securities transactions tax (STT) is a tax imposed on the buyer and/or seller
of a security at the time a securities transaction occurs. An STT can be
applied to all security traders or selectively to only certain types. An
STT can be applied across the board to all securities transactions, or only those
involving specific types of securities, for example, stocks, options, and
futures, but not bonds. While an STT can come in many different forms,
there are two justifications commonly offered for imposing a tax of some
sort on financial transactions: it would improve financial market
operations and/or it would be a significant source of revenue.
A number of STT proposals have been introduced in the last two Congresses. H.R.
1125, introduced in the 112th Congress, proposes a 1.00% transaction “fee”
that would encompass all transactions in the economy, not only securities
transactions. Also introduced in the 112th Congress are H.R. 3313, H.R.
3638, H.R. 5727, S. 1787, and S. 2252, which would impose a three-basis-point
tax (0.03%) on non-consumer transactions involving stocks, bonds, futures, options
swaps, and credit default swaps. According to a joint press release by
Representative Defazio and Senator Harkin (sponsors of H.R. 3313 and S.
1787), the Joint Committee on Taxation has estimated that a 0.03% STT
could raise $352 billion between 2013 and 2021.
In addition, several bills proposing an STT were introduced in the 111th Congress,
including H.R. 676, H.R. 1068, H.R. 1703, H.R. 3153, H.R. 3379, H.R. 4191,
H.R. 4646, and S. 2927. In response, 36 House Members sent a letter to
then-House Committee on Ways and Means chairman Charles Rangel and current
Ways and Means chairman Dave Camp expressing their opposition to an STT.
And, according to press reports at the time, U.S. Treasury Secretary Timothy
Geithner questioned whether an STT would work. Then Speaker of the House Nancy Pelosi
had expressed interest in the idea of an STT if pursued in coordination with
This report analyzes the general effects of an STT on financial markets and its
ability to raise revenue. The analysis examines how the tax could impact
the important functions of financial markets—the determination of security
prices, the spreading of risk, and the allocation of resources. The
analysis of the financial markets then turns to examining how the tax may have
an impact on security price volatility and the level of security prices.
The ability of an STT to raise revenue is dependent on the design of the tax,
but illustrative estimates presented in this report suggest that an STT
similar to recent proposals could raise a significant amount of revenue.
At the same time, there is a debate among economists about how responsive
markets would be to a tax, and therefore how much revenue could be raised. The analysis
in this report highlights the fact that the economic burden of the tax would
ultimately fall on individuals, and it would likely fall more heavily on
short-term traders than long-term traders. Finally, the analysis suggests
that the tax may contribute to the progressivity of the tax code.
Date of Report: June 12, 2012
Number of Pages: 26 Order Number: R41192 Price: $29.95 Document available via
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