Welcome to DU! The truly grassroots left-of-center political community where regular people, not algorithms, drive the discussions and set the standards. Join the community: Create a free account Support DU (and get rid of ads!): Become a Star Member All Forums Issue Forums Culture Forums Alliance Forums Region Forums Support Forums Help & Search

DanTex

(20,709 posts)
Mon Aug 17, 2015, 04:49 PM Aug 2015

About Bernie's financial transaction tax proposal.

There's been a meme going around that Bernie wants to tax retirement accounts to fund free college. This is not true. Pension funds and 401Ks and the like would be exempt from his tax.

Basically, there are two kinds of financial transaction taxes (FTTs). There are "big" taxes, which are like 0.25% or 0.5% per trade, but which come with a lot of exemptions. And then there are "small" taxes, like 0.02%, but with no exemptions. Both kinds have been introduced into congress, though none have gotten anywhere. For example
https://www.govtrack.us/congress/bills/112/hr3313/text (small, 0.03%)
https://www.govtrack.us/congress/bills/111/hr4191/text (big, 0.25%)

Bernie hasn't, to my knowledge, released the exact text of the FTT he is proposing, but he has stated that he wants a tax of 0.5% per trade, which puts it into the "big" category. This means that retirement accounts are going to be exempt. I haven't googled, maybe he's stated this somewhere, but even if he hasn't, it's still true, because nobody has proposed a FTT of this magnitude without a bunch of exemptions. For the simple reason that the purpose is not to tax retirements, but to tax speculators and high-frequency traders.

In my opinion, a 0.5% FTT is probably a mistake (and also it won't get through congress). The problem with a tax this big is that in order not to damage things you don't want to damage, you need to include a bunch of exemptions. And once you have exemptions, then speculators and hedge funds will get their lawyers to work figuring out how to claim those exemptions. Basically, the people who end up paying the tax are those whose lawyers couldn't get them out of it. Something like 0.02% with no exemptions would make more sense, and also have a chance of passing congress.

Still, a financial transaction tax is a good idea, and it's good that Bernie is talking about it. Realistically, even under politically favorable conditions, I think the best that could get through congress would be maybe 0.01% or even 0.005%. But this would still go a ways in stabilizing financial markets, because if you are in the habit of buying and selling the same stock 100 times a day, 0.01% per trade adds up pretty quickly.

So Bernie's FTT is a mixed bag to me. No, it won't affect retirement accounts. It also won't pass congress. And it won't raise as much money as he wants. But the fact that he is talking about it is a good thing.

30 replies = new reply since forum marked as read
Highlight: NoneDon't highlight anything 5 newestHighlight 5 most recent replies
About Bernie's financial transaction tax proposal. (Original Post) DanTex Aug 2015 OP
HERE Picking Dem Aug 2015 #1
You push for 0.5% and settle for 0.25%. Motown_Johnny Aug 2015 #2
0.25% isn't going to happen either, and with exemptions, it's not what we want. DanTex Aug 2015 #3
Then that is taxing retirements. Motown_Johnny Aug 2015 #6
0.02% will make barely any difference to retirements. DanTex Aug 2015 #7
You can't do it. Motown_Johnny Aug 2015 #19
not necessarily SteveG Aug 2015 #18
That is to nuanced. Motown_Johnny Aug 2015 #20
Any thing to stop the Casino Style trading we have now FreakinDJ Aug 2015 #4
congress will pass none of this stuff lol nt msongs Aug 2015 #5
Well, I'm sure if Hillary is elected they'll give her everything she wants. Vinca Aug 2015 #8
Probably. She does have far more endorsements from the House & Senate than Bernie has gotten. misterhighwasted Aug 2015 #14
Right . . . the House will be Republicans and they'll give her everything she wants. Vinca Aug 2015 #16
The House & Senate will gain DEM seats with Hillary's election. That's due to the effort's of misterhighwasted Aug 2015 #22
Or the reverse could happen. Vinca Aug 2015 #24
Nope. You are wrong. misterhighwasted Aug 2015 #29
We'll see. Only time will tell. Vinca Aug 2015 #30
Like they did for Obama Facility Inspector Aug 2015 #25
Sorry DanTex, I disagree.... Sancho Aug 2015 #9
But if there's an exemption (which there will be) then they won't be affected. DanTex Aug 2015 #10
I don't think the state of Florida will get an exemption..... Sancho Aug 2015 #11
If your union has spoken with lawyers and accountants, you should go with that. DanTex Aug 2015 #13
I'm not an accountant either... Sancho Aug 2015 #15
Imo, an investment should be an investment PowerToThePeople Aug 2015 #12
Agreed, the whole line of "investment" should be discouraged at least some. TheKentuckian Aug 2015 #17
the biggest problem hill2016 Aug 2015 #21
The reason he doesn't go into any detail is because the math doesn't work. misterhighwasted Aug 2015 #23
There has to be another way then free college yeoman6987 Aug 2015 #26
Those concerned about 401ks and IRAs would be better concerned about the 10% early withdrawal TAX! cascadiance Aug 2015 #27
Agree ismnotwasm Aug 2015 #28
 

