SB 105-14: Financial Transaction Tax Act (Passed)

[The world will shine with light in our nightmare]

AN ACT
To impose a tax on certain trading transactions

Be it enacted by the Senate of the Republic of Atlasia assembled

Section I. Title

1. This act may be cited as the Financial Transaction Tax Act.

Section II. Purpose

1. To impose a tax on trading transactions to invest in our country, to expand opportunities for our people, and to reduce market volatility.


Section III. Tax on Trading transactions

A.) There is hereby imposed a tax on the transfer of ownership in each covered transaction with respect to any security.

 B.) Rate of Tax - The tax imposed under subsection (A) with respect to any covered transaction shall be the applicable percentage of the specified base amount with respect to such covered transaction. The applicable percentage shall be—


   (1) 0.5 percent in the case of any share of stock in a corporation or any partnership or beneficial ownership interest in a partnership or trust.

   (2) 0.10 percent in the case of any note, bond, debenture, or other evidence of indebtedness, other than a State or local bond the interest of which is excluded from gross income.

   (3) 0.005 percent in the case of any evidence of an interest in, or a derivative financial instrument, any derivative financial instrument with respect to any currency or commodity including notional principal contracts, and any other derivative financial instrument any payment with respect to which is calculated by reference to any specified index.

Section IV. Exemptions

The provisions of this act shall not apply to individuals who’s income for the taxable year is $60,000 or less.

Section IV. Effective Date

The provisions of this act shall apply to taxable years beginning after December 31, 2021.

Sponsor: Western Democrat

The gentleman from Oregon is recognized.

[WD]

The purpose of this bill is to implement a financial transaction tax. This tax will work to further curb income inequality, generate further revenue to invest in and empower the working class of this country, and will act as a disincentive towards high-frequency trading; which is a prominent driver of market instability.

(Now, this is taken from a RL proposal from 2019, and analysis of a financial transaction tax indicates that it would, in precise terms, generate an estimated $220 billion per year in revenue.)

[The world will shine with light in our nightmare]

I'll have to take a closer look at the text, but I do support the aims of this legislation and it's great that we already have a CBO score for this to boot!

[GM Team Member and Senator WB]

Has labor seriously not already passed this? I’m surprised! Anyway, as Scott stated, I’m personally  in favor of the general thrust of this bill.

[AGA]

This tax was an utter failure in Sweden and would bring the stock market down substantially. I strongly oppose this.

[The world will shine with light in our nightmare]

AGA is right. More than 90% of Swedish stockholders moved from Stockholm to London, and as a result the revenue generated was much less than had been anticipated.

Does the sponsor have an answer to these concerns?

[Continential]

It also tells a lot when the Swedish Left Party, if I recall correctly opposes the reinstatement of the tax.

[GM Team Member and Senator WB]

I think the one difference you could point out is that Atlasia's economy is far more impactful than Sweden's. You aren't missing out on a big market if you move out of Stockholm. You are if you're moving out of NYC or Nyman. Maybe I'm completely misunderstanding how this works though. I'm not super well versed in economics of this type.

That being said this is a serious criticism that makes me question my support of such a measure now.

[WD]

AGA is right. More than 90% of Swedish stockholders moved from Stockholm to London, and as a result the revenue generated was much less than had been anticipated.

Does the sponsor have an answer to these concerns?

To respond to the Senator from New York’s concerns, I would simply say that Sweden is just one case. There are well over 30 countries that have a FTT. France, Italy, Belgium, Finland, etc... None of these countries have witnessed a mass exodus of stockholders, and there has been no real negative economic repercussions.

The study I originally linked takes into account the possibility of trading volume decline and usual rates of tax avoidance, and determines that this would be equivalent to a near 50% decline in trading revenue. Even when this is all taken into consideration, a substantial amount of revenue would still be generated.

Based on this evidence, we conclude that a US FTT operating at the tax rates stated above would generate about $500 billion per year, assuming that no decline in trading volume occurs; and $250 billion per year, assuming that a combination of trading volume decline and tax avoidance generates the equivalent of a 50 percent fall in trading revenue.

Regardless of how you think this may affect the stock market, the fact is, substantial amounts of revenue will be generated from this tax.

One additional argument I would make is that the effects of this tax on liquidity are unlikely to be significant. Generally, a market is liquid the smaller the Bid/Ask spread is, and for decades the BA spread on the NYSE, for example, has been steadily declining, and there is no reason to think that this FTT, with it’s rates as meager as they are would substantially reverse that.

[AGA]

This bill would eliminate high-frequency trading, which plays an important role in helping stocks reach their most efficient market price. This would also lower the value of people's retirement accounts if they are invested in stocks, and the exemption in section IV creates a tax cliff that could cause people to avoid getting a raise in certain rare situations. How would section IV even be implemented if this isn't an income tax?

