such that an FTT receives serious consideration.

At a hearing of the House Committee on Financial Services on the recent "GameStop" controversy, a number of Members of Congress and hearing witnesses expressed support for an FTT as a mechanism to address market volatility caused by excessive speculative trading activity. Thus, current concerns regarding market volatility could potentially provide a timely policy justification for action on an FTT as a legislative solution. In addition, during the 2020 Presidential campaign, President Biden and Vice President Harris, as well as new Senate Budget Committee Chairman Bernie Sanders (I-VT) and new Senate Finance Committee member Elizabeth Warren (D-MA), endorsed enactment of an FTT. Although President Biden did not make a specific FTT proposal; Vice President Harris proposed an FTT on stock trades at 0.2 percent, on bond trades at 0.1 percent, and on derivative transactions at 0.002 percent; Senator Sanders proposed an FTT on stock trades at 0.5 percent, on bond trades at 0.1 percent, and on derivative transactions at 0.005 percent; and Senator Warren proposed an FTT of 0.1 percent on all stock trades, bond trades, and derivative transactions. The fact that each of these individuals is on record supporting an FTT and has now ascended to a more powerful role to influence tax policy may also contribute to serious consideration of an FTT in the near future. Finally, as the Biden Administration and Congressional Democrats seek to fund infrastructure and other spending priorities, an FTT could provide a significant source of revenue. For example, the Joint Committee on Taxation has estimated that the 0.1 percent FTT proposed by Senator Warren would raise $777 billion over 10 years, suggesting that the higher FTT proposals by Vice President Harris and Senator Sanders could raise significantly greater revenue to fund Democratic priorities.

It's unclear whether the factors described above – the current concern regarding market volatility, combined with established support of key policymakers and a need for significant revenue – will create a "perfect storm" for consideration (and potential enactment) of an FTT. Interested parties should prepare to defend against such legislative action, however, as it appears all signs point to the proposal potentially being "on the table" this year. #TaxTake

Upcoming Speaking Engagements and Events

On March 3, Jorge and Marc will present Floyd's Panel: Legislative Update, and on March 5, Loren will speak on the International Tax Policy - New Administration, New Direction? panel at the Federal Bar Association's 45th Annual Tax Law Conference.

In The News

Miller & Chevalier and the National Foreign Trade Council released the 15th Annual Tax Policy Forecast Survey today. Loren: "There will be heavy debate and substantial uncertainty for businesses as 2021 moves forward, and the corporate tax rate is clearly the big elephant in the room."



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