Motown_Johnny

(22,308 posts)
2. You push for 0.5% and settle for 0.25%.
Mon Aug 17, 2015, 05:12 PM
Aug 2015

But you need to start out from a strong bargaining position to get to something reasonable as a compromise.


DanTex

(20,709 posts)
3. 0.25% isn't going to happen either, and with exemptions, it's not what we want.
Mon Aug 17, 2015, 05:14 PM
Aug 2015

What can happen is 0.01% without exemptions. Starting with 0.5% and a lot of exemptions is the wrong policy, IMO. How about starting at say 0.03%, no exemptions, and settling at 0.01%.

 

Motown_Johnny

(22,308 posts)
6. Then that is taxing retirements.
Mon Aug 17, 2015, 05:22 PM
Aug 2015

I don't think anyone wants that.

The theme here is "Tax The Rich". Taxing everyone isn't going to help. The burden has already been shifted away from where it should be and needs to be shifted back.


DanTex

(20,709 posts)
7. 0.02% will make barely any difference to retirements.
Mon Aug 17, 2015, 05:26 PM
Aug 2015

It will mainly affect speculators, hedge funds, high frequency traders, etc. Once you start building in exemptions, you are opening the door for wall street lawyers.

 

Motown_Johnny

(22,308 posts)
19. You can't do it.
Mon Aug 17, 2015, 10:08 PM
Aug 2015

The (R)s will present it as the tip of the spear. People will vote against it even though it may not even directly affect them.

Tax The Rich.


SteveG

(3,109 posts)
18. not necessarily
Mon Aug 17, 2015, 10:02 PM
Aug 2015

Or at least very little as long as the funds are well managed. The people who will be paying are those that do a lot of trading. The usual exemption is that if you have held the security for over 5 years you will be exempt from the tax if you sell it or trade it for other securities. Those who get hit by this kind of tax are those who create a lot of churn in the market looking for short term gains rather than long term. Retirement accounts are going for the long term gains.

 

Motown_Johnny

(22,308 posts)
20. That is to nuanced.
Mon Aug 17, 2015, 10:09 PM
Aug 2015

The sound bites will be that the (D)s want to tax your retirement.

It is not a politically viable approach.


misterhighwasted

(9,148 posts)
14. Probably. She does have far more endorsements from the House & Senate than Bernie has gotten.
Mon Aug 17, 2015, 06:36 PM
Aug 2015

Sec Clinton will indeed find more favor with a Congress that already sees her as a President with policies they will back up.

Sanders has not much Congressional support for the promises he's making.

Of course Madam President Hillary Clinton will be given what she asks for. And that only comes from those who already recognize her value.
Your post makes sense.

Vinca

(50,170 posts)
16. Right . . . the House will be Republicans and they'll give her everything she wants.
Mon Aug 17, 2015, 08:34 PM
Aug 2015
The Senate could be Republicans, too. If you haven't noticed, they may hate Hillary more than they hate Obama.

misterhighwasted

(9,148 posts)
22. The House & Senate will gain DEM seats with Hillary's election. That's due to the effort's of
Tue Aug 18, 2015, 12:36 PM
Aug 2015

groups like Emily's List that fund and support women in close & critical Senate & House races.
They are now supporting the current women which will, with a win, will give the Dems control of the Senate.

