Trader Tax proposal in Congress


In case you have heard about this yet, there is a proposal in Congress to introduce what’s being called the “Trader Tax”. It is H.R. 1068 introduced in the House of Representatives on February 13th under the name “Let Wall Street Pay for Wall Street’s Bailout Act of 2009″, with the subtitle “To amend the Internal Revenue Code of 1986 to impose a tax on certain securities transactions to the extent required to recoup the net cost of the Troubled Asset Relief Program”.

You can see the full text of the bill here: http://www.opencongress.org/bill/111-h1068/text

Basically, the idea is the taxes the securities industry to raise revenue to fund the TARP. It would mean a charge of up to 0.25% of the value of each transaction done. That charge would be paid by “the trading facility on which the transaction occurs”. I take that to mean the exchange, which of course would then get passed on to those doing the transaction. It covers all securities under the auspices of the SEC or CFTC.

From my perspective, this is a horrible idea. It would crush the U.S. securities markets. There would be a flood into offshore markets. I’m sure the European bourses would love it. There would also be a shift to OTC markets, and potentially more derivative development. In other words, they would force the development of things which they have been arguing againts for months now – unregulated markets.

That’s not even considering the impact on the trading/investing performance of individual and institutaional players – like pension funds, mutual funds, and all that stuff in people’s 401k and IRA plans.

Oh, and this bill would directly lower the capital gains tax base.

The sponsors of this bill clearly haven’t given sufficient thought to this plan.

There is an online petition to sign to voice your displeasure.

Note: A Trader Tax is in another bill, HR 676 (health care). See the comment from Mark below.

Further Update: Brian Shannon has a post on his blog which contains an indication from Barney Frank (Chair of the House Financial Services committee) that H.R. 1068 is off the table for this presidential cycle.

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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
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Read more on Taxes, 2008 Financial Crisis at Wikinvest

  • Mark Ierardo

    The following was posted on another blog this am (www.slopeofhope.com)

    The “Trader Tax” is also in HR 676 which is one of those must pass bills

    Watch the following bill HR 676 where it is also introduced in Section 211.

    It’s in 2 places now!!!

    H.R.676
    United States National Health Care Act or the Expanded and Improved Medicare for All Act (Introduced in House)

    ——————————————————————————–

    SEC. 211 . OVERVIEW: FUNDING THE USNHC PROGRAM.

    (a) In General- The USNHC Program is to be funded as provided in subsection (c)(1).

    (b) USNHC Trust Fund- There shall be established a USNHC Trust Fund in which funds provided under this section are deposited and from which expenditures under this Act are made.

    (c) Funding-

    (1) IN GENERAL- There are appropriated to the USNHC Trust Fund amounts sufficient to carry out this Act from the following sources:

    (A) Existing sources of Federal Government revenues for health care.

    (B) Increasing personal income taxes on the top 5 percent income earners.

    (C) Instituting a modest and progressive excise tax on payroll and self-employment income.

    (D) Instituting a small tax on stock and bond transactions.

  • Jim

    Hello Mark,

    I have two questions regarding the proposed “Trader-Tax” HR 1068, which I cannot seem to find answers to.

    My questions specifically pertain to how this proposed tax might apply to an individual who trades open-ended mutual funds:

    1. “Would an individual who daily trades open-ended mutual funds (such as Rydex, Profunds, or Direxion — shares priced at 4pm daily) be subjected to this proposed tax? And if so, what minimum holding period would be required to avoid this proposed tax.”

    2. “Would trading open-ended mutual funds in a tax deferred account (IRA, 401k, or Variable Annuity) be subjected to, or exempt from, the proposed trader tax? (i.e. funds cannot be withdrawn from such tax-deferred accounts until age 59 1/2).”

    Also, in general, I would appreciate your opinion on whether this proposed Trader-Tax HR 1068 legislation is likely to pass.

    Thanks very much. Jim

    • http://www.theessentialsoftrading.com John

      Jim – Since open-ended mutual funds are not exchange traded securities, the tax would not directly impact an individual trading them. It would, however, have an indirect impact as the mutual fund itself would have to pay the taxes on each transaction it makes. That is how I understand the proposal anyway.

  • Jim

    Thanks very mcuh for the reply John. I suspect you are correct in your
    interpretation,….as I have heard this line of thinking from others. Thanks
    again.

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