The Vermont senator’s proposal would tax stock trading at 50 basis points and bond trading at 10 basis points, and apply a half-basis-point tax on derivatives transactions. The estimated $2.4 trillion in revenue it would raise would then be used to cover the $2.2 trillion cost of eliminating all U.S. student debt and undergraduate tuition and fees at public colleges, according to Sanders.
That revenue figure is up for debate. A 2017 study published by the European Central Bank found that a tax on equity trading in France decreased trading volume by around 10% and fell short of generating expected revenues.
A financial-transactions tax of 10 basis points would generate $777 billion of additional revenue over the next decade, the Joint Committee on Taxation said last year. The tax would probably increase volatility, and increase the Treasury’s cost to issue debt, according to the Congressional Budget Office. Household wealth also would decline with the decrease in asset prices, which could lower consumption.
Applying taxes to stock, bond and derivatives trades could also change investor behavior, according to Andrew Silverman, a Bloomberg Intelligence government analyst.
“Fifty basis points on stock trades would severely crimp liquidity!” said Steve Sosnick, chief strategist at Interactive Brokers. Market participants might move to options for the lower tax rate, making them more liquid than the underlying stock, he said. “A tail that wagged the dog that much would become very unstable.”
The economic threat of increasing student debt has become a hot topic on the campaign trail, and Sanders’s Democratic rival Elizabeth Warren has also introduced a plan to forgive outstanding loans.
Student debt loads have tripled since 2007, eclipsing car loans and credit cards as Americans’ second-largest source of household debt behind home mortgages, Federal Reserve data show. About 1 in 9 borrowers is at least 90 days late on payments, the highest delinquency rate among any form of household debt, according to the Federal Reserve Bank of New York.
Policy makers such as Federal Reserve Chairman Jerome Powell and executives such as JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon have worried aloud that young Americans’ indebtedness is hurting the housing market, where most Americans build their wealth. Blackstone Group Executive Vice Chairman Tony James is pushing for a new model of financing college that does away with student loans.
Still, that didn’t generate much appetite for Sanders’s plan on Wall Street.
"EVERY time a significant transaction tax has been tried, it has either been gutted or eliminated due to its failure to collect anything close to projected revenue and its impact on capital markets," tweeted Dave Weisberger, who’s held senior trading roles at firms including Two Sigma Securities and Citigroup Inc.
This story provided by Bloomberg.