[WD]

First of all, the vast majority of stock owners are, simply put, wealthy. Numerous studies have shown that well over 80% of stocks are owned by the richest 10%. Forgive me if the financial security of the richest and most well off in society is not my foremost concern. As this paper on wealth trends states:

The top 10 percent of families as a group accounted for about 85 to 90 percent of stock shares, bonds, trusts, and business equity, and over 80 percent of non-home real estate. Moreover, despite the fact that almost half of all households owned stock shares either directly or indirectly through mutual funds, trusts, or various pension accounts, the richest 10 percent of households controlled 84 percent of the total value of these stocks, though less than its 93 percent share of directly owned stocks and mutual funds.

Now, the purpose of the exemption was to ensure the tax was as targeted towards wealthiest individuals as possible, (Even then, this tax would still disproportionately affect the highest of all income earners) but if the Senator would like to offer an amendment to strike the section from the bill, I would not object.

[AGA]

Senator WD has shown that most stocks are held by wealthy individuals, not that most people who own stock are wealthy. Considering that most Atlasian adults have own shares of some kind, it doesn't seem possible for the latter to be true. This bill would affect anyone with a retirement account that holds any of the financial instruments targeted by the bill, even if they don't pay the tax directly.

I am not against the idea of Section IV; I am just unsure of how it would be implemented. A much easier way to relieve the tax burden on the middle-class would be to make the first $X in transactions exempt from the tax. This would eliminate both the need for reporting income to a broker and the tax cliff. Therefore, I offer this amendment.

Section IV. Exemptions

The provisions of this act shall not apply to the first $10,000 worth of covered transactions made by an individual in any given year.individuals who’s income for the taxable year is $60,000 or less.

Section IV.V. Effective Date

The provisions of this act shall apply to taxable years beginning after December 31, 2021.

[Southern Senator North Carolina Yankee]

AGA is right about the taxation cliff, this is similar to the benefit cliff that Shua long sought to eliminate in our programs as do provide terrible economic incentives for people earning just below or just above the break points.

[WD]

Amendment is friendly.

[The world will shine with light in our nightmare]

Senators have 24 hours to object to the amendment.

[Senator-elect Spark]

I can tell you I support no new taxes.

[The world will shine with light in our nightmare]

Hearing no objection, the amendment is adopted.

[WD]

Side note: Assuming this is passed, it would be incorporated into the (currency unfinished) budget for FY2022?

[The world will shine with light in our nightmare]

Side note: Assuming this is passed, it would be incorporated into the (currency unfinished) budget for FY2022?

If it goes into effect on December 31st, then yes.

[Senator-elect Spark]

Passing this tax would severely limit investment in the economy.

[WD]

In the interest of expediting the already arduous budget process, I offer this amendment:
 

AN ACT
To impose a tax on certain trading transactions

Be it enacted by the Senate of the Republic of Atlasia assembled

Section I. Title

1. This act may be cited as the Financial Transaction Tax Act.

Section II. Purpose

1. To impose a tax on trading transactions to invest in our country, to expand opportunities for our people, and to reduce market volatility.


Section III. Tax on Trading transactions

A.) There is hereby imposed a tax on the transfer of ownership in each covered transaction with respect to any security.

 B.) Rate of Tax - The tax imposed under subsection (A) with respect to any covered transaction shall be the applicable percentage of the specified base amount with respect to such covered transaction. The applicable percentage shall be—


   (1) 0.5 percent in the case of any share of stock in a corporation or any partnership or beneficial ownership interest in a partnership or trust.

   (2) 0.10 percent in the case of any note, bond, debenture, or other evidence of indebtedness, other than a State or local bond the interest of which is excluded from gross income.

   (3) 0.005 percent in the case of any evidence of an interest in, or a derivative financial instrument, any derivative financial instrument with respect to any currency or commodity including notional principal contracts, and any other derivative financial instrument any payment with respect to which is calculated by reference to any specified index.

Section IV. Exemptions

The provisions of this act shall not apply to the first $10,000 worth of covered transactions made by an individual in any given year.

Section V. Effective Date

The provisions of this act shall apply to taxable years beginning after December 31, 2022.

[The world will shine with light in our nightmare]

Senators have 24 hours to object to the amendment.

[The world will shine with light in our nightmare]

Hearing no objection, the amendment is adopted.

[WD]

Motioning for a final vote

[Joseph Cao]

I like the concept and both WD and AGA have given some good points while alleviating most of the concerns raised. I'd have to look further into it but the bill looks decent at the moment.