March 25, 2023

Lawmakers should avoid impulse to tax all stock trades

U.S. amateur traders have blown up traditional Wall Street maneuvers – and the entire world is watching. Last week, amateur retail investors banded together to buy traditionally unassuming stocks including GameStop, AMC, Bed Bath & Beyond and Nokia. Although their goal may have been to stick it to short-selling wealthy hedge funds, the result was market instability.

The episode sent Wall Street into a tailspin, and it’s just the latest rebellion against long-established, big institutions in this country.

Already, conversations about the events are shaping discussions around public policy and the role our lawmakers should play in regulating Wall Street. Several of the Democratic Party’s most progressive members of Congress have already taken to Twitter and the airwaves to share their opinions on what needs to be done. And while well-intentioned, many of these proposals represent a fundamental misunderstanding of whose money is managed by Wall Street.

Minnesota Rep. llhan Omar, for instance, tweeted, “A small tax – 0.1% – on each Wall Street trade would reduce high-frequency trading, a practice which drains profits from retail investors and benefits only the very rich.” She added that a financial transaction tax, or a tax on buying and selling stocks, bonds, and other financial contracts, would help to even the playing field between retail investors and large hedge funds, helping to prevent the super-rich from getting richer while lower income Americans struggle.

Her heart is in the right place, but a financial transaction tax would not penalize the wealthy individuals and high-volume traders as intended. Instead, middle- and lower-income households would feel the biggest impacts.

Pensions, 401(k)s, 529 educational savings, and retirement funds: Few people understand that these funds are typically managed by Wall Street companies and they are traded often to maximize investments. The folks investing in these savings are not wealthy by any means. They are teachers, union employees, parents, firefighters, and small-business owners, working daily to support our communities and their families. For the most part, they are not some C-suite executive trying to capitalize and grow their already-excessive funds.

Middle- and lower-income Americans, specifically those in minority communities, have felt the largest financial impacts of the coronavirus pandemic, experiencing hardships as a result of higher unemployment and economic uncertainty. According to Pew Research, 25% of U.S. adults said they or someone in their household was laid off or lost a job because of the pandemic and 32% have experienced reduced hours or took a pay cut. These statistics are even more distressing among lower-income families, with 47% experiencing job loss, pay cuts, or both. This is compared to 42% of middle-income and 32% of upper-income adults. And these economic implications are obviously impacting the ability to save and pay bills among these same communities.

Now is not the time for our lawmakers to be taxing retirement funds to get back at Wall Street. A financial transaction tax would be a misguided fix, and wealthy individuals will continue making money while we further put our middle- and lower-income households at a disadvantage, jeopardizing their retirement funds and savings.

Recent happenings on Wall Street rightfully spark conversations around fairness within our capital markets and the influence of America’s wealthiest individuals. However, I would caution my fellow Democrats against any knee-jerk reactions. Instead, lawmakers must work with President Joe Biden and focus on economic policies that lift minorities and middle- and lower-income families, helping them to recover from this devastating pandemic.

This article was originally published on Lawmakers should avoid impulse to tax all stock trades

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