Along with the 118 Congressional endorsements for HRC at this moment, the chances of Hillary coattails changing or narrowing the balance of Congressional power in the Dem favor is very real.
MSM won't be reporting this kinda of news. You have to look a little closer for the inner workings of the political dynamics taking place.


Vinca

(50,170 posts)
24. Or the reverse could happen.
Tue Aug 18, 2015, 01:19 PM
Aug 2015

Hillary's "trustworthy" rating sinks every single time they take a poll. If she doesn't turn things around there might not be any coattails to ride. I wouldn't hold my breath on any House races. The GOP has the districts so gerrymandered it is unlikely the House will change hands until the next census is taken and maybe not then. It depends on who's in the governor's mansion. In any case, if Hillary becomes POTUS nothing much will change because the GOP will continue their hissy fit of blocking legislation. To believe otherwise is silly.

Sancho

(9,065 posts)
9. Sorry DanTex, I disagree....
Mon Aug 17, 2015, 05:36 PM
Aug 2015

Most public employees and unions work for states that have HUGH funds that are traded every day. In Florida, it's 200 Billion traded by 200 traders.
This money is worker retirement, and if those funds fall short the EMPLOYEES will have to pay to make it up. Those are hard earned $s and hard-fought union contracts.
That money would be subject to Bernie's tax (we've checked) and it would cost each employee thousands over 20-30 year careers with thousands of trades!

I have plenty of links:

Bernie Sanders Robin Hood tax
http://www.sanders.senate.gov/download/collegeforallsummary/
Fully Paid for by Imposing a Robin Hood Tax on Wall Street. This legislation is offset by
imposing a Wall Street speculation fee on investment houses, hedge funds, and other speculators of
0.5% on stock trades (50 cents for every $100 worth of stock), a 0.1% fee on bonds, and a 0.005%
fee on derivatives. It has been estimated that this provision could raise hundreds of billions a year
which could be used not only to make tuition free at public colleges and universities in this country,
it could also be used to create millions of jobs and rebuild the middle class of this country.

http://www.thedailybeast.com/articles/2015/05/31/why-free-college-is-really-expensive.html
Additionally, directing that much guaranteed money into a system is a sure-fire way to accelerate cost inflation.

https://www.reddit.com/r/PoliticalDiscussion/comments/36vmm8/what_are_some_legitimate_arguments_against_bernie/
Apparently (according to a tax lawyer who was running around one of the earlier threads), there was no exception for 401k's, meaning that every time the mutual funds in your retirement fund rebalance, which should be a few times a year, you're paying a tax and losing money from your retirement.

Edit: just used the calculator found here to calculate the costs of 0.5% over 40 years assuming you were investing just $5500/year (the max allowable to an IRA). Using these assumptions, this tax would cost you, the average investor, $157,000 over the 40 years you're investing. This is money that I'm sure you'd prefer going towards your retirement.

Note: this isn't 100% accurate as I'm treating this as an addition to the expense ratio which isn't totally correct, but it's a ballpark figure to give the tax some context


http://www.sbafla.com/fsb/

The State Board of Administration (SBA) was created by the Florida Constitution and is governed by a three-member Board of Trustees (Trustees), comprised of the Governor as Chair, the Chief Financial Officer and the Attorney General.
The Trustees, in concert with legislative directives, have ultimate oversight. They delegate authority to the Executive Director/Chief Investment Officer to carry out the strategic direction in the day-to-day financial investments and operations of the agency. The Executive Director/CIO manages approximately 190 professional investment and administrative support staff.
The SBA is required to invest assets and discharge its duties in accordance with Florida law and in compliance with fiduciary standards of care. Under state law, the SBA and its staff are obliged to:
Make sound investment management decisions that are solely in the interest of investment clients.
Make investment decisions from the perspective of subject-matter experts acting under the highest standards of professionalism and care, not merely as well-intentioned persons acting in good faith.


http://www.thefiscaltimes.com/2015/07/08/Pros-and-Cons-Bernie-Sanders-50-Billion-Tax-Idea
http://www.taxpolicycenter.org/UploadedPDF/2000287-Financial-Transaction-Taxes-in-Theory-and-Practice.pdf
http://www.forbes.com/sites/timworstall/2015/07/22/bernie-sanders-doesnt-have-a-case-for-a-financial-transactions-tax-it-would-lose-money/
http://www.nytimes.com/2015/07/22/opinion/the-case-for-a-tax-on-financial-transactions.html?_r=0

