I know these diaries upset some people. For some reason, looking at what Senator Sanders has actually submitted as legislation is seen as some sort of attack, because what we’re supposed to look at is “the vision.” If that’s how you roll, don’t bother to read on. Personally, I think looking at what somebody has actually proposed makes sense. If you agree, let’s go.
On May 19, 2015, after entering the race for the Presidency, Senator Sanders introduced, with a lone co-sponsor, the “Inclusive Prosperity Act of 2015.” The purpose of the Act was:
To impose a tax on certain trading transactions to invest in our families and communities, improve our infrastructure and our environment, strengthen our financial security, expand opportunity and reduce market volatility.
So, what does it do?
(a) Imposition Of Tax.—There is hereby imposed a tax on the transfer of ownership in each covered transaction with respect to any security.
Okay, that’s the nut of it. There is a transaction tax. But how much, and on what?
Rate Of Tax.—The tax imposed under subsection (a) with respect to any covered transaction shall be the applicable percentage of the specified base amount with respect to such covered transaction. The applicable percentage shall be—
“(1) 0.5 percent in the case of a security described in subparagraph (A) or (B) of subsection (e)(1),
“(2) 0.10 percent in the case of a security described in subparagraph (C) of subsection (e)(1), and
“(3) 0.005 percent in the case of a security described in subparagraph (D), (E), or (F) of subsection (e)(1).
Alrighty, we know how much. This is interesting. First, the tax is on the entire value, not the “gain,” like the capital gains tax. Second, the tax is as high as ½ a percent, which is actually pretty high as far as transaction taxes go. Just for comparison’s sake:
Belgium
A 0.07% tax (subject to a maximum of €500 per transaction) is charged for distributing shares of investment companies, certificates of contractual investment funds, bonds of the Belgian public debt or the public debt of foreign states, nominative or bearer bonds, certificates of bonds, etc.
A 0.5% tax (subject to a maximum of €750 per transaction) is charged for accumulating shares of investment companies
0.17% (subject to a maximum of €500 per transaction) for any other securities (such as shares)
Colombia
financial transaction tax of 0.2%, covering all financial transactions
Finland
Finland imposes a tax of 1.6% on the transfer of certain Finnish securities, mainly equities such as bonds, debt securities and derivatives. However, there are several exceptions. E.g. no transfer tax is payable if the equities in question are subject to trading on a qualifying market.
France
The FTT levies a 0.2 percent tax on stock purchases of French publicly traded companies with a market value over €1 billion. The scheme does not include debt securities, except convertible and exchangeable bonds, which are included but benefit from a dedicated exemption to the FTT.
India
financial transaction taxes of up to 0.125% payable on the value of taxable securities transaction made through a recognized national stock exchange. The securities transaction tax (STT) is not applicable on off-market transactions.
Italy
financial transaction tax on qualified equity transactions of up to 0.2%, on the net balance of purchase and sale transactions executed same day on the same financial instrument by the same person/entity.
It’s applicable to shares issued by Italian resident companies with a capitalization equal or higher than EURO500 million, cash equity contract, equity derivatives contracts, and high frequency trading of cash equity contracts and equity derivatives contracts.
Peru
0.1% general financial transaction tax on all foreign currency denominated incoming wire transfers
Poland
1% Civil Law Activities Tax (CLAT) on the sale or exchange of property rights, which includes securities and derivatives. All transactions on a stock market, Polish treasury bonds and Polish treasury bills, bills issued by the National Bank and some other specified securities are exempted from the tax.
Singapore
0.2% stamp duty payable on all instruments that give effect to transactions in stocks and shares. Share transactions carried out on the Singapore Exchange via the scripless settlement system do not attract duty.
Switzerland
levied on the transfer of domestic or foreign securities such as bonds and shares, where one of the parties or intermediaries is a Swiss security broker. 0.15% for domestic securities and 0.3% for foreign securities.
Taiwan
0.3% for share certificates issued by companies and 0.1% for corporate bonds or any securities offered to the public which have been duly approved by the government
UK
0.5% on share purchases, but securities issued by companies overseas are not taxed and over 70% of transactions are exempt from tax.
If somebody knows of an active tax of 0.5% on all stock transactions, anywhere in the world, please add it to the comments and I’ll update. The bottom line seems to be that Sanders is proposing the largest transaction tax anywhere, with no cap (see Belgium), no limits on company size (see France and Italy), and no consideration of where the company or person is based (see UK, Poland).
Okay, back to the Act.
