Much has been written since presidential candidate Hillary Clinton released her financial markets reform plan, “Wall Street Should Work for Main Street”. One item which has received acute criticism is her proposed financial transaction tax, or “FTT”, on high-frequency trading. Mrs. Clinton is not the first political figure to recommend an FTT, but she is the first to design one with the nuanced attribute that a tax on financial transactions cannot raise revenue AND curb certain types of trading behaviors which policymakers deem a threat to the stability of financial markets. According to an article in the Huffington Post, the point of Mrs. Clinton’s FTT:

“..is not to generate revenue, campaign sources say, but to curb risky and abusive behavior on Wall Street. If the tax worked, risky trades would diminish. The result would be paltry funds for the U.S. Treasury, but a stronger financial foundation for the American economy”.

“Determining what is and what is not a threat to our financial markets is best left to the regulators. Determining how to eradicate dangerous behavior in the financial markets is also best left to the regulators. Our markets are not perfect, but they are highly competitive and serve individual investors well.”

To be clear, the STA opposes FTTs because we believe they end up being paid by the end investor in the form of the FTT being directly passed on to them or in the lower performance on their investment vehicles which are impacted by this cost. FTTs which espouse to raise reliable revenue AND curb behavior deemed to be a threat increase the costs to individual investor because the likelihood of the FTT accomplishing both goals is extremely low. Presidential candidate Senator Bernie Sanders earlier this year proposed an FTT that:

“…could raise $50 billion dollars per year and at the same time reduce market volatility by making speculative activity more costly — potentially driving what some advocates call unproductive speculators out of the market”.

Senator Sanders’ proposal carries a revenue expectation that would finance a project or cause, like free college. In addition, his FTT, if effective in curbing the trading behavior it was intended to eradicate, would result in participants engaging in this behavior to stop. At this junction, the question then becomes, who is left to pay the FTT? Answer: the individual investor whose behavior was never deemed necessary to curb.

Regarding Mrs. Clinton’s FTT, while I acknowledge it only claims to seek one goal of addressing a certain behavior, it is using our tax code in ways it should not be used. Determining what is and what is not a threat to our financial markets is best left to the regulators. Determining how to eradicate dangerous behavior in the financial markets is also best left to the regulators. Our markets are not perfect, but they are highly competitive and serve individual investors well. It is therefore highly risky and costly to all investors to introduce an FTT of any design.