DanTex

(20,709 posts)
10. But if there's an exemption (which there will be) then they won't be affected.
Mon Aug 17, 2015, 05:42 PM
Aug 2015

I understand the pension funds are huge, and are managed by many of the same wall street people that are demonized. That is true. And I also get that if 0.5% were charged on all trades of pension funds, that would have a real (small, but real) effect on retirement savings of many workers and union members.

But the fact of the matter is, if a FTT like this passes, pensions and 401Ks are going to be exempt.

Sancho

(9,065 posts)
11. I don't think the state of Florida will get an exemption.....
Mon Aug 17, 2015, 05:50 PM
Aug 2015

while the money is in the hands of the state, it's basically like general revenue. It's not in "my fund". When the state employee retires they have a defined benefit plan.

If the fund that supports the employees falls short, then they reduce the state contribution or increase the employees contribution, but each person doesn't have anything earmarked.

If you have a FTT for many thousands of transaction over decades, the total loss to the fund is thousands of compounded dollars for each employee...it's simply a tax on the entire fund that passed on.

Would you "exempt" all 50 state funds? What about large annuities (like Valic or TIAA-Cref)? In the long run, it's a bad idea to tax funds that eventually go to working people.

My union's analysis with lawyers and accountants have concluded that Bernie's tax is a really, really bad idea. Not to mention that once implemented, it would go up and up.

A better idea would be a tax on capital gains, closing tax loopholes, and regulating international fund transfers.

DanTex

(20,709 posts)
13. If your union has spoken with lawyers and accountants, you should go with that.
Mon Aug 17, 2015, 06:11 PM
Aug 2015

After all, I'm just a guy on the internet. Having said that, I still don't understand their logic.

Even if the money is in the hands of the state, whatever portion of that money is designated as pension money would be exempt from the tax. And even if the money is commingled with other state money, they'd be able to figure out the fraction of it that qualifies for the exemption. This kind of thing is the reason that accountants and tax lawyers get paid.

BTW a tax on capital gains would also affect retirements. Unless, of course, there are exemptions (which there are), but then we're back to the same place we are with an FTT.

Sancho

(9,065 posts)
15. I'm not an accountant either...
Mon Aug 17, 2015, 08:19 PM
Aug 2015

and the actual law is not written. I think the experts are speculating based on what Bernie has proposed and some previous FTTs.

Bernie's proposal would be to pay for college, which is another issue. There's nothing in Bernie's proposal to keep a state from seeing the "free tuition" and raising the state college costs! At least Hillary's plan holds states accountable for the dollars so they can't steal from Washington.

At any rate, in most states it would be almost impossible to untangle all the state fund investments. It's not a "lockbox" like Bush senior used to say. It's a bunch of state money coming from lots of sources and a promise (or contract) to pay out a retirement - but the two are not linked.

If you had an individual account with your own funds (which we call an optional or earned benefit retirement), then an exemption would be possible.

If you had a tax on capital gains or unearned income for individuals with a means test, that might work, but right now it seems the big gorilla in the room is actually the offshore accounts.

TheKentuckian

(24,945 posts)
17. Agreed, the whole line of "investment" should be discouraged at least some.
Mon Aug 17, 2015, 09:52 PM
Aug 2015

That isn't creating value through investment it is gambling on margins. Go play some craps or bet games.

If you want a casino then take that shit to the book or the boat. Maybe if prime interest rates weren't at fucking zero for years and years shenanigans wouldn't be the only way to eke out some returns for the most fortunate.

I'm not seeing much value and if you aren't generating tangible value then it is more scammery than anything else so I'd have little concern about a ban and have none on a little sub one percent tax.

 

hill2016

(1,772 posts)
21. the biggest problem
Mon Aug 17, 2015, 10:26 PM
Aug 2015

is that the numbers don't work.

He claims that it would raise "hundreds of billions of dollar a year".

Let's work backwards.

