Recent efforts by congressional Democrats to reintroduce the Financial Transaction Tax (FTT) threaten the very constituents our elected leaders are supposed to serve – hard-working American families investing for their futures. Modern Markets Initiative is on the front lines educating legislators, regulators and the investing public about the economic repercussions associated with such a tax.

Key Resources

FTT Pension Fund Analysis for New York and South Dakota
By Kevin Kang, New York University

Financial Transaction Tax Analysis: Myths vs. Realities What They Aren’t Telling You

MMI, Financial Transaction Tax – An Overview and Status Update

Get a slide-by-slide overview of the FTT’s adverse impact and economic toll.

Pensions & Investments, “Pension Funds Cannot Afford Sanders’ Tax on Financial Transactions”, July 23, 2018

“Instead of becoming a way to collect a pound of flesh from Wall Street, the tax on trades ultimately would become an additional tax on savings for anyone participating in a pension plan or similar fund. They would pay the tax directly, and market intermediaries would need to charge more to pass the additional cost through to investors. We might as well consider it a one-two punch.”

What Experts are Saying About the FTT

“High-frequency trading plays a critical role. When you put a tax on transactions, you risk damaging liquidity. As mutual fund investors we rely on having liquidity,” he added. “A drop in liquidity is bad for fund shareholders.”
– Tim Buckley, Chief Investment Officer, Vanguard Group

“Quite frankly, an FTT is a terrible idea. It would harm all investors, especially middle-income American workers saving for retirement. We have yet to see a FTT proposal that would not hurt Main Street nor weaken our capital markets.”
– Investment Company Institute, a trade group representing 90 million investors in US mutual funds

“The fundamental problem with FTTs is that they are distortionary; for example, by driving down stock prices, they make raising capital more expensive for firms. In the long run, this lowers labor productivity and wage levels.”
– Kenneth Rogoff, Professor of economics and public policy at Harvard University and past chief economist of the International Monetary Fund from 2001-03

“Seemingly small changes such as a financial transactions tax can cause considerable damage far from Wall Street, harming both investors and American businesses and impeding job recovery and growth.”
Professors Charles Jones and Erik Sirri, in a paper for the U.S. Chamber of Commerce

“The most troubling outcome (of a financial transaction tax) could be that consumers, mom and pop investors, pensioners and end users (those actually using markets to hedge their legitimate business risk) wind up being victims of such a mindless—perhaps momentary lapse of reasoned—policy.”
– Bart Chilton, Former CFTC Commissioner

“Politicians think of this (financial transaction tax) as a tax on the guys that caused the financial crisis. It’s a tax on investors.”
– Keith Lawson, senior counsel at the Investment Company Institute

“(Financial transaction taxes) wind up being paid for by the mom-and-pop investors at the end of the day.”
– James J. Angel, Associate Professor of Finance, Georgetown University

“We found a significant increase in the bid-ask spread. There is also evidence of an increase in the volatility of the taxed stocks.”
– European Central Bank study on the Italian Financial Transaction Tax

“The evidence from Europe over the past few years suggests a financial transaction tax in the UK would be one of the most catastrophic regulations ever to hit the financial sector.”
– Ben Wright, Group Business Editor, The Telegraph

“…highly risky and costly to all investors to introduce an FTT of any design.”
– Jim Toes, Security Traders Association President and CEO

“There are few taxes that are as damaging and counter-productive as transaction taxes. Even before Adam Smith, all economists understood that economic progress is generated by trade: it leads to the division of labour, the division of knowledge and the creation of wealth. Transaction taxes … reduce trade and economic exchanges, and hence slow down economic improvements.”
– Allister Heath, Deputy director of content and deputy editor at The Telegraph

“A tax which would damage savings, reduce liquidity and cut economic growth whilst being unlikely to raise much revenue anyway just does not seem worth it.”
– Adam Memon, Head of Economic Research at the Centre for Policy Studies

“An FTT affects the economy … that over the long term it actually reduces, not increases, tax revenue.”
– Tim Worstall,

“New life for a bad idea”
– The Economist, regarding revived financial transaction tax discussions among the European Union

“… an FTT will actually produce lower government revenue due to falling profits in the financial industry. And that benefits precisely no one.”
– Professor Moorad Choudhry, Head of Business Treasury, Global Banking & Markets, Royal Bank of Scotland

“Hillary Rodham Clinton has now followed Bernie Sanders and Martin O’Malley in calling for a tax on the traders who, they complain, use their high-speed computers and expensive data lines to pick the pockets of ordinary investors. The odd thing about all this concern is that most of the investors who are actually facing off against the high-frequency traders — often on behalf of retirement savers — don’t see this as anything like the most costly problem they are facing, even in the arcane realm of trading mechanics.”
– The New York Times

“An FTT will create unintended investment incentives and undermine sound asset management principles such as diversification, proper hedging and efficient execution. Perversely, as a result of an FTT, active portfolios will be forced to take higher levels of risk and/or invest to a greater extent in derivatives in order to deliver the same level of return to clients. It will also reduce market liquidity and increase volatility, further hurting investment performance for pensioners and savers.”
– BlackRock

“A FTT at the rates being proposed and adopted elsewhere would discourage all trading, not just speculation and rent seeking. It appears as likely to increase market volatility as to curb it. It would create new distortions among asset classes an across industries. As a tax on gross rather than net activity, and as an input tax that is not creditable and thus cascades, the FTT clearly can most optimistically be considered a second-best solution.”
– Tax Policy Center

“Empirical evidence provides little indication that a transaction tax would reduce volatility. In fact, a number of research studies have concluded that higher transaction costs are associated with more, not less, volatility.”
– Congressional Budget Office

“Little evidence is found to suggest that an FTT would reduce speculative trading or volatility. In fact, several studies conclude that an FTT increases volatility and bid-ask spreads and decreases trading volume. Furthermore, a number of challenges associated with the design and effectiveness of an FTT could limit the revenues that FTTs are intended to raise. For these reasons, countries considering the imposition of FTTs should be aware of their negative consequences and the challenges involved in implementation.”
– Bank of Canada

“However, Italy’s experience shows that while this sort of tax … is effective at reducing trading volumes, it isn’t very good at raising money.”
– Assistant Professor Noah Smith, Stony Brook University

“Many developed nations, including the United Kingdom, Germany and Japan have imposed transactions taxes on securities trades, and their experience suggests that the alleged benefits of the tax are likely to be small while the resulting costs and distortions would be large.”
– Burton G. Malkiel, author of “A Random Walk Down Wall Street”

“The FTT would negatively impact the real economy and pensioners would bear the costs.”
– PensionsEurope, an organization with 24 member associations in 19 EU Member States and 3 other European countries with significant workplace pension systems.

“It appears that some in Congress may think that the only people who invest are super rich. But there are 80 million American workers who are investing for their future in their 401(k). At a time when there is so much concern about retirement income adequacy and the impact of 401(k) fees, it’s stunning that some members of Congress would attack the retirement savings of hard-working Americans.”

-Brian Graff, CEO of The American Retirement Association

The Hidden Cost of a Financial Transaction Tax

The following report on the FTT provides an in-depth, extended look into what this tax really means for pension funds and all investors: