What is a financial transaction tax?
A financial transaction tax (FTT) is a tax on the buying and selling of stocks, bonds, and derivatives.
What is the motivation behind instituting a financial transaction tax?
The motivation behind some proposed FTTs is to tax big banks and financial institutions in order to pay for social programs, while others have been proposed to curb high frequency trading. The reality is that this type of tax actually lands on everyday investors and working families, and would not actually bring in as much revenue as promised by those who propose them.
Who would this tax effect?
While financial transaction taxes are commonly touted as way to tax Wall Street or a tax on the rich, this type of tax extends far beyond the top 1%, hitting Main Street the hardest. More than half of all U.S. households have exposure to stocks, either directly or indirectly through mutual funds and retirement accounts, meaning this type of tax would hit everyday investors, public employees, seniors and retirees, parents and children, and union members.
What types of accounts would actually be taxed?
An FTT would tax both actively and passively managed accounts, which essentially impacts virtually every way that Americans save. It would be levied on accounts including:
- 401(k) retirement savings plans
- 529 educational savings plans
- 403(b) plans, commonly available to employees of public schools, employees of 501(c)(3) tax-exempt organizations and religious institutions.
- Pension plans organized by unions or large employers
How much money could be lost from retirement savings accounts as the result of an FTT?
The average 401(k), pension plan, and state college savings accounts could see enormous losses if an FTT is enacted. Over a lifetime of savings, a 401(k) would lose an estimated $65,000; a state pension could lose upwards of $100 million; and a state college savings plan could face losses of up to $19 million.
How could this tax impact my ability to retire?
The tax could delay retirement for the average working American by two and a half years.