How a Bernie Sanders Proposed Tax Would Screw Small Investors and Also Raise Mortgage Rates
Bernie Sanders has long supported the George Soros promoted financial transaction tax (also known as the Tobin tax). He calls it a “tax on Wall Street speculation.” That’s deceiving.
Fred Hatfield, a Democratic member of the Commodity Futures Trading Commission, 2004-07, warns in a new Wall Street Journal op-ed:
The economic case against the tax is persuasive, too. According to a study of Mr. Sanders’s proposed FTT by Georgetown economist James Angel, the tax could reduce retirement savings by as much as 8.5% over a typical worker’s lifetime. These significant losses for ordinary investors may be one reason why the Obama administration’s economic team, which considered proposing its own FTT, ultimately decided against it…
There’s a more immediate irony for Democratic presidential candidates who support the FTT: The tax would be bad for farmers, whose support is critical in the Feb. 3 Iowa caucuses. Iowa is the nation’s leading producer of corn and the second-largest producer of soybeans (after Illinois). Farmers manage risk by entering into futures contracts, a type of derivative. Under Mr. Sanders’s proposal, trades of corn and soybeans futures would be taxed at a rate of 0.5 basis point.
Just think of the tax as another way that technocrats (both Joseph Stiglitz and Paul Krugman support the tax) have come up with a sneaky way to drain capital from the economy at the cost of the middle class.
They promote it as a tiny tax on transactions, that it is just pennies on Wall Street traders, but no technocrat or politician would spend their time on a tax that was minor.
“This tax will be felt by investors in pension plans, mutual funds, and 401(K)s. A typical retirement investor will end up with 8.5% less in his or her 401(K) or IRA after a lifetime of savings that translates to about $20,000,” says U.S. Chamber Center for Capital Markets Competitiveness Executive Vice President Tom Quaadman.
The direct impact is obvious. At the 0.50% rate in Sen. Sanders’ proposed FTT, an investor would pay $50.00 to buy 100 shares of a $100.00 stock. This is almost 10 times the typical commission currently paid for such a trade.
For institutional trades by mutual funds and pension funds, the ITG unit of Virtu Financial estimates institutional commission at 0.035% for U.S. stocks, the lowest in the world. The 0.50% proposed by Sen. Sanders is more than 10 times the commissions
paid by institutional investors.
Sanders may not understand how draining this tax is. In addition to hurting individual and institutional investors, Angel adds:
- Every state, city, town, school, and water and sewer district is affected. Indeed, every person in the United States is affected.
- Producers such as farmers, airlines, and manufacturers will incur much higher costs in hedging their business risks, which will lead to higher costs to consumers for food, travel, and household items.
- Would-be homeowners will face higher mortgage payments when they go to buy a house. The yields on mortgage-backed securities will go up because of both the direct impact of an FTT on the cost of trading them and the impact of an increase in benchmark Treasury rates. Because the rate on home mortgages is related to the yields on these mortgage-backed securities, an FTT will be passed on to homeowners through higher mortgage rates.