In order for this to be raising "hundreds of billions of dollars a year", the people doing the trades have to earn enough to cover that (or they wouldn't be doing that). So let's assume they earn $1 trillion a year from trading.

The companies on the S&P 500 earn about $1 trillion +.

So are we supposed to believe that all the evil hedge funds and banks and mutual funds in aggregate earn the same as the entire S&P 500 (obviously banks are already part of the S&P 500).

And once you exempt certain transactions (e.g. 401k, pension plans, foundations, etc) the amount you collect goes down quite a lot.

Nope this is pure pandering to his supporters who love the idea of striking at Wall Street for the sake of the common man.

The reason he doesn't go into any detail is because the maths doesn't work.

misterhighwasted

(9,148 posts)
23. The reason he doesn't go into any detail is because the math doesn't work.
Tue Aug 18, 2015, 12:39 PM
Aug 2015

That would be a good question for Sanders at the Debates.
Explain the math bernie..

 

yeoman6987

(14,449 posts)
26. There has to be another way then free college
Tue Aug 18, 2015, 01:54 PM
Aug 2015

The colleges would love it of course as all the money they use to give to students would be kept for the school. There would be limits on what you can do to get the free education. How long you can go for. Would room and board be covered? The books and fees. The tuition tends to be the least of the overall costs of education. It would probably work like the GI bill that has so many restrictions. I know!

 

cascadiance

(19,537 posts)
27. Those concerned about 401ks and IRAs would be better concerned about the 10% early withdrawal TAX!
Tue Aug 18, 2015, 02:04 PM
Aug 2015

That so many of us who have lost our savings have been having to deal with when forced to dip in to early withdrawals from our 401ks and IRAs that we never thought we would have had to do if we hadn't had the problems we've had with the economy and job instability we've had over the years. I'm pushing to our senators and congress people the following reforms that would help people out who only have 401ks and IRAs left as assets now far more than being worried about the effects of financial transaction taxes.

The following should be changed that would help many of us that have to live in an economy that has a lot of short term contract jobs that employers are opting to now instead of permanent jobs to serve as a stop gap until they can corrupt congress in to passing expansion of H-1B and H-2 "guest worker" programs that they can shift their hiring to.

1) There currently is a provision that allows ones' health insurance payments (COBRA, etc.) to be used to write off the 10% penalties they pay on early withdrawals of an IRA. But the current terms of this requires that one needs to be unemployed 12 STRAIGHT weeks to qualify for that deduction. If one is unemployed twice for two months each, you don't get this deduction! Take away the 12 straight weeks and make it "cumulative" instead, and you'd save a LOT of people that deserve these extra taxes least a lot on their taxes. And I think getting legislation on this should be doable by telling Republicans who want to be reelected that by changing this they would help themselves be able to tell their constituencies that they would:

a) Stop incentives for people to stay unemployed, and therefore collect unemployment for over three months, that this law incentivizes many who might otherwise want to get hired earlier.

b) Reduce taxation on people (even if it isn't for the rich people that want tax reduction to be focused on the rich).

2) Currently for 401ks, you can take an early distribution from a 401k you have if you are over 55 and not have to pay the 10% penalty as long as you have a plan run by a company you were working for when you were over 55. If you have an earlier 401k that is run by a company that you left before you were 55, even if you are 55 or over now, you don't qualify. With many people having to work temporary contract jobs now instead of permanent jobs, getting a 401k in these circumstances that one can roll such a 401k in to doesn't happen. So those who rely on contract work are screwed here too!

FIX these issues, and you will help those with 401ks a LOT more than being concerned of the very small increases of costs through transaction taxes. 401k funds that are traded for us and are investing in funds that are truly well run and going to grow in this economy won't suffer much as they won't need the heavy speculative trading that these transaction fees are targeted towards in terms of where most of the revenue will be raised. Speculative trading is what will be more expensive with these fees, and there really isn't a "good use" case for speculative trading except for those who want to turn Wall Street in to a casino that only benefits rich insiders.

ismnotwasm

(41,921 posts)
28. Agree
Tue Aug 18, 2015, 02:07 PM
Aug 2015

It's good he starts the dialogue, but I don't see how it would pass congress.

Edit: great conversation above!

Latest Discussions»Retired Forums»2016 Postmortem»About Bernie's financial ...