An Excerpt From:
K&L Gates Global Government Solutions ® 2012: Annual Outlook
January 2012
Tax
The Securities Transaction Tax: A Global Pandemic?
In November 2011, U.S. Senator Tom Harkin (D-IA) and Representative Peter
DeFazio (D-OR) introduced companion bills, S. 1787 and H.R. 3313, which
would impose a 3-basis-point tax on securities transactions. Reaction by U.S.
policymakers to the legislation, the “Wall Street Trading and Speculators Tax Act,”
has been lukewarm at best—even among Democrats. Such a financial services
transaction tax (STT) would have broad and significant consequences, not only for
the financial services industry, but the economy more generally. A STT would drive
financial transactions to less-regulated and less-capitalized markets, decreasing
the investor protections and increasing the risks associated with such transactions.
Additionally, the cost of a STT would be borne in large part by investors. However,
such proposals should not be quickly dismissed as having limited prospects for
enactment. Such a dismissal ignores the risk of policy contagion in the United States
if the STT gains traction in Europe.
Since the unprecedented financial
events of 2008, there have been
increased systematic efforts to harmonize
financial regulation across the globe. In
particular, the financial regulatory efforts
have been mirrored across the Atlantic
between the United States and European
Union, resulting in a “ratcheting up”
phenomenon. At the November G20
meeting in Cannes, France, French
President Nicholas Sarkozy and German
Chancellor Angela Merkel met with
President Obama to urge his support
for the financial securities transaction
tax. The European Commission, under
the leadership of President José Manuel
Barroso, has proposed a European Unionwide financial securities transaction tax,
under which stock and bond transactions
would be taxed at 10 basis points and
derivatives would be taxed at one basis
point. Given the recent level of global
harmonization with respect to financial
regulation, if the European Union does
adopt a financial transaction tax, there
will be increased momentum to enact a
parallel policy in the United States.
collected from investors by the exchanges
and forwarded to the U.S. Treasury in
order to recover the cost of running the
Securities and Exchange Commission.
Given the magnitude of the budget deficit,
this model could easily be expanded upon
to collect additional sums.
Often overlooked is the fact that the U.S.
government already imposes “Section 31
fees” on securities trades. These fees are
In today’s economic climate, ignoring
possible policy contagion of a financial
securities transaction tax and related
ideas, such as the bank tax, could result
in significant risk. Consequently, in the
new era of global harmonization of
financial regulation, it is necessary for the
financial industry to simultaneously engage
with policymakers in Washington, D.C.,
London, Paris, Frankfurt, and Brussels to
contain the epidemic.
Daniel F. C. Crowley (Washington, D.C.)
dan.crowley@klgates.com
Bruce J. Heiman (Washington, D.C.)
bruce.heiman@klgates.com
Karishma Shah Page (Washington, D.C.)
karishma.page@klgates.com
Additionally, the Harkin/DeFazio
legislation has been cleverly drafted. The
proposed STT of three basis points on
stock and bond transactions would be
less than one-third of the amount of the
European Union proposal of 10 basis
points, addressing concerns about the
global competitiveness of U.S. financial
markets. The proposed transaction tax
would exempt trading of short-term
indebtedness, addressing concerns about
short-term market liquidity. Moreover, bills
introduced by Representative DeFazio in
previous sessions of Congress included
exceptions for retirement accounts and a
tax credit for up to the first $100,000 of
securities transactions per year; inclusion
of such provisions could address concerns
about the burden on individual investors.
K&L Gates Global Government Solutions ® 2012 Annual Outlook
25
Anchorage Austin Beijing Berlin Boston Brussels Charleston Charlotte Chicago Dallas Doha Dubai Fort Worth Frankfurt Harrisburg
Hong Kong London Los Angeles Miami Moscow Newark New York Orange County Palo Alto Paris Pittsburgh Portland Raleigh
Research Triangle Park San Diego San Francisco São Paulo Seattle Shanghai Singapore Spokane Taipei Tokyo Warsaw Washington, D.C.
K&L Gates includes lawyers practicing out of 40 offices located in North America, Europe, Asia, South America,
and the Middle East, and represents numerous GLOBAL 500, FORTUNE 100, and FTSE 100 corporations, in
addition to growth and middle market companies, entrepreneurs, capital market participants and public sector
entities. For more information about K&L Gates or its locations and registrations, visit www.klgates.com.
This publication is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to
any particular facts or circumstances without first consulting a lawyer.
©2012 K&L Gates LLP. All Rights Reserved.