Covered Transaction.—For purposes of this section, the term ‘covered transaction’ means—
“(1) except as provided in paragraph (2), any purchase if—
“(A) such purchase occurs or is cleared on a facility located in the United States, or
“(B) the purchaser or seller is a United States person, and
“(2) any transaction with respect to a security described in subparagraph (D), (E), or (F) of subsection (e)(1), if—
“(A) such security is traded or cleared on a facility located in the United States, or
“(B) any party with rights under such security is a United States person.
So there aren’t exceptions like the laws we see above. If it happened in the US, if a buyer was in the US, if the seller is in the US, or if it’s traded in the US, there’s a tax.
Okay, so what gets taxed, and at what rate?
Here are the 0.5% instruments:
(A) any share of stock in a corporation,
(B) any partnership or beneficial ownership interest in a partnership or trust,
So, stocks and ownership interests are taxed at 0.5%. That doesn’t just mean fat cats trading Berkshire Hathaway, either. It includes all the transactions you don’t even think about that are going on in your little mutual fund investment. That’s what mutual funds do — they make trades to maintain a certain balance depending upon their focus. All those trades, things you don’t usually see unless they generate capital gains, are going to get hit with a 0.5% tax. Little bit by little bit, that will be quite a lot of it.
You know what else is included? Partnership ownership. That might sound pretty good to you, since you’re not a Koch brother, but what about the little gift shop around the corner, you know, Sally & Tom Gifts? When Tom wants to retire and sell his half of the business to Tom Jr., the transaction gets taxed. Tom pays capital gains, and Tom Jr. pays the transaction tax.
What gets the 0.1% treatment?
(C) any note, bond, debenture, or other evidence of indebtedness, other than a State or local bond the interest of which is excluded from gross income under section 103(a),
What’s that? Well, the big ones are home mortgages and car loans. Those get sold several times during the life of the note, and those costs are going to get included in the cost to buy a house or a car. Do you know who takes out loans for houses and cars? Not the uber-wealthy, who can pay for either out of petty cash.
What pays just 0.005%?
(D) any evidence of an interest in, or a derivative financial instrument with respect to, any security or securities described in subparagraph (A), (B), or (C),
“(E) any derivative financial instrument with respect to any currency or commodity including notional principal contracts, and
“(F) any other derivative financial instrument any payment with respect to which is calculated by reference to any specified index.
Are there exceptions? Of course. There are always exception.
EXCEPTION FOR INITIAL ISSUES.—No tax shall be imposed under subsection (a) on any covered transaction with respect to the initial issuance of any security described in subparagraph (A), (B), or (C) of subsection (e)(1).
IPOs are not included. Why? I guess because the thought is a transaction tax will burden an IPO and make it less attractive, and IPOs generate money for a company, rather than for stockholders. That must be “good” money, rather than “bad” money, so it’s okay. Who gets a piece of IPOs? Again, not the little guy. The people who get a shot at a hundred shares of NextBigThing.Com are the people with large active trading accounts with the company rolling out the IPO. That’s how these things work. You don’t have a big account? Okay, just buy 1,000 shares of freezedriedoysters.com and we’ll let you buy one share of NextBigThing.Com. (and yes, freezedriedoysters.com was a real thing once).
There are tax credits to offset these payments. Here they are:
In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the tax paid during the taxable year under section 4475.
Huh? What’s that? Well, it’s the EXACT SAME TAX Sanders proposed in his College for All Act. You see, the plan isn’t just to tax transactions 0.5%. The plan is to tax transaction 0.5% for individuals, and 1.0% for companies, corporations, partnerships, etc. That’s a big bit of tax folks, by far the largest anywhere, as far as I can tell (again, if there’s one I’m missing let me know and I’ll be happy to update).
Also, it only applies if your a top 1% of the top 1%, you know, the folks making more than $50,000/year. Yup. $50,000 per year. But I have a confession to make. That’s not really the top 1% of the top 1%. To get into the top 1% you need to make about 10X that, and to be in the top 1% of the top 1% you need to start using “to the power” type numbers.
Summary
So what is Sanders’ actual legislative proposal? It’s an 0.5% tax on all stock and ownership transactions, to be paid once by all individuals (and twice by businesses) making more than $50K/year (or $75K/year if married and filing jointly). In other words, it’s not a tax on Wall Street fat cats, or even on the 1%. It’s a tax on the 50%.
Is this a good thing or a bad thing? Personally, I think it’s too high and too broad. I also didn’t see an exception for money held in retirement accounts, and there it could be absolutely devastating.
Yes, I know this is the “first ask,” the original negotiating position, and it could get better. But right now, it’s what we’ve got, and is worth actually reading.
Comments, additions, and corrections welcome.